A one-size-fits-all problem

The SBTi’s current approach to company classification follows a binary model: small and medium-sized enterprises (SMEs) versus non-SMEs. While straightforward, this overly simple distinction overlooks the spectrum of company sizes and location.  

Grouping small and medium-sized enterprises together fails to reflect their different capacities, as not all SMEs are equally constrained. Medium-sized firms often have greater resources and operational complexity than small businesses. Similarly, a medium-sized manufacturer in a lower- or lower-middle-income country such as Cambodia may face significantly more barriers than an equally sized company in a high-income country like Singapore with better access to finance, technology, and regulation. 

To address this imbalance, the SBTi considers introducing more nuanced expectations based on company scale and geographical context. Its draft revision of the Corporate Net Zero Standard proposes a more structured classification system, with companies either falling under Category A or Category B:

• Category A encompasses large companies or medium-sized companies in high-income countries which are expected to lead the charge on decarbonisation.²
• Category B includes medium-sized companies in upper-middle to low-income countries. It also covers small companies across all geographies. These companies will be expected to follow less stringent reporting requirements. 

If implemented, there would be clear thresholds for large, medium, and small companies, dictating whether companies fall under Category A or Category B. 

 

Companies are classified as ‘large’ if they meet either net turnover and employee thresholds. Regardless of locations, all large companies fall into Category A. Medium-sized companies that meet two or more thresholds will fall into either category, depending on the location of their headquarters.

Under these thresholds, Category A companies may appear small in number, but they account for a large share of economic activity. In Southeast Asia, where five of the 11 countries are deemed as high or upper-middle income countries, 500 of the largest firms generated approximately $1.82 trillion in revenue in 2024, contributing 45% of Southeast Asia’s total GDP. They are mainly in the industrial, energy and consumer product sectors which are heavy contributors to global emissions. 
 

What would this mean in practice?

By placing companies into categories, the SBTi would redefine its expectations on target setting. Category A companies would have to show more accountability and accelerated action as they would become subject to more rigorous requirements:

• Scope 1: Mandatory near-term and long-term targets.
• Scope 2: Mandatory near-term and long-term targets.
• Scope 3: Mandatory near-term targets for commodities or activities (i.e. cement, steel, aluminium, FLAG activities) that represent over 5% of Scope 3, with long-term targets optional.

For Category B companies, however, the focus is on near-term action, as they benefit from a more flexible framework:

• Scope 1: Mandatory near-term targets. Companies with more than 5% of emissions from emissions-intensive activities (heavy industry and transport), and companies using the Asset Decarbonisation Plan approach will have to set a long-term target.³
• Scope 2: Mandatory near-term targets, with long-term targets optional.
• Scope 3: Entirely optional.

This classification is particularly effective for companies in lower-income countries, as it prevents undue burden while ensuring progress. Small and medium sized companies in the Philippines and Vietnam, which are more likely to fall under Category B, are encouraged to prioritise managing the direct emissions within their control, while progressively developing the capabilities needed to address Scope 3 emissions. This phased approach is particularly relevant in Southeast Asia’s rapidly growing economies, where businesses must balance the dual imperatives of sustaining growth and advancing carbon mitigation.

The role of supplier engagement

Recognising resource disparities, the SBTi’s draft revision recommends that Category A companies actively support the decarbonisation efforts of Category B companies. This includes financial support, capacity-building initiatives, and technology and knowledge transfer.

In many cases, Category B companies are integral to Category A’s value chains, particularly in terms of heavy industry, agriculture, and resource extraction, which tend to face greater barriers to decarbonisation. As such, Category A companies have both the influence, the responsibility and, in many cases, the resources to drive systemic change. By engaging and supporting suppliers across the value chain, Category A companies can address their Scope 3 emissions while enabling Category B companies to focus on reducing their Scope 1 and 2 emissions. To accelerate this collaboration, the SBTi is testing the feasibility of making supplier engagement mandatory for Category A companies to abate Scope 3 emissions.

The sustained emphasis on mandatory Scope 1 and 2 targets incentivises large energy companies in the region to lead the transition toward a low carbon economy, thereby supporting other sectors on their decarbonisation journeys. This focus is particularly crucial given the central role of the oil and gas sector, which represents roughly a fifth of Malaysia’s annual GDP and half of Brunei’s national economy.
 

The Carbon Trust’s view

By moving away from a one-size-fits-all model, the SBTi’s draft revision marks a shift toward a more equitable and effective approach to climate accountability – one that recognises the diverse capacities of businesses across regions and scales and maximises corporate engagement. It thereby aligns ambition with ability and economic reality, paving the way for more inclusive and impactful climate action. 

¹ Please note that the draft revision is currently under consultation. None of the proposed changes have been finalised.

² Geographical categorisation is based on the World Bank classifications based on gross national income (GNI) per capita. The classification for 2024-2025 considers all Southeast Asian countries as upper-middle, lower-middle or low-income countries, except Singapore and Brunei Darussalam. 

³Asset Decarbonisation Plan targets are reduction goals based on how a company will cut emissions from its own assets while staying within a defined carbon budget. This strategy should show how assets will be upgraded, replaced, or retired along with timelines, efficiency measures, and investment plans.