Written By: William DANIEL
Verified By: George KIONGSON
Image 1: SBTi Logo on a Landscape Image. Source: Mt. Stonegate Green Asset Management
The Science-Based Targets Initiative (SBTi) is one of the most rigorous and respected frameworks for business to align their emissions reduction goals with the Paris Agreement. Its objective is simple: encourage corporations to reduce their greenhouse gas emissions to limit global temperature rise to 1.5oC. However, for all its promise, the SBTi’s stringent criteria have proven difficult to meet for many large corporations. In recent years, some notable companies, such as Intel, Microsoft, and Shell, are some of the 200+ companies that have paused or revoked their commitments to SBTi targets recently. Failing to meet SBTi commitments can have serious repercussions for companies, particularly in terms of their public image and credibility. When businesses set ambitious climate targets but fall short, they risk being accused of greenwashing practices where companies exaggerate or mislead about their environmental efforts. This can damage their reputation, as consumers and investors increasingly demand accountability and transparency in corporate sustainability efforts.
This begs the question: why are these companies falling short?
Scope 3 Emissions: The Elephant in the Room
One of the most significant hurdles for companies is the challenge of managing scope 3 emissions that occur throughout the value chain, including suppliers and customers. These indirect emissions often account for the largest portion of a company’s carbon footprint, sometimes as much as 85%. For companies like Intel, whose product emissions after customer use are substantial, keeping up with SBTi’s demands has proven too complex.
Even companies like Shell, which initially committed to SBTi, have paused their target-setting process. They found it difficult to include emissions from the customers who burn their products (Scopeutside 3), which are under their immediate control but critical to achieving a science-based net-zero goal. As a result, companies are finding that they can reduce emissions within their direct operations (Scope 1 and 2) but struggle with accounting for those generated by their broader ecosystem. (Green Strategies)
The Financial and Technological Barriers
The financial cost and technological readiness required to meet SBTi’s targets weigh heavily on corporations. For industries such as aviation, mining, and manufacturing, where low-carbon technologies are still in their infancy, the shift to carbon-neutral operations can be prohibitively expensive and, in some cases, technologically infeasible.
Take the mining sector, for example. Glencore and Rio Tinto, two giants in the industry, both paused their SBTi commitments, citing the difficulty of decarbonizing their extractive operations. These industries rely heavily on long-lasting, high-emitting equipment that is not easily replaced or retrofitted. In addition to direct operational challenges, there’s the broader issue of reducing Scope 3 emissions in supply chains an area where even advanced technologies fall short.
Evolving Regulatory and Market Conditions
Corporate commitments to SBTi are made in a rapidly changing regulatory environment. Governments around the world are imposing new carbon taxes, stricter emissions standards, and mandates for renewable energy, all of which can significantly impact the feasibility of long-term emissions reduction plans. Some companies, particularly those in sectors like real estate and energy, have found themselves caught in the crosshairs of conflicting policies or new regulations that complicate their efforts to stay on track with SBTi.
This was the case for several real estate firms in Asia, which pushed back on SBTi’s evolving standards, particularly around the measurement of Scope 2 emissions. These emissions, related to purchased electricity, are difficult to control in regions where fossil fuel-based grids dominate the energy landscape (Eco-business). As regulatory frameworks evolve, companies find it harder to predict and plan for the future.
Internal Resistance and Cultural Barriers
Beyond external challenges, some companies face significant internal resistance. Achieving ambitious climate targets often requires radical business models and operation changes, which may not align with short-term profitability goals or entrenched corporate cultures. Daimler, now known as Mercedes-Benz Group, provides an example. The automaker temporarily withdrew from its SBTi commitment after realizing the complexity of aligning its internal business strategy with SBTi’s stringent requirements. In industries where shareholders prioritize immediate returns, sustainability goals can sometimes take a backseat, especially if the costs are high.
Moreover, companies without in-house climate expertise may overestimate their ability to decarbonize quickly. Studies have shown that industries with lower rates of climate risk disclosure tend to set more ambitious targets, but these targets often prove unattainable because they lack the necessary internal know-how (Eco-Business). In contrast, businesses with a deeper understanding of the technical and logistical hurdles tend to set more realistic, but perhaps less bold, goals.
SBTi's Changing Standards
Another challenge is the evolving nature of SBTi’s criteria. As climate science advances, SBTi has continuously updated its guidelines, which has occasionally caught companies off guard. For instance, the initiative phased out approval for 2oC-aligned targets. While this shift is in line with the latest climate research, it has made it harder for companies that initially committed to less stringent goals to keep pace. In addition, specific sectors like real estate have also lobbied against some of these rule changes, particularly those requiring more stringent accounting of Scope 2 electricity emissions.
Conclusions
The road to decarbonization is fraught with challenges, and while many companies remain committed to reducing their emissions, the complexities of the SBTi, particularly around Scope 3 emissions, financial, and technological barriers, and regulatory challenges also offer valuable lessons. Companies that stay transparent about their limitations, engage deeply with their supply chains, and remain flexible in the face of evolving standards are more likely to succeed in the long run. As investor and consumer pressures continue to grow, corporate climate responsibility will remain a moral imperative and a business one.
For companies struggling to meet their SBTi targets, seeking expert guidance can make a difference. Mt. Stonegate specializes in helping organizations navigate these complex challenges. From managing scope 2 emissions to developing innovative, low-carbon strategies, Mt. Stonegate provides tailored solutions that enable companies to achieve their climate goals without compromising their long-term business interests.
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