Tracing emissions and accessing primary data can be a major challenge for companies setting science-based targets and measuring progress, especially with complex global supply chains to navigate. The Science Based Targets initiative’s (SBTi) draft revision of its Corporate Net Zero Standard suggests offering a more pragmatic approach for companies to substantiate progress against targets. We explore this approach, including the short-term use of market-based instruments to address the operational reality that full traceability isn’t always possible in today’s context.
Background
The SBTi has recently published a draft revision of its Corporate Net Zero Standard.1 Designed to accelerate corporate decarbonisation, the draft suggests modifying the target-setting process for Scope 1, 2, and 3 emissions. In this series, we explore the following key topics:
- Long-term Scope 3 targets: there is no requirement for companies 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 introduced 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.
The draft revision aims to support corporate decarbonisation while remaining pragmatic in its expectations around data and ambition. Some changes will make it easier to set targets and encourage greater uptake. They also run the risk of creating ambiguity. In this series on the SBTi’s proposed changes, our experts examine their implications and the fine line that exists between showing pragmatism in corporate decarbonisation and safeguarding long-term emissions reductions.
Rethinking the rules: Activity pool and indirect mitigation
In the current version of the SBTi Corporate Net Zero Standard Criteria, only direct mitigation is accepted for substantiating progress against science-based Net Zero targets. While direct mitigation remains the priority in the new draft standard, the SBTi proposes to allow for the limited, temporary use of activity pools and indirect mitigation for Scope 3 emissions under specific conditions.
If direct traceability to specific emissions sources cannot be established, companies may be able to show progress on their Scope 3 targets through interventions at the activity pool level. This involves identifying a group of emissions sources that are not directly traceable to a specific origin but can be linked to a defined region or boundary. For example, a supply shed where a company sources a specific commodity such as wheat but cannot trace it back to the exact farm that the commodity comes from.
Furthermore, in limited cases where direct mitigation and activity pools are not possible, companies would be able to use indirect mitigation using energy and commodity certificates, as a time limited measure. Book-and-claim systems is the most common indirect mitigation method, allowing companies to claim emission reductions or other sustainability benefits associated with a product without physically receiving that product.
Potential impact of greater flexibility in the Net Zero Standard
The proposed changes provide a more realistic pathway for companies with complex value chains in sectors where direct mitigation can be challenging. Previously these companies may have either not set a target at all or addressed a narrower range of emissions sources in their value chain, whereas the proposed change is aimed at incentivising action in complex value chains where there is a lack of traceability.
By investing in indirect mitigation through market-based instruments, companies can influence industry trends that help drive demand for low-carbon alternatives, even when full traceability isn't possible. Over time, these market signals can contribute to the broader transformation of value chains, making low-emission options more accessible and widespread, leading to transparency and disclosure requests being commonplace.
However, important questions are left unanswered by the current draft — particularly around when and how these tools should be used. While the SBTi has confirmed that companies will be required to justify the use of indirect mitigation over direct action, the current lack of detailed guidance may create uncertainty and could delay the structural decarbonisation that Net Zero targets demand.
The draft states that indirect mitigation must contribute to a Net Zero-aligned transformation relevant to the company’s value chain. To prevent misinterpretation or misuse, the SBTi should provide robust guidance on what constitutes a 'Net Zero-aligned transformation' — including sectoral benchmarks, credible examples and alignment with global climate goals.
There are also practical hurdles. Without transparent, verifiable methodologies, companies risk misreporting progress or double counting reductions — undermining both accountability and actual progress.
Increasing traceability in your supply chain: Where to start
Direct decarbonisation of company value chains should remain the bedrock of any credible Net Zero strategy, cutting emissions at the source and strengthening traceability through proactive supply chain engagement.
Yet, the reality is that accurate emissions measurement and reporting remain out of reach for many companies without improved traceability.
A strong first step for companies looking to improve their emissions data would be to conduct a comprehensive supply chain assessment to evaluate traceability and uncover opportunities for emissions reductions. This means mapping key suppliers, understanding what they provide and identifying gaps in emissions data — particularly where data is missing or unreliable.
To help close these gaps, companies should focus on suppliers with both high emissions intensity and limited traceability. Larger organisations can play a vital role in supporting these suppliers by:
- Selecting targeted engagement strategies based on supplier profiles and clearly communicating the purpose of the collaboration.
- Building long-term, strategic relationships that strengthen suppliers’ ability to decarbonise and report transparently.
- Backing traceability initiatives aimed at collecting supplier-specific data to improve emissions accuracy.
- Working directly with suppliers to help reduce their emissions at source.
These efforts will help suppliers gain the confidence and resources needed to invest in low-carbon technologies, ultimately contributing to more resilient and decarbonised value chains.
Only where gaps persist should companies turn to emerging guidance on indirect mitigation to complement direct efforts. However, these measures must remain temporary, clearly justified, and transparently reported — and must never substitute for lasting, direct decarbonisation.
If your organisation is keen to explore the implications of the draft SBTi’s corporate Net Zero Standard v2.0 the Carbon Trust can support you. Additionally, your organisation may choose to take part in the pilot for SBTi’s draft Corporate Net Zero standard v2. The deadline for phase one of the pilot is 15 August 2025.
1 Please note that the draft revision is currently under consultation. None of the proposed changes have been finalised.
