Back in 2015, world leaders recognized that to protect future prosperity and well-being, we must limit global temperature rise to 2 and as much as possible to 1Within 5°C, this is also the main content of the Paris Agreement. Based on this, if the company sets a target that is in line with limiting global temperature rise to 2 or 1 levels above industrial levels5 The level of carbon reduction required, such a target can be considered a "science-based" emission reduction target. The science-based targets are aligned with the Paris Agreement's climate change mitigation, adaptation and financing, and are considered the "antidote" to "greenwashing". Science-based targets generally include a duration of the target, and whether it is covered.
Emissions from Ones, Levels 2 and Levels 3 can be divided into short-term targets, long-term targets, and net-zero targets.
SBTI advocates science-based net-zero actions to assist organizations in setting short-term and long-term carbon reduction targets, providing them with a clear path to emission reduction, setting guidelines, standards, and recommendations for carbon emission targets, in line with the goals of the Paris Agreement.
The Science Based Targets Initiative (SBTI) was established in 2015 by the Environmental Information Disclosure Agency (CDP), the United Nations Global Compact (UNGC), the World Resources Institute (WRI), and the World Wide Society for Nature (WWF). SBTI advocates that companies set "science-based climate reduction targets", requiring companies to make climate commitments after joining the SBTI and disclose the science-based emission reduction targets that they have agreed to within 24 months, and if they do not meet them, they will be removed from the pledge list.
Why do companies need to set science-based targets?
First, in terms of external drivers, according to SBTI's official information, as of the end of December 2023, about 6,849 institutions around the world have signed the Science Based Targets initiative, committing to set science-based targets. At present, 526 enterprises in China have signed the letter of commitment, of which 226 enterprises have been approved for carbon targets.
In addition, from the perspective of the capital market, the recognition of SBTi is also getting higher and higher, especially in the proportion of the world's top listed companies. By the end of 2022, the total number of global Fortune 500 companies with science-based targets or commitments reached 188, accounting for 38% of all global Fortune 500 companies, according to the report. SBTI coverage of FTSE 100, S&P 500 and Nikkei companies has also reached %, % and 40%, respectively.
In September 2020, at the general debate of the 75th session of the United Nations General Assembly, the General Secretary officially announced: "China will increase its nationally determined contributions, adopt more powerful policies and measures, strive to peak carbon dioxide emissions before 2030, and strive to achieve carbon neutrality before 2060." At present, China has established a "1+N" policy system for carbon peak and carbon neutrality. "1" is composed of two documents: "Opinions of the Communist Party of China on Completely, Accurately and Comprehensively Implementing the New Development Concept and Doing a Good Job in Carbon Peak and Carbon Neutrality" and "Action Plan for Carbon Peaking Before 2030", and "N" is the implementation plan for key areas and key industries and related support and guarantee plans. At the same time, all provinces, autonomous regions and municipalities have formulated implementation plans for carbon peaking in their regions.
On the international front, the European Union's Carbon Border Adjustment Mechanism (CBAM) has recently received the most attention, which will enter a transition phase from October 1, 2023, and will be officially implemented on January 1, 2026. CBAM is a tax adjustment mechanism for imported goods, which is a border adjustment tax levied on the carbon emissions of imported goods from the EU during their production, commonly known as "carbon tariff". Exporters outside the EU in China and around the world need to respond by actively reducing carbon emissions.
What is the SBTI process?
Commitment: Submit a letter of commitment indicating that the business is about to set a science-based target.
2.Develop: Establish emission reduction targets in accordance with SBTI standards and requirements.
3.Submit: Fill out the application form, prepare the materials, and submit the target for audit certification.
4.Communication: Companies disclose the content of their science-based targets and communicate them to stakeholders.
5.Disclosure: Report on the company's emissions annually and track progress towards targets
Note: After submitting the commitment, there is a 24-month period to set a target, which must be reviewed or adjusted every 5 years.
From the perspective of industries, the service industry, manufacturing and infrastructure industries have the highest proportion of enterprises setting net-zero targets. According to the data, in 2022, the service industry, manufacturing, and infrastructure industries set the most targets, accounting for 60%. Among them, the materials sector saw the highest growth in the number of companies that set targets, while the three sectors with the lowest volume growth were power generation, biotechnology, healthcare and pharmaceuticals, while the hospitality sector was little changed. By the end of 2022, the cumulative total number of companies that have joined SBTI since its inception was 2,079, and another 2,151 companies have also committed to setting targets.
What is the significance of business participation in SBTI? Joining SBTI and obtaining science-based targets certification also means gaining endorsement from international organizations, which can increase investor confidence and thus promote a competitive advantage for companies. When setting science-based targets, companies will take a long-term view of the risks and opportunities of the low-carbon transition. Companies have set science-based targets that will better position them to respond to regulatory changes if they step up their climate action in the future.
After setting the target, the company needs to submit the target to the SBTI to verify whether it is "science-based", and after the target is successfully verified, it will be published on the ** of the STI and its partners one month later.
The core requirements of the SBTI Net Zero Emission Standard are as follows:
All categories of "greenhouse gas emission sources" need to be counted.
Both short-term and long-term goals must be set.
In the end, it is not possible to reduce the amount by 5 to 10%, which must be neutralized by carbon removal.
Self-reduction is the highest principle (mitigation hierarchy).
From January 1, 2024, companies can set targets through a simplified SME verification pathway if all criteria points are met:
1.Scope 1 and location-based Scope 2 have less than 10,000 tonnes of CO2 equivalent.
2.Does not own or control maritime transport vessels.
3.Does not own or control non-renewable generation assets.
4.Not in the Financial Institutions (FI) and Oil & Gas (O&G) industries.
5.Not a subsidiary of the parent company whose combined business is part of the standard verification route.