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SBTi comes under fire over corporate reporting standards

© Shutterstock / LeoWolfertSustainable finance.

The Science-​Based Targets Initiative (SBTi) has come under fire as a number of NGOs asked for the standards body to update its reporting standards in line with the recommendations of the UN High Level Expert Group.

  • SBTi is considered the gold standard for corporate reporting but as demands for transparency grow, it is coming under attack.
  • Estimates suggest that less than 50% of corporations are likely to meet their net zero targets, and Planet Tracker analysis uses BASF to show exactly how far off course they are.
  • Despite the calls for standardisation of reporting, there are challenges to current frameworks and necessary nuance to understanding reporting, that are causing serious concern in the market.

At COP27, the UN published a special report Integrity Matters: Net-zero Commitments by Businesses, Financial Institutions, Cities and Regions from the High Level Expert Group to highlight the need to strengthen climate pledges and avoid greenwashing. The report set out a powerful new standard for net zero targets, including clear recommendations for companies. Launching the report, the UN Secretary General, Antonio Guterres, said: “The problem is that the criteria and benchmarks for these net-zero commitments have varying levels of rigour and loopholes wide enough to drive a diesel truck through.”

The trouble with net zero and the SBTI

Over 5,000 companies are taking climate action with the SBTi, but a new analysis by Changing Markets shows how much off-track the initiative is from the UN report’s Recommendations.

Current SBTi guidance requires companies to report only 67% of their estimated supply chain emissions. The UN High Level Expert Group recommends that companies’ targets should account 100% of all emissions (including Scope 3).

The initiative makes it optional to set separate targets for methane, one of the most potent greenhouse gases (GHG). The UN High Level Expert Group recommends companies setting net zero targets should have specific targets for all material GHGs. Scientists agree that powerful methane emissions should be cut by at least 45% in this crucial decade of action to slow the rate of warming.

Methane is responsible for a 30% of the rise in global temperatures to date and is estimated to have 80 times the warming power of carbon dioxide over 20-years. But despite its potency, methane is short lived, which means that reducing it could have a significant impact on reducing global heating. A recent report showed that for meat and dairy companies methane can represent up to 80% of their emissions.

Another major shortcoming is that SBTi continues to host company targets that lead us to either well below 2˚C or 2˚C temperature increase, when the baseline for validated companies must be in line with the international agreement of 1.5˚C temperature increase at the least.

Is the SBTi a cover for greenwash?

There is no question that the SBTi has brought companies together and provided a framework through which they can set targets in a standardised way. The challenge is when companies with major emissions profiles set SBTi targets that don’t encompass the whole business – because that gives rise to a public perception that they are using the SBTi as a cover for greenwash. That’s the case with global agricultural giant JBS (BVMF:JBSS3).

JBS has emissions equivalent to that of Spain and recently lost its appeal against The National Advertising Divisions ruling to discontinue its claims to be Net Zero by 2040. This was due to a lack of evidence that JBS could in fact meet this target. JBS also faces allegations that the company failed to disclose 97% of its emissions, misleading investors and resulting in an active complaint filed by Mighty Earth with the US Securities and Exchange Commission.

JBS committed to a net zero target with SBTi in June 2021 but is yet to have any plans verified by SBTi to meet its 2040 claim. SBTi guidance states that companies have 24 months to submit plans from their initial pledge, after which time the original commitment should ‘expire’. For JBS, the deadline for verification of any plans was June 2023, however, the JBS 2040 net zero commitment has not been verified according to the SBTi list.

FTSE Russell warns that up to half of companies won’t hit targets

It’s not as simple as companies not fulfilling their obligations, however – it’s not clear that every company has the capacity to meet its targets. Analysis from Félix Fouret, SI research lead at FTSE Russell, warns that half of the companies that have set net zero targets may fail to achieve them. At the moment, there is no standard to benchmark their performance. Still, FTSE Russell’s analysis of historical achievements finds that nearly half of companies failed to achieve the goals they had set themselves.

There are a number of issues, including the fact that many companies set their own targets, so it is hard to compare like for like. Even where the team was able to track the targets, just over half that set targets before 2020 and could be tracked managed to hit their goals.

And the demand for robust data is only growing. Not only there is building acceptance that net zero targets that only include internal emissions are insufficient to address the impacts caused by climate change. A 2016 analysis by Trucost for what is now called the Natural Capital Coalition estimated that none of the world’s leading industries would be profitable if they paid for the natural capital they consume in the course of doing business – valued at $7.3 trillion. That is value that is being lost to the global commons.

What’s especially interesting is the way in which such costs are broken down. The majority of unpriced natural capital costs are from greenhouse gas emissions (38%) followed by water use (25%); land use (24%); air pollution (7%), land and water pollution (5%) and waste (1%). So companies that are addressing their Scope 1 and 2 emissions are ignoring more than 60% of the impact they have.

BASF seems to be failing to transition

The problem for companies is that expectations of what is acceptable behaviour on climate are changing rapidly, as is the regulatory environment. A climate transition analysis from Planet Tracker says that BASF is far from being on target to align with climate goals. There are two concerns that the NGO raises, the first of which is that the company’s plans rely on CCS which remains uncommercial outside oil-recovery projects. The second of which is that the company doesn’t even have targets for the 80% of emissions within its supply chain, or Scope 3.

While the company has announced plans to target Scope 1 and 2 emissions, it has no target for Scope 3, those produced indirectly along supply chains, which account for 83% of its total emissions. The report finds that BASF’s policy for Scope 3 suppliers that ‘deviate’ from climate commitments is to ‘retain and engage’, implying that it puts little pressure on these organisations.

Planet Tracker says: “BASF is doing surprisingly little to bring these technologies about and is spending little in climate prevention. BASF (XETRA: BAS) has committed to invest USD 1 billion in climate protection by 2025, but the report finds it is spending ten times that rate to expand its capacity.”

John Willis, director of research at Planet Tracker, said: “This data demonstrates a worrying trend, that BASF has no credible strategy to become Net Zero. Planet Tracker calls on BASF and its investors to do more to reverse this startling climate trajectory”.

SGV Take

There are a lot of companies that made a great deal of noise about plans to cut emissions, without really looking into what it was going to take to achieve those ambitions.

For those that proudly announced emission reduction for their energy use and travel, that’s laudable but no longer sufficient in a world where the extreme weather driven by the climate crisis is front and centre.

More importantly, it’s no long sufficient to sign up to a standard – companies without an active transition plan and the ability to report on milestones run the risk of being tarred with the greenwash brush.

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