One-third of companies that lost SBTi net-zero target validation are from Asia Pacific

The Science-Based Targets initiative (SBTi) is widely seen as the gold standard for corporate decarbonisation targets. But while the number of SBTi-validated net-zero targets has grown rapidly since the United Nations-backed organisation’s founding in 2015, the year of the Paris Agreement, many firms are still struggling to meet SBTi’s standards, particularly in developing Asia.

At the COP28 climate talks last month, the SBTi reached a milestone of 4,000 businesses with approved targets aligned with the Paris Agreement’s climate-critical 1.5°C warming limit, up from 2,000 the previous year and 1,000 the year before that. Around 6,000 companies have submitted their decarbonisation targets to SBTi for approval to date. However, a check by Eco-Business of SBTi’s data available on its website reveals that 173 companies which had their net-zero commitments previously published have been removed since January last year, with 50 based in Asia Pacific. 

SBTi gives companies two years to develop credible climate targets after they declare their goals publicly. To keep its framework robust, since early last year, SBTi has put in place a policy to drop firms that do not have commitments that can withstand scrutiny. If a company did not submit targets within its declared time frame, withdrew its pledge, or ceases to exist, merges or is acquired, it is removed from SBTi’s list. The information is public. 

Globally, the most high profile company to have its pledge dropped is Amazon. In 2019, the e-commerce giant pledged to eliminate or offset all of its carbon emissions by 2040, and submitted its goals for validiation by SBTi in 2020. The commitment has since been removed.

Among the largest Asia-based companies to have their commitments removed is the Hongkong & Shanghai Hotels Group, the Hong Kong-headquartered multinational owner of the Peninsula Hotels brand. Indian manufacturing and engineering giant Godrej & Boyce, and Japanese internet firm Yahoo Japan are other large regional firms whose climate targets have not made the grade.

“

Many companies rushed into setting targets too quickly.

Steve Newman, chief sustainability officer, EarthCheck

Some of the companies that have had their commitments revoked are surprising, because these firms are in the business of carbon reduction: United Kingdom-based carbon finance and peatland restoration organisation Forest Carbon being one;  Chinese solar company Trina Solar another. 

Computer chip-maker Intel is the most recent company to declare that while its climate targets are aligned with climate science, it does not follow SBTi’s guidelines. This is because Intel’s absolute emissions are not falling over time, which conflicts with SBTi’s requirements for near-term emissions reductions.

Why science-based targets are so hard to hit

The hardest thing about decarbonisation is reducing or even measuring Scope 3 emissions, or full value chain emissions from suppliers and customers, said Steve Newman, the former chief sustainability officer of hospitality brand Banyan Tree, who recently joined sustainability consultancy EarthCheck.

The SBTi requires companies to set a Scope 3 target if their Scope 3 emissions represent more than 40 per cent of their overall emissions. According to carbon accounting firm Terrascope, Scope 3 emissions represent about 85 per cent of an organisation’s emissions footprint on average.

“Companies are realising that they can reduce Scope 1 and Scope 2 emissions, but reducing Scope 3 is a lot harder,” Newman told Eco-Business. Some firms have been overly ambitious and have had to push back their targets after realising how complex the process is, he added.

“I don’t think there is anything wrong with adjusting targets. It’s important to be transparent and genuine in what you are doing. Setting a target for the sake of it is meaningless,” he said.

Newman authored a study, published in Harvard Law School Forum on Corporate Governance in December last year, that found that companies in heavily scrutinised and regulated industries such as energy and utilities, which have the highest rates of climate risk disclosure, tend to have set climate targets further into the future.

By contrast, companies in industries such as healthcare and IT, with low rates of climate disclosure, tend to set the most ambitious goals with target years closest to the present date. Companies with the boldest targets also tend to have less in-house climate expertise, and a lower understanding of what is needed to meet sustainability targets, the study found.

“Companies with a greater understanding of the scope of the challenge tend to set more realistic targets,” said Newman.

Moving goal posts

Some companies have found that changes to SBTi’s rules have scuppered their targets. SBTi has phased out approvals for 2°C-aligned targets, to make 1.5°C-aligned targets the norm, and last September, a group of Hong Kong property firms lobbied against a proposed rule change that would only allow real estate firms to report Scope 2 electricity emissions in the locations where they consume energy – a tall order in territories with fossil fuel-based grids, like most of Asia Pacific.

In its latest draft of its rules for the real estate sector, released in November, SBTi said that location-based accounting is no longer mandatory.

None of Southeast Asia’s biggest three banks, DBS, OCBC or UOB, have SBTi-approved net-zero targets, although all three have strengthened their goals in recent years and consider their targets to be science-based.

When DBS set interim climate targets for polluting sectors in 2022, the bank’s head of sustainability for institutional banking Yulanda Chung said SBTi compliance was problematic as the standards require a rapid retreat from fossil fuels. DBS, like its rivals, still funds coal power in the region and expects to have exited the sector only by 2039.

“It remains credible to say that [DBS’s net-zero target] is science-based, because we have opted for the reference pathways from the IEA [International Energy Agency] – which is one of the most stringent pathways you can find,” Chung said.

Companies with any level of direct involvement in the exploration, extraction or production of fossil fuels cannot be validated by SBTi because science-based emissions reductions for fossil fuel companies are complex. SBTi is working on sector guidelines for the oil and gas industry.

A major criticism of SBTi is that its requirements are too difficult for small and medium-sized enterprises (SMEs) to meet. SMEs, which account for about a half of the business sector’s emissions globally, must cut absolute emissions to get validated, which many fast-growing smaller firms struggle to do, while some larger firms can cut emissions intensity and still get validated.

“SBTi remains predominantly within the realm of big industry players, and there is a general lack of SMEs. Bigger companies have far more resources to dedicate to decarbonisation,” said Newman.

However, he noted that SMEs are increasingly “catching up”. Smaller businesses face pressure from the larger firms they supply to, which are juggling a myriad of sustainability reporting frameworks and government regulations, to themselves measure their emissions and decarbonise. 

Targets on hold

Energy price inflation and supply insecurity have conspired to push net-zero targets out of reach for many firms since the outbreak of the Russia-Ukraine war and the ensuing economic turbulence, according to a study of the world’s largest 2,000 public and private companies by professional services firm Accenture.

“As the economy has slowed down, there’s been a lot of pressure to reduce expenses and decarbonisation plans have been put on hold,” said Newman. “Companies got to the point where they have had to remove themselves from SBTi so they can step back and think properly about decarbonisation. Many companies rushed into setting targets too quickly.”

A steep acceleration of emission reductions and an “urgent and profound” integration of sustainability into business practices is needed to get corporations back on track to meet the climate-critical net-zero 2050 target, Accenture’s Europe chief executive Jean-Marc Ollagnier said.

Only 7 per cent of the biggest firms are on track to achieve net-zero targets for Scope 1 and Scope 2 emissions. Even if these companies doubled the rate of emissions cuts in the years to 2030, more than half (59 per cent) would fail to decarbonise by 2050, the study found.

To limit global warming to 1.5°C, greenhouse gas emissions must peak by 2025, drop 43 per cent by 2030, and reach net zero by 2050.