SBTi’s tailored route to net zero for SMEs

Credit: Olivier Le Moal via Shutterstock

The Science Based Targets initiative (SBTi), established in 2015 as a non-profit organisation under the auspices of the United Nations, is widely acknowledged as a reputable global validation scheme, helping corporations to reduce their carbon footprint. 

Through its certification process, SBTi has recognised emissions targets of nearly 4,000 companies worldwide, confirming their alignment with the goals of the Paris Agreement — a collective endeavour aimed at curbing global warming to a critical 1.5 degrees Celsius. 

In a significant development, SBTi unveiled plans in 2023 to introduce a tailored standard explicitly for financial institutions, set to be implemented as early as 2024. This standard mandates banks and asset managers to refrain from financing new fossil fuel projects, marking a shift toward sustainable finance practices. 

However, this week the move encountered resistance from notable financial institutions. Four major banks — Standard Chartered, HSBC, Societe Generale, and ABN Amro — have disassociated themselves from the SBTi, expressing reservations about the scrutiny of climate targets imposed on corporations, as reported by Reuters and Bloomberg.  

This withdrawal from the SBTi coincides with the timing of the UN’s COP28 climate summit in Dubai and aligns with comments from Sultan al-Jaber, the president of the ongoing UN climate talks. 

In a recorded conversation with former Irish president Mary Robinson several weeks ago, Al-Jaber expressed scepticism about the scientific consensus on the necessity of completely discontinuing fossil fuels to limit the temperature rise to 1.5°C. He notably remarked that there is “no science” supporting such a measure. However, in subsequent public statements, Al-Jaber has underscored the pivotal role of science in shaping environmental policies and strategies. 

Despite withdrawing from SBTi, these banks maintain their commitment to the Net-Zero Banking Alliance (NZBA), another UN-convened group of which they are active members.  

The decision to sever ties with SBTi by these banking giants is rooted in concerns that the validation process could hinder their ability to sustain financing for fossil fuel projects.  

In an interview with Alejandro Gonzalez the editor of Leasing Life, Alberto Carrillo Pineda, Chief Technical Officer of the Science Based Targets initiative (SBTi), discussed the pathway to target setting and the hurdles faced by small to medium-sized (SMEs) finance companies in their pursuit of reducing financed emissions to net zero by 2050. (In the UK and the EU, an SME is any organisation that has fewer than 250 employees and a turnover of less than €50 million or a balance sheet total of less than €43 million.) 

Alberto Carrillo Pineda: The SBTi offers a specific target-setting route for SMEs. SMEs can immediately set a science-based target for their scope 1 and 2 emissions by choosing from one of several predefined target options. SMEs must also commit to measuring and reducing their scope 3 emissions, although it is not mandatory for SMEs to set targets for their scope 3 emissions.  

The SBTi introduced this option for SMEs because smaller companies often lack the resources and capabilities needed to set scope 3 targets and monitor progress against them. The SBTi’s approach for SMEs balances the need for them to take account of emissions across their value chains without imposing too great a burden on them. 

Alberto Carrillo Pineda: All financial institutions (FIs), regardless of size, must use the SBTi’s Financial Sector Science-Based Targets Guidance. While it is not required, they are also welcome to commit to setting science-based targets, which publicly state their intention to submit targets to the SBTi for assessment within 24 months. If they commit and do not submit targets in this timeframe, they are marked as ‘commitment removed’ on the SBTi Target Dashboard.  

After using the guidance to develop targets, they submit all necessary documents and information using our submission form for FIs. Then, our expert target analysts work to review the submission against our criteria to determine if it is in line with the latest climate science.  

If the science-based target conforms with our criteria, it is validated. If not, we provide feedback and they are given the option to resubmit. Upon validation, the targets are published on our Target Dashboard and the validated entity must report progress against targets annually.

Alberto Carrillo Pineda: Effective 1 January 2024, the SBTi is updating our SME definition to include sector-specific criteria. This will mean that companies from some sectors will not be eligible to submit targets using the SME route, regardless of their size. Instead, FIs, FLAG, power and maritime companies will use their respective sector-specific guidance, and oil and gas companies will be required to use our upcoming Oil and Gas Standard.

Alberto Carrillo Pineda: When a company submits net-zero targets to the SBTi, they are connected with a member of our Target Validation Team who will assess their submission. This enables our team to connect with companies to resolve any issues, answer questions and ensure alignment with our criteria.  

If SMEs have inquiries about setting a net-zero target, we can outline the process to help ensure their targets meet our criteria. When SMEs lack essential accounting information, we direct them to valuable resources like the Greenhouse Gas Protocol (GHGP) or the SME Climate Hub by We Mean Business, which are crucial for aiding small businesses with their data collection and alignment with our criteria. 

Alberto Carrillo Pineda: All large companies that submit targets to be validated by the SBTi are required to complete a comprehensive inventory of their scope 1, 2 and 3 emissions before setting targets. This is made possible by the various resources provided by the GHGP to calculate total emissions and understand which categories they belong to. These tools can also be used to develop annual inventories to measure progress against targets after they are validated.  

We do not support companies in doing their inventory or in developing their targets. However, we do offer guidance documents and other resources to help streamline their target development process. We host regular webinars for companies and companies can ask us questions via email. 

Alberto Carrillo Pineda: One of the most common challenges that SMEs face when it comes to sustainability efforts is data knowledge and resource limitations. To help small businesses overcome this, the SBTi implemented a specific pathway, which enables SMEs to select from multiple predefined target options. The SME pathway has a reduced fee compared to the standard process.

Alberto Carrillo Pineda: Science-based targets have become the best way to increase the confidence of different stakeholders in your alignment with the Paris Agreement. They are recognised across geographies and industries. Companies tell us they see this helps them to recruit new talent, catalyse innovation and build competitive advantage.