The world’s first Net-Zero Standard – what does it mean for your organisation?

More than half of the UK’s FTSE100 companies are committed to achieving net-zero carbon emissions by 2050¹, with an additional 5,000+ companies globally signed up to the UN’s Race to Zero². With more organisations looking to develop plans to achieve net zero – and with the UK set to require all listed companies to have one in place by 2023³  – there is a clear need for an internationally recognised standard that provides a robust definition of net zero.

After much anticipation, the world’s first net-zero standard for the corporate sector⁴ was released by the Science Based Targets initiative (SBTi) in October. SBTi is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and WWF⁵. SBTi validates corporate emission reduction targets against a set of criteria, aligned with science-based targets (SBTs). SBTs directly align with climate science and outline the rate of decarbonisation needed to keep global warming under a particular temperature threshold. For example:

• Limiting global warming to 1.5°C
• Well below 2°C
• 2°C above pre-industrial levels

A scenario that limits warming to 1.5°C above pre-industrial levels is generally aligned with reaching net zero globally by 2050. To date, more than 2,000 companies have set SBTs through the SBTi using a combination of the above temperature-limiting pathways.

Net-Zero Standard

The SBTi Net-Zero Standard sets out criteria and guidance on how the private sector can approach setting a 2050 net-zero target. The most notable requirement will be that organisations seeking SBTi net-zero status must set decarbonisation targets that align with a 1.5°C SBT pathway and achieve net zero by 2050.

This is a much-needed and welcome breakthrough in the net-zero sector, which has at times suffered in the absence of a clear net-zero definition. The clarity that this standard provides will not only allow companies to confidently set clear and robust targets, but will also provide stakeholders with confidence that net-zero claims are made on the basis of climate science to an internationally recognised standard.

SBTi will begin to validate net-zero strategies in January 2022. The release of the Net-Zero Standard also comes with an updated version of the science-based target guidance and criteria (version 5), which will come into effect in July 2022 to align with the new Net-Zero Standard.

In summary, here are our four main takeaways from the new Net-Zero Standard:
 

1. Net-zero strategies must outline targets in the near term and the long term.

Near-term and long-term targets have been introduced in the standard to ensure that more immediate action is taken to reduce emissions, while also clearly identifying targets and commitment for achieving net zero in the future.

If a company’s net-zero target is longer than 10 years from its baseline year, then near-term and long-term targets are required under the Net-Zero Standard. However, if a net-zero target date is prior to this (e.g. 2030 net-zero target, based on a 2020 baseline) and meets the requirements of a long-term target, then only one target is needed for net-zero commitments.

2. The SBTi has ramped up the ambition expected from companies in the long term, compared with previous science-based targets guidance.

The current guidance for SBTs requires the inclusion of at least 67% of scope 3 emissions and allows the slightly less ambitious ‘well below 2℃ scenario’ to be selected. This requires an annual emission reduction of at least 2.5% per year from the chosen baseline year. Under the updated standard, this same criteria can be applied to near-term targets. However, long-term targets must include 90% of scope 3 emissions by the net-zero target date and follow the 1.5℃ ambition pathway of at least a 4.2% annual emission reduction.

3. The Net-Zero Standard includes mechanisms to account for the difficulties associated with reducing scope 3 emissions.

Companies will be expected to increase the proportion of scope 3 emissions included in their target over time, until their net-zero target date is reached. This ‘expansion’ mechanism is in recognition of the challenges that are associated with reducing scope 3 emissions. This will allow time for companies to tackle the more complex areas of their supply chain. Ricardo’s sustainability team has already been tackling these challenges with clients and developing solutions to reduce their scope 3 emissions, such as through sustainable procurement practices and life cycle assessments.

4. There is an expectation that companies should mitigate for their emissions before their net-zero target is reached and neutralise all remaining emissions by their target date.

This should be 2050 at the latest and include purchasing and investing in credible neutralising methods. Most companies are expected to reduce their emissions by 90% to achieve net-zero status.

Alongside the many benefits that come with estimating baseline emissions and creating a roadmap to net zero, aligning with the SBTi’s Net-Zero Standard has the following additional advantages:

• It places all organisations on a level playing field. By adhering to the same standard, criteria and scope, the standard allows for a fair comparison of net-zero targets.
• It provides clarity and confidence to clients, shareholders and supply-chain partners. The demand for credible net-zero plans from stakeholders will increase as we approach deadlines for national and global climate targets.

As more companies are required to publish their plans, the narrative is shifting from those who commit to net zero to those who can demonstrate how they will achieve it. It is therefore vital that companies understand where their emissions hotspots are, and how these emissions can be mitigated. This is particularly important for scope 3 emissions because as the understanding around scope 3 improves, stakeholders will require a more granular level of understanding of these hotspots. For companies that make or sell products, this can be achieved through a life cycle assessment-based approach, which can demonstrate to stakeholders that the focus is in the right areas.

Ricardo has already helped many organisations develop clear and credible SBTs and roadmaps to net zero; not just outlining what targets should be set but what measures can be implemented to achieve those targets.

Get in touch using the form on this page to find out more and to discover how we can help your organisation develop a robust net-zero strategy that is tailored to your needs and how we can support you every step of the way to achieving net zero.

Other sources of information

¹ https://www.gov.uk/government/news/cop26-sees-uk-businesses-lead-the-world-in-climate-change-commitments
² https://unfccc.int/climate-action/race-to-zero-campaign
³ https://www.gov.uk/government/news/chancellor-uk-will-be-the-worlds-first-net-zero-financial-centre
⁴ https://sciencebasedtargets.org/net-zero
⁵ https://sciencebasedtargets.org/