There’s a big fight over the future of how companies set climate targets and show progress toward them. How these rules unfold will shape the approach companies take toward the climate transition and, by extension, influence the way they allocate billions in capital.
But first, the organizations in charge of defining the rules of the road have to get the language right.
It took only a few minutes of conversation last week with David Kennedy, the head of the Science Based Targets Initiative (SBTi), for him to take issue with my word choice. The leading standard-setting organization was days away from announcing its new corporate standard, and I asked about how it would create “flexibility” for companies. Kennedy rejected the word. “It's not flexibility in that kind of pejorative sense,” he says. “It is providing options.”
It was a telling exchange. Over the last few years, the world of emissions standard setting has become increasingly contentious, so much so that even a few words can trigger a fight about whether companies are getting off the hook or being held to account.
And yet behind the semantic debate are important decisions that will shape the future of corporate climate action. Founded in 2015, SBTi has come up with key ideas that have migrated into government regulation of corporate climate work, and its guidance has become a North Star for companies looking to decarbonize. That trusted guidance is even more important today as businesses move from setting lofty long-term goals to implementing short-term solutions in their operations and supply chains. By extension, SBTi guidance is an important indicator of where the puck is moving, shaping investment decisions across the thousands of companies that follow its guidance.
Maintaining that influential position requires threading a needle. SBTi needs to maintain sufficient buy-in from companies, which are often wary of stringent standards, while keeping on board policymakers and climate advocates that demand more ambition. (Indeed, a group of NGOs criticized the new SBTi framework, released June 11, as insufficient.) Kennedy described the new standard as sitting in a “sweet spot.” It’s “on the one hand aligned with commercial objectives,” he says, and on the other it allows companies “to make contributions to international climate objectives.”
SBTi’s new corporate guidance is an attempt at navigating the tension. Kennedy argues that it does not lower ambition, even as it gives companies more tailored ways to show progress. It outlines sector-specific pathways for cutting supply chain emissions. It emphasizes in-depth transition planning over simple goal setting. And it offers guidance for companies that want to use market-based instruments to reduce emissions outside of their direct operations.
The standard covers wide ground in significant detail. It assesses companies not based on whether they say they want to hit net zero but whether they’re actually incorporating climate thinking into their operations. While following SBTi guidance is voluntary, the move is a good indicator that this is the new measure of climate success for any business. “It reframes net-zero transition as a continuous improvement journey rather than a point in time,” says Kennedy.
For the uninitiated, reading the new corporate standard can feel like jumping into the obscure. And yet the specifics laid out over nearly 100 pages will have both immediate and long-term effects in how companies understand climate action.
One example is how SBTi suggests companies should calculate their use of clean energy. Power market experts have debated whether companies should match their power consumption with clean energy generation on an hourly or annual basis. The latter approach became commonplace under SBTi’s first standard. And matching on an annual basis has helped seed the market for companies purchasing renewable energy. But some experts and companies now complain that it doesn’t reflect actual usage. SBTi leaves annual matching intact as a baseline while opening the door to hourly matching.
SBTi has also created “best efforts” provisions that cut companies slack if they miss their targets due to circumstances beyond their control. “It may be for reasons beyond your control as a company that there is a gap between performance and targets,” Kennedy said. “And then we say be transparent, don’t pretend that there isn’t a gap.”
Finally, SBTi’s treatment of “market-based measures” offers an attempt to move beyond the stalled debate over carbon offsets. The new guidelines don’t dismiss these tools, but instead create a clear-cut hierarchy. Companies should first do what they can to cut emissions from their own operations. Then, they should focus on emissions reduction in systems they rely on (think of an airline helping fund the creation of a sustainable aviation fuel ecosystem). Separately, high-integrity offsetting remains a last-resort solution but doesn’t erase the obligation to decarbonize. This is complex, but it should signal a continued market for many low-carbon solutions.
What’s the signal out of all of this? The future of corporate climate efforts will continue, but as SBTi makes clear: Merely setting targets isn’t enough. To be credible requires actually incorporating climate into strategy and operations.
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