The transition to a low carbon economy is on every CEO's agenda nowadays. The impacts of climate change and responses to it will transform every business sector in the coming decades. Although Climate change will affect a majority of companies, all will be expected to contribute to its solution.
Nevertheless, it is challenging for most companies to devise and implement a credible decarbonisation strategy. The transition requires new ways of doing business, including new ways of displaying capabilities and resources and new ways of thinking. But despite the challenges, companies around the world are scaling up their decarbonisation commitments.
We can see this trend with the number of companies committing to reducing emissions. More than 2000 companies have confirmed emissions reduction targets under the Science Based Target initiative (SBTi). Additionally, more than 370 have committed to The Climate Pledge, pledging to achieve net zero emissions by mid-century or sooner.
For most companies and investors, carbon credits play a crucial role in their Net-Zero strategy. They allow companies to make earlier and more ambitious commitments. Credits allow companies to reduce their current emissions through offsets, while taking cost-effective steps to reduce future emissions through asset rotation and business model development. In the long term, credits can play an essential role in offsetting difficult-to-avoid emissions from products for which no low- or zero-emission options exist.
The growing interest in recent years is also reflected in the Voluntary Carbon Market (VCM), which organises the pledging and trading of carbon credits. In 2022, the demand for carbon credits is at its peak. Prices have increased by more than 140% since 2021 and forecasts assume that demand for credits will increase 15-fold by 2030, to $50 billion per year.
But the voluntary carbon market has a problem. It cannot cope with demand. Access, which plays a crucial role in the global effort to combat climate change, is often limited to large organisations and is characterised by opaque pricing and market inefficiencies. Furthermore, due to a lack of transparency and credibility, it has faced a number of problems in recent years.
This report examines the key role for on-chain carbon credits as part of net zero strategies and the VCM. It was prepared by senken to help business decision makers identify and understand the best use of credits for their business.
The core objective of SBTi is to encourage companies to cut their Scope 1 and 2 emissions by at least 50% by 2030, moving towards 100% Net Zero emissions by 2050.
This aligns with the IPCC’s 1.5°C trajectory to prevent the worst effects of climate change.
The SBTi has established robust criteria that follow a set of four clear steps:
Aim for Rapid and Significant Emissions Reductions: Encouraging companies to set ambitious targets for cutting emissions at a rate consistent with the need to limit global warming.
Set Both Short- and Long-Term Targets: Companies are required to have clear, time-bound targets for both the short and long term.
No Net Zero Aspirations Until Long-Term Targets Are Achieved: Companies must focus on actual emissions reductions before setting Net Zero targets.
Focus on Beyond Value Chain Mitigation (or BVCM): Companies should strive to make positive impacts beyond their immediate operations and value chain.
How the SBTi compares to other Climate Frameworks
SBTi and IPCC: While the SBTi provides guidelines and tools for companies to set science-based targets, the Intergovernmental Panel on Climate Change (IPCC) is a scientific body that assesses climate change research. The SBTi uses IPCC's findings as a basis for its guidelines.
SBTi and Oxford Principles: The SBTi guides companies in setting emission reduction targets grounded in climate science, while the Oxford Principles offer direction on responsible carbon offsetting within net zero strategies. SBTi focuses on direct emission reductions, and the Oxford Principles on integrating offsets effectively.
SBTi and Net Zero: Net zero refers to the balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere. SBTi guides companies on how to reach these Net Zero goals through scientifically informed targets.
By leveraging IPCC research for setting robust targets and adopting the Oxford Principles' offsetting approach, SBTi offers a comprehensive framework for businesses to reduce emissions scientifically and balance remaining emissions through credible offsets, aligning corporate strategies with global climate goals.
Companies Setting SBTi Targets
A diverse range of companies around the world set SBTi targets, including multinational corporations, small and medium-sized enterprises, and companies across various sectors. These targets vary based on the company’s size, industry, and emission profiles.
Some notable examples include:
Bayer AG, who have a near term target of 1.5ºC by 2029, along with a Net Zero commitment.
BMW Group, who have a near term target of 1.5º/Well-below 2ºC by 2030, along with a Net Zero commitment.
Lufthansa Group, who have a near term target of well-below 2ºC by 2030, along with a Net Zero commitment.
The SBTi database contains information about SBTi targets that have been set by other companies.
How to Set SBTi Targets for Your Company
To set SBTi targets, a company needs to:
Commit: Publicly commit to setting science-based emissions reduction targets.
Develop Targets: Develop targets in line with SBTi criteria and methodologies.
Submit for Validation: Present these targets to the SBTi for official validation.
Communicate: Announce the target to all relevant stakeholders
Implement and Disclose: Implement the targets and annually disclose progress