Why are businesses struggling to verify their science-based net-zero targets?

The answer is almost certainly the latter, with quantitative research by the SBTi and discussions between some of these firms and edie revealing challenges relating to emissions accounting and setting a contextually meaningful definition of the term ‘net-zero’.

Of the 970+ businesses which participated in the ‘Business Ambition for 1.5C’ campaign, designed to accelerate the uptake of corporate emissions goals aligned with the Paris Agreement, 284 failed to set verified targets within a 24-month period as required for SBTi verification.

The SBTi has been flagging these businesses as ‘commitment removed’ for several months now. It had, historically, simply quietly removed them from its target dashboard.

Some of these businesses fell short in setting targets for the next five to ten years, known as near-term targets. But by far the bigger hurdle was having long-term goals verified in line with the SBTi’s Net-Zero Standard, which requires an intention to cut emissions across all scopes by at least 90% by 2050 or sooner.

More than six in ten of the firms which failed to get their Net-Zero Standard targets rubber-stamped still managed to get 1.5C-aligned near-term targets approved, including Diageo, Microsoft, innocent Drinks, Marks & Spencer, Procter & Gamble and Unilever.

Polling of Business Ambition for 1.5C participants found that one in four faced challenges certifying due to waiting for the Net-Zero Standard to be published. The campaign launched in 2019 while the Standard was not finalised until October 2021.

A Unilever spokesperson tells edie that, in developing its first Climate Transition Action Plan ahead of its launch in March 2021, the consumer goods giant had used the Intergovernmental Panel on Climate Change’s definition of net-zero – which differs from the SBTi’s.

Because the SBTi’s guidance came after Unilever had already gone out to its shareholders with the Plan, it was too late to change. However, the business did update its Plan earlier this month, in keeping with its push for a refresh every three years.

The spokesperson says they expect to receive approval from the SBTi on the new targets “shortly”.  One key update to the plan is a new pledge to reduce absolute Scope 3 (indirect) emissions by 39% by 2030.

Sector-specific guidance

More than half (54%) of Business Ambition for 1.5C participants said measuring and reducing Scope 3 emissions proved to be a major barrier to adopting verified targets.

For several businesses with supply chains in land-use sectors such as agriculture or forestry, this was a particular challenge. The SBTi came out with its own guidance for measuring emissions that are generated, reduced, avoided or sequestered from forest, land-use ang agriculture (FLAG) activities in September 2022 and, by that point, many businesses had been Business Ambition for 1.5C participants more than two years.

Additionally, the Greenhouse Gas Protocol – the world’s best-known and most widely-used resource platform for Scope 3 emissions accounting – delayed its finalised Land Sector and Removals Guidance until 2024.

The SBTi has told companies in FLAG sectors that they can set targets now, using the GHG Protocol’s draft guidance, and rest assured that their targets will still be valid for the usual cycle even if the final guidance changes the goalposts.

But Wouter Van Tol, head of sustainability and community affairs at paper packaging and products giant DS Smith, said he feels unable to set a “credible” target without the final guidance.

“We remain committed to delivering on our science-based carbon reduction targets and will look to validate our Net Zero commitment, as it is core to our company strategy and core to our values and purpose… [but] we are waiting along with the rest of the industry for clarity on this matter,” he tells edie.

Information provided to edie by several other businesses in FLAG sectors indicates that Van Tol’s concerns are widely shared – as is his commitment to press ahead with verification when possible. Three food businesses plus one in fashion contacted by edie expressed these points of view.

One stated: “The FLAG methodology can be really powerful, but it does need a lot more information.”

Beyond FLAG, the SBTi is in the process of developing sector-specific guidance for industries including chemicals, buildings, aviation and oil and gas. It has also signed off on finalised guidance for several other sectors since 2019, including power.

National Grid’s UK sustainability manager Steven Thompson tells edie that there is still work to be done here, saying: “The current SBTi Net-Zero Standard does not fully reflect the realities and challenges of the power sector and there is no sector specific pathway for the decarbonisation of heat.

“We remain supportive of SBTi and have offered to help refine the standards and pathways to better reflect the needs of the sector.”

Of the businesses that did not submit targets in time under Business Ambition for 1.5C, nine in ten have indicated that they will do so in the future.

Decoupling growth from emissions

Another challenge for Business Ambition for 1.5C participants was dealing with emissions increases.

Almost one in five cited merger and acquisition (M&A) activity as a barrier to setting Net-Zero Standard targets, because of the additional emissions footprint of a growing business and the need to integrate businesses at different levels of maturity with emissions calculations.

A handful of businesses have landed in hot water over M&A activity undermining their sustainability work. This has been the case at Credit Suisse in recent weeks, with new owners UBS primed to weaken its measures for reducing fossil fuel finance.

A similar challenge faced shoe brand Crocs when it acquired HEYDUDE, thus expanding its Scope 3 footprint. It subsequently reassessed its net-zero target and pushed it back from 2030 to 2040.

These challenges have been even more stark for SMEs seeking to align with the Net-Zero Standard. How can they achieve ambitions to grow significantly, yet cut their absolute emissions across all scopes by at least 90%? This was the argument raised last year by sustainability consultant Chris Hocknell, of Eight Versa.

The SBTi does differentiate target-setting requirements for SMEs from larger businesses. A key difference is more leniency with setting near-term targets that cover Scope 3 emissions.

At the time of publication, 348 SMEs have received verification under the SBTi’s Net-Zero Standard. British firms in this cohort include PR firm Greenhouse Communications, telecoms service provider Wireless Logic and healthcare supplier EMS Healthcare. But examples from sectors still waiting for industry-specific guidance are rare, with most opting to wait a little longer.