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Scope 3 target setting has become widespread, with 4,205 companies  having SBTi-validated targets in place by the end of 2023. Counted together with companies with commitments to set targets, this represents 39% of the global economy by market capitalization. This indicates a strong recognition of the importance of managing indirect emissions. 

However, several challenges still remain, including variability in GHG accounting methods, the dynamic nature of value chain emissions, levels of influence and limitations in aggregated emissions metrics.

Key Proposals for Enhancing Scope 3 Target Setting

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1. Comprehensive Metrics: The update suggests using a broader range of metrics beyond aggregate scope 3 emissions to better assess corporate climate performance. This includes outcome-based metrics that measure the alignment of an organisation’s activities with global climate goals. This approach provides a more detailed picture of a company's climate performance.

Exploring new sector-specific metrics to complement GHG targets is something Gilles Dufrasne, Policy Lead on Global Carbon Markets at Carbon Market Watch, believes will be incredibly impactful: ‘Saying that a car manufacturer must have a certain percentage of battery electric vehicle sales, or a steel manufacturer must have a defined amount of green steel would help us move away from the very coarse metric of tCO2e.’  Bloomberg Green‍

2. Nuanced Target-Setting Boundaries: A more detailed approach to target boundaries is proposed, prioritising action on the most climate-relevant activities. This involves assessing emissions magnitude, exposure to high-climate-impact sectors, and future emissions risks.

3. Influence Over Emissions: Exploring the role of influence over emissions from suppliers or product users, with two proposed models:some text
   1. Prioritising emissions sources where companies can drive change.
   2. Differentiating interventions based on the level of influence over emissions sources.

4. Certification and Environmental Attribute Certificates (EACs): The update examines how certification systems, including carbon credits, can support credible value chain mitigation claims. EACs can help substantiate environmental claims and ensure compliance with emissions standards.

SBTi outlines three scenarios for the use of carbon credits:

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1. Direct decarbonisation focus: Companies should prioritise direct reduction of emissions within their value chains. Carbon credits cannot be used as a substitute for this core approach.

2. Decarbonisation evidence and residual emissions: Credits can be used to demonstrate decarbonisation within the value chain or for permanent carbon storage to offset residual emissions, aligning with the Corporate Net-Zero Standard requirements.

3. Expanded responsibility: Companies may use credits to cover emissions beyond the established target boundaries, incentivising additional finance for climate action without reducing efforts on internal emissions reductions.

SBTi has set out a five-step process informed by the proposals above to improve the effectiveness of scope 3 target setting.  The steps as shown in Figure 1  should be periodically reviewed to ensure all relevant emissions sources are addressed.

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The SBTi will continue to refine these concepts by engaging stakeholders for diverse perspectives and conducting further research. The primary areas for further development include:

• Determining benchmarks for outcome-based metrics.
• Standardising the concept of influence in target-setting.
• Using certification to align procurement and products with climate goals.
• Role of carbon credits to substantiate emission reduction claims.

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It will take a while for companies to adapt to these recommendations and implement better frameworks to address the areas outlined in ‘Areas for Further work’.

However, in the near term we expect these recommendations to influence high-level Net Zero strategies and communication. This will involve a more precise strategy for offsetting and a refined approach to supply chain targets.

As a result, SMEs in the supply chain of any company with a Net Zero target (SBTi endorsed or otherwise) should prepare for greater scrutiny on their emissions given Net Zero is impossible without engagement across a company’s entire value chain.

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While the ideas are primarily conceptual at this stage and require access to much more supply chain data, we believe the proposed changes are a move in the right direction. These updates will help maintain the level of ambition required to reach Net Zero is maintained and ensure the corporate World doesn't simply give up.

At Trace, we believe companies should do everything within their power to actively reduce their carbon emissions, while also utilising carbon credits as a tool to address emissions that can't currently be abated.

We agree that not all carbon credits are created equally. We partner with organisations like Tasman Environmental Markets (TEM) who go beyond international requirements by carrying out their own rigorous due diligence process for every project we invest in. This ensures the highest levels of quality and measurable, long-lasting impacts for people and the planet, beyond carbon emission reduction.  International standards such as IVCVM’s Core Carbon Principles, are also playing a valuable role in improving the integrity and scale of the voluntary carbon market by assessing programs and methodologies.

SBTi will publish a draft CNZS at the end of 2024 and open it up to community consultation and we encourage our customers to submit their thoughts where appropriate.

Curious for more? Check out our co-founder and CEO, Cat Long’s thoughts on the SBTi updates via LinkedIn!