What is net zero and what is the SBTi?

By | 6 minute read | August 6, 2021

Modern wall angling down

Most of the world is committed to limiting global temperature rises to 1.5°C above pre-industrial levels to avert the worst effects of climate change. That means halving greenhouse gas (GHG) emissions by 2030 and hitting net-zero emissions by 2050.

Already, 53% of global GDP has made an intended or actual commitment to reaching net zero by 2050, according to the Energy and Climate Intelligence Unit. Among big businesses, Unilever pledges net-zero emissions from all of its products by 2039Apple says it will become carbon neutral across its entire business, supply chain and product lifecycle by 2030. Ikea aims to be climate positive by 2030.

These three global brands are signing up to three different pledges. “Carbon jargon” can make it difficult to differentiate the net zeros from the carbon neutrals, negatives and positives. Science Based Target initiatives (SBTIs) also largely underpin the initiatives made by some organizations, and whilst SBTIs work well with net zero, they are in fact quite different.

What’s in a pledge?

With net zero, the key word is “reducing.” Businesses pledge to reduce, as far as possible, greenhouse gas (GHG) emissions across all activities, including suppliers, buildings and processes. They cut their GHG emissions by improving operational efficiency and investing in plant and equipment upgrades, and by acquiring on-site or off-site renewable energy. Surplus emissions are offset by investing in projects such as sustainable reforestation or off-site renewable energy projects. In other words, what these businesses emit into the atmosphere is counterbalanced by what they take out.

Net zero pledges have risen threefold since 2019, with 1,541 committing in 2020, up from around 500 recorded in 2019. The term net zero is open to interpretation, and this has resulted in several different variations of what net zero means.

carbon neutral company balances its GHG emissions by removing an equivalent amount of carbon from the atmosphere. It doesn’t have to reduce its overall emissions but neutralizes its carbon footprint by either funding GHG reduction initiatives elsewhere or by purchasing carbon credits.

Carbon negative companies remove more carbon from the atmosphere than they emit. Microsoft President Brad Smith said in January 2020, “Neutral is not enough,” and pledged to reduce the company’s carbon impact to below net zero by 2030. Carbon positive companies go further still. They remove more carbon than they emit and deliver environmental benefit to other companies or localities. A carbon positive business might, for instance, generate more renewable energy than it needs and feed the surplus back to the grid.

If there is a hierarchy of pledges, then carbon positive sits at the top, but other rungs on the ladder are no less important. Ambition, however, must be matched by high-quality, verifiable and transparent data, with timelines and progress against goals to prove to the public, investors and employees that the business really does mean business on climate change.

Rating performance

For businesses that declare their intent to become net zero, carbon neutral or something else, pledge platforms help with publicly validating their ambitions and pegging performance to targets. Here’s what the major platforms do:

Race to Zero

  • A United Nations global campaign to rally leadership and support from businesses, cities, regions and investors.
  • Almost 1,400 companies, as well as 569 universities, 454 cities, 23 regions, 74 of the biggest investors and 120 countries are in the Race to Zero.
  • It aggregates net-zero commitments from leading networks and initiatives across the climate action community and sets out the substantive criteria that industry participants must meet.
  • Participants pledge to reach net zero by 2050 at the latest.
  • They commit to report progress against targets annually.

Building-level “Advancing Net Zero” targets

  • The World Green Building Council defines a net-zero carbon building as a structure that is both highly energy efficient and fully powered by on-site or off-site renewable energy.
  • Its Net Zero Carbon Buildings Commitment challenges businesses, organizations, cities, states and regions to have all buildings within their direct control operating at net-zero carbon by 2030, and all buildings by 2050.
  • A mix of energy-efficiency improvements, including behavioral changes; upgrades to plant and equipment, such as retrofitting LED lighting; green energy purchases and, if necessary, carbon offsets, that will help deliver a net-zero carbon building.
  • WorldGBC’s Advancing Net Zero (ANZ) project is embraced by 27 Green Building Councils, including in Australia, the US, Canada and the UK.
  • Under the program, 418 buildings have been certified net zero.
  • 95 businesses, cities and states/regions have committed to net-zero buildings.
  • Performance against targets is measured using existing ratings tools such as NABERS in Australia.

The intersection of the Science-Based Targets initiative (SBTi) and net zero targets

The science-based targets are very empirical, and are designed to limit emissions to less than 1.5°C global warming in line with the Paris Climate Change Agreement. They don’t allow offset as part of the calculation and they do, on a mandatory basis, required the inclusion of Scope 3 (if it’s greater than 40% of the Scope 1 and Scope 2 emissions profile in Scope 3).

Net zero, on the other hand, is more tailored to individual organizations, allowing businesses the flexibility to choose and set a time frame to reach net zero. Given the differences between these two frameworks, it is important for organizations still heading down the path of making their pledges to be cognizant of the variations.

  • More than 1,200 global businesses are part of SBTi. They include Facebook, Amazon and Ford.
  • The Science Based Target initiative (SBTi) is a body that champions science-based target setting and officially approves these targets.
  • Businesses receive technical support, independent assessment and validation of their targets and report annually on progress.
  • The SBTi requires that companies set ambitious targets to reduce Scope 3 emissions if they represent greater than 40% of the company’s overall footprint.
  • In late 2020, the SBTi produced a guidance paper that outlines plans to develop a detailed, science-based framework for the formulation and assessment of net-zero targets in the corporate sector.
  • This convergence of the SBTi and net zero is an interesting development that reflects a wider trend of ESG Framework convergence.

2022 market trends for sustainability targets

In a recent webinar hosted by Environment + Energy leader, Edison Energy’s VP of Strategy & Sustainability, Emily Williams, indicated that there is growing momentum from organizations on developing new net zero targets.

Speaking further on this area with IBM Envizi VP Sustainability Solutions Dave Solsky, Williams also explained: “We’re currently waiting on the official kind of SBTi Net Zero Standard that’s expected later this fall, after the public consultation period that’s undergone. But you also see initiatives like the UN breaks to zero, really tightening their criteria on what is required for net zero commitments. So I do think we’re seeing certainly growth in both approaches, but really also a tightening and increased ambition required if you’re going to sign up to these commitments.”

The urgency to address climate change and the shift for organizations to action ambitious goals is increasing, with C-suite executives now also actively involved in sustainability.

This momentum is also seen in the progress toward a global standard for ESG reporting.

In March 2022, the UN SEC announced a landmark climate disclosure rule proposal, which if enacted would require companies to report on their ESG performance. The proposal, modeled on the existing TCFD system, is one of many changes, including that of the UK government who are also pursuing similar changes.

Over the next three decades, efforts to balance GHGs going in with those going out (or, better still, creating a carbon deficit) will have planet-changing consequences. There is overwhelming support from businesses for net zero; increasingly, investors prioritize net-zero companies too. But not all companies are at the same level of preparedness. Though any action to combat climate change is valid, time is short. Businesses need to deliver visibly on ambitious and measurable climate pledges.