What is the Science-Based Targets Initiative and why does it matter for carbon pricing?
July 17, 2024
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What is the Science-Based Targets Initiative and why does it matter for carbon pricing?
Carbon Market
The Science-Based Targets Initiative (SBTi) helps companies set CO₂ reduction targets aligned with climate science and the Paris Agreement. This article explains what SBTi is, its benefits for businesses, how to get validation in 5 steps, and its strategic link to the EU Emissions Trading System (EU ETS).
The Science-Based Targets Initiative (SBTi) has become the global reference for companies aiming to align their CO₂ reduction goals with climate science and the Paris Agreement. In this article, we explain what SBTi is, why it is essential for businesses, how it integrates with the EU Emissions Trading System (EU ETS), and the concrete steps to get validation for a science-based target.
What is the Science-Based Targets Initiative (SBTi)?
The SBTi is a collaborative initiative launched in 2015 by CDP, the World Resources Institute (WRI), the WWF, and the UN Global Compact. Its goal is to provide companies with a scientifically robust framework to set emission reduction targets aligned with warming trajectories limited to 1.5°C or “well below 2°C” above pre-industrial levels.
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Global Carbon Budget
To limit global warming to 1.5 °C, the remaining carbon budget was estimated at 420 GtCO₂ in 2022, while for 2 °C, it stood at 1,270 GtCO₂. Since 1750, 2,475 GtCO₂ have already been emitted.
SBTi allows companies to assess their impact on this global carbon budget and set concrete reduction milestones, ensuring that every action contributes to limiting climate warming.
The SBTi naturally fits into the framework of the EU ETS, which is detailed in our Fit for 55 article.
What are the Benefits for a Company Engaging with SBTi?
Engaging with SBTi is not just a symbolic gesture; it offers tangible advantages for companies.
Credibility and Anti-Greenwashing
SBTi validation is an externally recognized, global standard. It strengthens a company’s credibility with customers, investors, and partners, far beyond internal claims.
SBTi encourages companies to find low-carbon solutions, improve energy efficiency, and gain easier access to ESG-focused financing, which is increasingly demanded by investors.
How Can a Company Obtain SBTi Validation? (The 5 Steps)
The SBTi validation process follows five clear steps:
1. Commit
The company signs a commitment letter, pledging to align its targets with climate science.
2. Develop
The company calculates its carbon footprint and defines reduction targets.
It is essential to understand the Scopes:
Scope 1: Direct on-site emissions
Scope 2: Emissions from purchased energy
Scope 3: Indirect emissions from the value chain
How Science-Based Targets are Calculated
SBTi calculates science-based targets for each company using the collective carbon budget allocated to high-emission sectors worldwide by 2050.
Two main methods are used:
1. Convergence Method Each company in a sector reduces emission intensity (emissions per unit of production). Some companies must work harder than others, especially those starting from a higher emission baseline to “catch up.”
2. Contraction Approach Each company reduces absolute emissions over the period, regardless of production or initial intensity.
These methods define clear, science-backed targets compatible with global trajectories to stay below 1.5 °C or 2 °C.
3. Submit
Targets are submitted to SBTi for technical validation and scientific compliance.
4. Communicate
The company publicly announces its validated targets, demonstrating transparency and commitment.
5. Disclose
Progress is reported annually, ensuring traceability and continuous improvement.
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SBTi and the EU ETS: A Key Link for the Carbon Market
SBTi and the EU ETS are based on the same limited carbon budget principle:
Define a global emissions cap
Allocate this budget over time and among companies
Ensure rigorous monitoring to meet temperature thresholds
At Homaio, we observe that companies under the EU ETS that voluntarily adopt SBTs perform better than those setting targets independently. Even though SBTi commitments are technically voluntary, integration with legal constraints enhances their effectiveness and real impact on decarbonization.
Science-Based Targets Reinforced by the EU ETS
Some companies within the scope of the EU ETS can combine their SBTi commitments with European regulatory requirements. According to a 2024 academic study, EU ETS companies that voluntarily adopt science-based targets outperform those setting SBTs independently and not subject to EU ETS regulations.
In other words, while SBTi remains a voluntary commitment, aligning it with European legal constraints strengthens its effectiveness and real-world impact. At Homaio, we see this combination as a powerful lever to improve corporate carbon strategies while optimizing positioning in the European carbon market.
Conclusion
The Science-Based Targets Initiative is a powerful tool for companies seeking to engage in the low-carbon transition with credibility and performance. It allows alignment with scientific standards, anticipation of European regulations, and easier access to ESG financing. Want to understand how your company can commit to a Net-Zero trajectory and leverage its actions on the carbon market? Explore our solutions and insights on Homaio.com.
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