For most companies, Scope 3 accounts for the majority of emissions, making it essential to set long-term goals to reduce these emissions across the entire value chain. As part of our series on the Science Based Targets initiative’s (SBTi’s) proposed changes to its Corporate Net Zero Standard, we examine how changes to mandatory long-term Scope 3 targets could impede companies’ decarbonisation journeys.
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.
The draft revision aims to support corporate decarbonisation while staying 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.
Scope 3 emissions are typically the largest source of corporate emissions and the toughest barrier to Net Zero progress, as identified in our report ‘Breaking business barriers to Net Zero'. While most businesses surveyed had set near-term Scope 1 and 2 reduction targets, only one in five had established a Scope 3 target. It makes Scope 3 undoubtedly a thorny issue for sustainability teams, one that cannot be ignored.
Lacking long-term vision
The current SBTi Corporate Net Zero Standard requires companies to set long-term targets for Scope 1, 2, and 3 emissions as part of their Net Zero target. This ensures companies build a long-term strategy to reduce emissions across their value chain. However, under the revised standard, only long-term Scope 1 and 2 targets would be required for Category A firms; the inclusion of mandatory long-term Scope 3 targets is still under consultation.
With this proposed change, the SBTi recognises the challenges and complexities involved with Scope 3 emissions reduction, allowing for greater flexibility. Yet if long-term Scope 3 targets are voluntary, there is a real risk that companies lose long-term focus on decarbonising their value chains. Not only does this remove long-term planning for the largest portion of corporate emissions (often exceeding 80% of an organisation’s total carbon footprint), but it also downplays the responsibility that corporates exercise over their value chains.
Near-term Scope 3 targets would become mandatory for Category A companies under the SBTi’s revised guidance, regardless of the percentage of total emissions that Scope 3 covers. Combined with stricter monitoring frameworks, this would reinforce the importance of near-term reductions in value chain emissions. Progressing in five-year increments, however, may not be enough to drive the transformational change in the value chain that is necessary. Without a long-term perspective, companies risk setting inadequate targets and not prioritising the right actions at the right times. In addition, companies could jeopardise senior support and the business case for innovation, two of the biggest internal barriers sustainability teams already face.
At the Carbon Trust, we strongly recommend that, at a minimum, large companies set long-term targets alongside their near-term goals, and that smaller companies do so where possible. This ensures that short-term actions are aligned with long-term objectives and that attention remains on the primary sources of emissions.
The importance of planning
Despite the proposed removal of explicit long-term Scope 3 targets, the SBTi has suggested some countermeasures. One of these is that all companies should develop and disclose a climate transition plan within a year after target validation. Companies should set out ‘a roadmap of the actions that will be undertaken to achieve Net Zero by no later than 2050’, effectively dictating that corporates must plan for long-term value chain cuts, even when these are not set as separate Scope 3 targets.
To create a meaningful transition plan, however, companies will need to have a clear idea of what successful decarbonisation by 2050 would look like. If there are no internal targets, defining long-term steps will be difficult. Conversely, a long-term target will make it easier to complete a decarbonisation analysis that provides the clarity and confidence needed to make informed decisions.
By examining the entire value chain with a long-term lens, companies can identify where innovation is needed and proactively develop new models, products, or processes. This forward-looking approach gives business leaders time to test, scale, and implement new ways of working, avoiding reactive, high-pressure decisions later that can be more disruptive and costly. Because of this, we believe that a transition plan will be more effective when companies have a target in place, even if this is just communicated internally.
Planning for the long term now enables smarter investments, smoother transitions, and a stronger position in a low carbon economy.
A greater focus on supplier emissions
To still encourage long-term Scope 3 decarbonisation, the SBTi considers introducing new target types centred around green procurement. There is a proposal for companies to ensure their Tier 1 suppliers transition to Net Zero and have targets aligned with limiting global warming to 1.5C. This is designed to leverage companies’ influence over their key supply partners and drive decarbonisation through the value chain. The proposed changes would make near-term targets more meaningful and create an environment where closer collaboration with suppliers becomes a business-critical activity.
Nonetheless, we challenge Category A companies that have greater purchasing power to remain ambitious and go beyond the mandatory criteria, as solely influencing Tier 1 suppliers will not deliver the scale of change needed. In fashion, for example, Tier 2 production – which involves fabric production and treatment – accounts for 45-65% of Scope 3 emissions according to McKinsey’s ‘The State of Fashion’ report. Focusing only on Tier 1 suppliers is, therefore, not enough. Instead, deep emission cuts rely on climate action cascading through supplier tiers. With decarbonisation progress already off track, large companies can, and should, do more across the entire value chain. We recommend that internal teams map their emissions hotspots across supplier tiers, from which they can build a supplier engagement plan that catalyses change throughout the supply base, not just those with a direct link to the business.
Going above and beyond
Overall, the picture for Scope 3 in the SBTi’s revised standard is mixed. If the SBTi does not make long-term Scope 3 targets mandatory, there is a real risk that progress on emissions reductions will miss the mark. The most ambitious corporates will likely remain undeterred and set long-term targets anyway, but others may dampen their ambition and focus only on short-term reductions.
Long-term targets are essential for keeping a strategic direction and achieving meaningful emission cuts. We are seeing good progress already on Scope 1 and 2, but action and ambition on Scope 3 need to be ramped up. We encourage corporates to challenge themselves as much as possible when it comes to Scope 3 emissions, using the SBTi’s proposed requirements as a springboard for further action. Only with a combination of strategic planning, detailed reduction analysis and robust implementation will we see the required level of Scope 3 reductions to achieve Net Zero.
Don’t risk acting without foresight. Talk to us about reducing emissions across your value chain – strategically, effectively and ambitiously.
1Please note that the draft revision is currently under consultation. None of the proposed changes have been finalised.
