An apparent reversal by one of the main arbiters of corporate climate action plans has roiled climate activists and advocates and highlighted tensions between policy pragmatism, big money donors and “science-based” climate strategies.
Nearly two weeks of drama have upended the Science Based Targets Initiative – one of the world’s most influential corporate climate action organizations. At issue: the proper role of the $2 billion voluntary carbon market in helping corporations meet their climate targets.
SBTi, among the old-guard of climate NGOs, set up shop in 2014 as a collaboration between the non-profits CDP, We Mean Business, the World Wide Fund for Nature and the World Resources Institute. As the name implies, company targets are supposed to be “science based,” and meet requirements for a net-zero, 1.5°C-aligned world. The group boasts a scientific advisory group and evidence-based processes for crafting target-setting standards.
The group claims to be “the de facto standard for climate ambition for the business sector,” approving emission targets and plans at over 5,000 companies and financial institutions. The dual role of both setting and assessing standards has long created potential conflicts of interest: SBTi makes money from evaluating companies’ climate targets and validating those that meet its standards.
The purchase of carbon credits to offset emissions have been largely excluded from SBTi-approved plans. The biggest objection is that allowing such offsets to count against emissions takes the pressure off companies to actively reduce supply chain emissions. The quality of many voluntary carbon credits has also come under increased scrutiny.
“The use of carbon credits must not be counted as emission reductions toward the progress of companies’ near-term or long-term science-based targets,” states longstanding SBTi policy. It makes allowance for carbon storage investments for “neutralizing” residual emissions.
The UN-backed Net Zero Asset Owner Alliance, likewise, tells members not to use “carbon removals” to achieve their own portfolio emissions targets. Only carbon removal certificates with “long-lived storage” of carbon may be eligible.
So it was a significant reversal when the SBTi board of trustees on April 9 issued a statement saying it would allow “environmental attribute certificates” – including carbon offsets – to be used by the companies adhering to its standards to abate their so-called Scope 3 emissions.
Scope 3 refers to emissions generated upstream – by a company’s suppliers – and downstream – by its customers. For many companies, such emissions constitute the majority of their climate impacts, but because the linkages are indirect, many firms find it hard to reduce their Scope 3 emissions.
“While I think credible carbon offsets could be important in helping companies in hard-to-abate sectors in the future, SBTi’s decision to pursue them now is just opening the floodgates to greenwashing,” says Andrea Ranger, shareholder advocate at Green Century Capital Management.
“Companies need to stick to getting to the zero part of net-zero, and only then, turn to carbon offsets as a last resort. We need to make deep greenhouse gas emissions cuts as quickly as possible because we can’t offset our way out of the climate crisis.”
Role for carbon credits
The seemingly arcane change could have major implications for the voluntary carbon market. According to the Financial Times, former climate envoy John Kerry has pressed for at least two years for an expansion of the use of such carbon credits as a way to direct corporate funding to low-income countries that have been starved of capital to finance their low-carbon transitions.
Kerry, along with the Bezos Earth Fund and the Rockefeller Foundation, announced the Energy Transition Accelerator, or ETA, at the global COP27 climate summit in 2022 as a way to finance clean energy projects in emerging markets, at a time when wealthy nations were leery of spending on such projects. The ETA’s “innovative jurisdictional-scale carbon crediting” was seen as one way around the funding gap. The plan would allow poorer countries to produce verifiable emissions reductions by decommissioning coal plants or building clean energy projects, and sell the carbon credits to corporations.
The US this week is expected to outline stringent guidelines for the use of carbon credits, Reuters reported. “If we do not mobilize the private sector we do not win this (climate) battle,” Kerry said at an event touting the ETA last week. “We need high quality carbon markets to drive action.”
“Carbon credits, done right, can play a vitally important role, said Bezos Earth Fund’s Andrew Steer at the event. “The Energy Transition Accelerator, by insisting on the highest standards, can usher in a new phase of high integrity carbon crediting.”
The Center for Climate and Energy Solutions has been named the ETA’s secretariat. A coalition of buyers for the intiative is expected to be announced ahead of COP29 in Azerbaijan this fall.
In addition to backing the ETA, the Bezos Earth Fund, the $10 billion climate foundation set up by Amazon founder Jeff Bezos, is a major supporter of SBTi. The fund provided an $18 million grant in 2021 to help the group scale its target-validation services.
Last month, the Bezos Earth Fund hosted a gathering of carbon market movers and shakers, together with the Children’s Investment Fund Foundation (CIFF), which also funds carbon markets efforts, to discuss greenhouse gas accounting practices for countries and companies.
The Bezos fund’s carbon market activity has led some commentators to claim it is in the fund’s interest to have SBTi open the floodgates to broader carbon offset use. The opportunity is massive. A change in the SBTi’s standards could cause demand for carbon credits to double or more, according to Rich Gilmore, CEO of Carbon Growth Partners.
At the meeting, Bloomberg reports, two SBTi representatives “faced a barrage of implicit and direct requests” to ease their stance on offsets for Scope 3 emissions targets.
Shortly thereafter, the board issued its statement, which appeared to preempt the SBTi’s own standard-making process. A “first draft” of rules around the use of offsets for Scope 3 abatement is to be issued in July this year – raising the question why it decided to announce a change now before the prerequisite work was done.
The Bezos Earth Fund says though it provides funding, it does not make decisions for the SBTi and had no hand in the board’s April 9 statement. Representatives of the Bezos fund did not respond to a request for comment.
Online outcry
The tempest at SBTi is the latest in a series of setbacks for the loose coalition of public, private and nonprofit entities that have driven climate action since the 2015 Paris climate agreement. Vanguard Group in 2022 withdrew from the Net Zero Asset Managers group after pressure from state lawmakers opposed to environmental, social and governance, or ESG investing.
In February, JP Morgan Asset Management, State Street Global Advisors, and PIMCO left Climate Action 100+, which pressed the highest-emitting companies to adopt aggressive climate plans.
Carbon credits have become a particular sore point. Critiques of the quality of some of the underlying carbon-reduction products have cast doubt on the effectiveness of allowing companies to “offset” real emissions with sometimes suspect credits. Securing a credit attesting to one-ton reduction in carbon emissions, after all, enables a company to continue spew nearly a ton of actual carbon.
But carbon credits have become an important way to steer corporate funding to sustainable development projects in capital-starved regions of the world, including clean cooking and solar irrigation.
The split over the SBTi’s actions played out on LinkedIn, which lit up with a mix of praise and condemnation. Carbon market evangelists and standard-setters applauded the apparent policy shift. The We Mean Business Coalition, in contrast, supported the SBTi board statement, claiming that the “voice of business on this issue is clear.”
Other SBTi-affiliated bodies sought distance from the announcement. On April 15, the WWF released a statement that it will “continue to call for rigorous science and good governance” to inform all SBTi efforts.
“Updated guidance should also address the very real concerns regarding the poor track record of offsets in delivering real emissions reductions and driving market transformation,” the NGO wrote.
As of the time of writing, CDP and WRI had yet to release any official statements of their own.
Opposition to the board’s statement was two-pronged, concerning the mooted change itself and the alleged breach of process that precipitated it.
Thomas Day of the New Climate Institute in Berlin even went so far as to call the statement “an illegitimate takeover” of the SBTi by the board.
The controversy ratcheted up the next day, when an open letter signed by most SBTi staff made the rounds, stating their deep concern with the board’s post.
Specifically, they claimed the board circumvented the SBTi’s “Standard Operating Procedures” and governance by making it sound like the Scope 3 announcement was an organization-wide decision, rather than their own, independent view. In fact, neither SBTi staff nor its 15-strong technical council had been consulted, the letter said.
Staff also made clear the SBTi’s standards had not changed, and that they are still working through responses to a call for evidence on whether the environmental attribute certificates are effective as a mechanism for getting companies to reduce their carbon footprints.
Members of the SBTi’s 40-strong technical advisory group vented their anger, too. Stephan Singer of the Climate Action Network International quit in protest, saying in a resignation letter seen by the Financial Times that carbon credits are “scientifically, socially and from a climate perspective a hoax.”
On LinkedIn, Kaya Axelsson, another advisor and head of policy and partnerships at Oxford Net Zero, said the future of the standard set by the Science Based Target Initiatives “hinges on whether good governance prevails in this instance to reverse a unilateral decision made by a couple of board members.”
Hot seat
By Friday, members of the technical advisory group had drafted a letter calling on the SBTi board to retract the Scope 3 statement. Paul Schreiber of the NGO Reclaim Finance said he would resign from the body if the retraction wasn’t made.
SBTi didn’t publicly respond to the letter, but did amend its original post to make clear no change in standards had been made. Any use of EACs for Scope 3 would be “informed by evidence,” the amendment now states.
Despite the clarification, Schreiber wrote the board “still has a long way to go” to explain the original post. The SBTi and SBTi staff did not respond to requests for comment.
More than a week on from the SBTi board’s initial statement, the controversy remains unresolved. Schreiber of the technical advisory group thinks most of his peers see the board’s clarifying statement “as a sign that the standard can be preserved” and are staying in to ensure the proper process is seen through.
On April 19, another statement from the SBTi board insisted that “any potential use of market instruments will include guardrails, rules and thresholds that will ensure the global emissions decline, in the near and long term.” It also acknowledged that the topic of EACs in the context of corporate decarbonization “is a sensitive area and regrets that the [original] statement was open to misinterpretation.”
SBTi CEO Luiz Amaral released a blog of his own the same day, saying the organization’s “Standing Operating Procedure” would be followed. However, he also said he refuses to “avoid a difficult discussion” if it could enhance the SBTi standards, a reference to the EAC debate.
Yet, by appearing to circumvent the proper processes and flipping on offsets following pressure from powerful carbon market advocates, the board has undermined the SBTi’s reputation as a fair, science-driven arbiter of corporate climate targets.
“If you’ve spent years selling yourself to investors and regulators and the wider market as unflinchingly scientific,” writes Sophie Robinson-Tillet, a journalist and senior associate at the University of Oxford, “you cannot cannot suddenly opt for pragmatism when there are difficult decisions to be made.”
