‘Forward-thinking’ or race to the bottom?: SBTi indicates weakening of carbon offset restrictions

Earlier this year, the initiative revealed that more than 200 businesses that had indicated plans to verify their emissions reduction goals as 1.5C-aligned in the near-term and net-zero aligned in the long term were unable to do so within the required 24-month window.

A survey of these businesses revealed that credibly measuring and appropriately planning to significantly cut Scope 3 (indirect) emissions was the biggest shared challenge. 54% of the firms polled identified Scope 3 measurement and management as a top barrier to target setting.

Alignment with the SBTi’s Net-Zero Standard for corporates, launched in October 2021, notably requires an intention to cut absolute emissions across all scopes by at least 90% by 2050 or sooner.

In what appears to be a reaction to these findings, the SBTi has this week confirmed that its work to revise and update the Net-Zero Standard will likely lead to changes which will enable businesses to more extensively use carbon offsetting to address Scope 3 emissions.

It has previously placed strict limits on offsetting, because this space has been largely unregulated.

The Initiative has now stated that carbon offsets – and other environmental certificates –  “could function as an additional tool to tackle climate change when properly supported by policies, standards and procedures based on scientific evidence”.

Offsetting, in the SBTi’s view, will now be framed as “a way to accelerate the decarbonisation of value chains… while companies make their way to eliminate carbon emissions at the root”.

Further details will be issued by July but information is sparse at the moment. This has not served to quell debate within corporate sustainability circles; if anything, it has opened ample room for further debate and questioning.

Indeed, Reuters has reported that the news has created an internal rift within the SBTi, with some calling for chief executive Luiz Amaral to be ousted.

‘Healthy debate’

Carbon offset verifiers and providers are, as you would expect, celebrating the SBTi’s statement – as are CSR consultancies which help businesses to shape their carbon reduction and offsetting strategies.

Carbon market advocacy group IETA has stated that the SBTi’s move “offers a practical route for corporates to engage in climate action, fostering demand for trustworthy credits and delivering more climate finance to developing countries”.

Similarly, carbon data provider Sylvera’s VP for policy Ben Rattenbury has said: ”The world can’t afford this transition without carbon credits, so it’s very encouraging to see SBTi open the door for companies to be able to use them for a proportion of their Scope 3 emissions reductions targets – while respecting the mitigation hierarchy.”

Proponents of carbon credits often highlight how they are a means to funnel funding for nature, cleantech and low-carbon solutions into low-income nations. Opponents tend to highlight instances whereby credit schemes have not delivered the promised climate benefitsv and cases of alleged human rights abuses and neo-colonial practices on credit generation project sites.

A further aspect to this live debate is around the extent to which the use of carbon credits by businesses can truly be considered ‘science-based’. Will businesses use credits to simply grab a ‘get-out-of-jail-free’ card and avoid doing the hard but necessary work to cut absolute emissions?

Some research has found that businesses involved in offsetting actually reduce emissions more quickly than their peers. This finding has been cited repeatedly by influential bodies including the We Mean Business Coalition.

But the UN’s High-Level Expert Group on net-zero claims believes the use of credits as a ‘silver bullet’ is a real risk. In its advice to organistaions other than national governments published in late 2022, the Group stated that businesses should avoid using credits in carbon accounting to balance value chain emissions. Instead, it wants businesses to only use credits to back additional climate benefits that are not included in their carbon accounting.

This is also partly due to the lack of regulation of the market and given that there is not yet a single end-to-end standard for credibility.

Regulating the ‘Wild West’

It bears highlighting that the SBTi will not be validating carbon credit quality and credibility. This will continue to sit with existing third-party verification bodies like Gold Standard, Verra and CDM.

The SBTi will, however, establish guiderails for when businesses should and should not use offsets. For example, using carbon credits in an attempt to compensate for a project like a new coal mine would be inappropriate. Similar guidelines will be unveiled by IETA later this month.

In the meantime, the Voluntary Carbon Markets Integrity Initiative (VCMI) and the Integrity Council for the Voluntary Carbon Market (ICVCM) are working collaboratively to firm up a shared set of guidelines for all parts of the market.

It remains to be seen whether the SBTi’s changes will, in practice, lead to corporates purchasing credits to a greater extent. Research published last month revealed that 78% of businesses not already purchasing credits or planning to do so will not change their approach until significant changes are made to improve regulation and standards.

As companies become more aware of the potential pitfalls, interest in the market has waned. Research earlier this year from the Ecosystem Marketplace found that the average credit prices in voluntary carbon markets are higher than they have been in the last 15 years, but that overall trade volumes are down by 51% compared to the high witnessed in 2021.

Moreover, as highlighted by Futerra’s co-founder Solitaire Townsend, many firms operating within – or selling into – EU markets may be loathe to use offsets. This is because forthcoming legislation that will limit which environmental claims are permissible will effectively ban the use of claims such as ‘net-zero’ and ‘carbon-neutral’ that are supported by carbon credits.

Townsend said: “People keep asking me when all this will ‘settle down’ and companies can be confident that rules [and] requirements won’t change. I wish I could promise that calm will descend soon – but I suspect we’re only on the baby rides right now, and the bigger rollercoasters are to come.

“Climate change isn’t a problem we tackle with one definitive approach that we can shove to compliance teams and get on with business as usual. It’s a non-linear,wicked problem with multiple, and sometimes conflicting solutions.

“Flexibility, foresight and resilience are the three most important attributes any corporate sustainability or ESG team today.”

Save the date – edie’s Scope 3 emissions workshops

Readers working to measure and manage their organisation’s Scope 3 emissions are invited to join an in-person day of workshops hosted by edie on 14 June 2024 in central London.

This CDP-certified event will convene dozens of sustainability, energy and supply chain professionals from organisations of different sizes and sectors.After a high-level keynote panel, attendees will spend the day networking and workshopping to identify new ideas and actions when it comes to effectively engaging with suppliers and taking control of scope 3 emissions.

Speakers will include:

• Alison Butler, Sustainability Manager: Scope 3 Supply Chain Lead, BBC
• Sandeep Rana, Senior Director of Citizenship & Sustainability, The Estée Lauder Companies
• Gudrun Cartwright, Climate Action Director, BITC
• Justin Placide, Head of Net Zero Governance, Briefing and Fiscal Events, Department for Energy Security and Net Zero

Full information and registration can be found here.

The event is specifically targeted at in-house sustainability, CSR, energy and net-zero professionals who are responsible for managing and/or implementing their own organisation’s sustainability/carbon/supply chain strategy, along with any other in-house professionals working within supply chain/procurement. The event is also open to a limited number of professionals working in not-for-profit organisations, academia and NGOs.

Individuals who do not meet these criteria – including out-of-house contractors, consultants and service/technology providers – are not eligible to attend this particular event. Delegate tickets are priced at £257 each.

Click here to apply for a place at the Scope 3 workshops.