Large companies are more likely to have the resources, capital, and influence to lead the way in driving meaningful emission reductions. In recognition of this, the Science Based Targets initiative (SBTi) suggests raising the bar for those who can afford to move faster. We explore what the new Category A and B classifications under the draft revision of the SBTi’s Corporate Net Zero Standard mean for global emissions, corporate reporting, and cross-company collaboration.
Background
The SBTi has recently published a draft revision of its Corporate Net Zero Standard.1 Intending to accelerate corporate decarbonisation, the draft suggests modifying the target-setting process for Scope 1, 2, and 3 emissions. In this series, we explore key topics, including:
- Long-term Scope 3 targets: companies may no longer have to set long-term Scope 3 targets, which risks weakening climate ambition and decarbonisation trajectories.
- Scope 3 requirements for Category A and B companies: separate Scope 3 criteria are proposed for companies based on their size and location. ’Category A’ companies constitute large companies or medium-sized companies in high and upper-middle-income countries. Other medium-sized, small and micro companies fall under ‘Category B’.
- Indirect mitigation in the value chain: the SBTi has proposed guidance on the use of indirect emissions mitigation to support corporate decarbonisation pathways, such as the use of a book-and-claim approach for sustainable aviation fuel.
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-income country may face significantly more barriers than an equally sized company in a high-income country 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 or medium-sized companies in higher-income countries which are expected to lead the charge on decarbonisation.2
- Category B includes medium-sized companies in lower-income countries or small companies in any location which 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.
Large companies that meet one of the thresholds will fall into Category A, while small companies will automatically come under Category B. 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 Europe, where all countries are categorised as high-income, only 0.2% of companies have over 250 employees, yet they account for 51% of the total net turnover (€19.6 trillion). Over one third of the total turnover comes from industrial and construction activities, which are likely to be linked to complex and multi-tiered supply chains that drive a large share of 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 and 2: Mandatory near-term and long-term targets.
- Scope 3: Near-term targets are required, with long-term Scope 3 targets currently under consultation.
For Category B companies, however, the focus is on near-term action, as they benefit from a more flexible framework:
- Scope 1 and 2: Near-term targets only; long-term targets remain optional.
- Scope 3: Entirely optional.
This classification may be more effective for companies in lower-income countries as it avoids overburdening them. Even medium-sized companies in these countries, whose economies often rely on carbon-intensive sectors like mining, agriculture and manufacturing, will usually operate with limited technical and financial resources. By placing them in Category B with a focus on the direct and controllable sources of emissions (Scope 1 and 2), they can make meaningful progress in near-term decarbonisation while gradually building the capacity to address Scope 3 emissions.
A missed opportunity to align reporting
SBTi’s draft revision reflects the evolving regulatory landscape, including alignment with the EU’s Corporate Sustainability Reporting Directive (CSRD). Both the CSRD and the SBTi use a 1,000-employee threshold to identify large companies. However, their broader criteria differ. Under CSRD, companies must report if they have more than 1,000 employees and a net turnover exceeding €50 million. In contrast, the SBTi defines a company as large if it has more than 1,000 employees or a net turnover above €450 million.
The reason for this divergence remains unclear and represents a missed opportunity to harmonise definitions across the two reporting frameworks. Given growing reporting burdens, such inconsistencies can create additional complexities for organisations subject to both mandatory reporting requirements and voluntary initiatives like the SBTi.
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, land use, 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 encourage this collaboration, best practice is for Category A companies to set up supplier engagement programmes, similar to this initiative from VELUX, to help key suppliers build their capacities in footprinting, target setting and identifying mitigation opportunities.
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 European countries as upper-middle- or upper-income countries.
