The SBTi and BVCM: How carbon credits support the path to net zero

Key Takeaways

• The Intergovernmental Panel on Climate Change (IPCC) sets thresholds to limit global warming to 1.5°C above pre-industrial levels.  To stay within the limits, companies must halve their emissions by 2030 and reach net zero before 2050.
• The SBTi supports companies in achieving the IPCC’s limit to net zero by setting clearly defined and achievable targets. Carbon credits are a powerful tool to remove and store CO2 emissions. However, as part of net zero strategies, they can sometimes overlook important climate mitigation projects.
• For this reason, the SBTi has introduced the Beyond Value Chain Mitigation (BVCM) claim that allows companies to support climate projects as a recognised effort in achieving net zero.
• The SBTi recognises the Voluntary Carbon Market Integrity Initiative (VCMI) Claims Code of Practice as a guide for organisations to set ambitious climate goals and to select high-quality BVCM projects to include in corporate climate strategies.

What is the Science-Based Target initiative (SBTi)?

The latest Intergovernmental Panel on Climate Change (IPCC) report reveals that greenhouse gas (GHG) emissions have reached unprecedented levels in human history. Without significant emission reductions from human activities, the 1.5°C warming limit, beyond which catastrophic impacts on both people and nature become inevitable, is likely to be exceeded.

To limit global warming to 1.5°C, the IPCC urges businesses across sectors to take immediate action and reduce their emissions increasingly, setting targets to half emissions by 2030 and to reach net zero before 2050.

Hence, companies are urged to limit their emissions to meet the 1.5°C threshold but are faced with a daunting question:

How can my company establish scientifically based targets to reduce emissions by half by 2030 and achieve net zero before 2050?

To tackle this challenge, a consortium of NGOs, including the Carbon Disclosure Project (CDP), the United Nations Global Compact, the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF), joined forces in 2014 to establish the Science Based Targets initiative (SBTi).

The SBTi is a corporate climate action organisation whose purpose is to enable companies and financial institutions worldwide to set targets aligned with scientific principles and assist them in aligning with IPCC recommendations.

To establish Science Based Targets (SBT’s) , organisations must follow a five-step approach:

1. Commit: Submit a letter indicating your intent to set a science-based target.
2. Develop: Work on an emissions reduction target following the SBTi's criteria.
3. Submit: Present your target to the SBTi for official validation.
4. Communicate: Announce your target and inform your stakeholders.
5. Disclose: Report company-wide emissions and track target progress annually.

Currently, over 5,000 businesses across various regions and industries have set emissions reduction targets grounded in climate science through the SBTi. As this number grows, more organisations are ramping up their commitments to meet the 1.5° IPCC recommendations.

What is Beyond Value Chain Mitigation (BVCM)?

Nevertheless, to accelerate mitigation efforts and reach net zero emissions, the SBTi has raised the bar for corporate commitments in the race against climate change. Indeed, organisations are asked to drastically reduce their own emissions and tackle the excess of GHG remaining in the atmosphere as a result of collective historical emissions.

For this reason, the SBTi has recognised the importance of the Beyond Value Chain Mitigation (BVCM) mechanism, where companies are asked to rise to the occasion and support high-quality projects that significantly contribute to climate change mitigation beyond their own value chain.

Examples of BVCM projects?

The SBTi introduces BVCM as a strategic mechanism for businesses to accelerate global progress towards net-zero emissions. BVCM refers to actions or investments a company undertakes outside its direct value chain that contribute to reducing greenhouse gas (GHG) emissions or removing and storing them from the atmosphere. This can encompass various activities, such as:

How to use BVCM investments as part of Corporate Climate Strategies

While carbon credits are potent tools for assessing a company’s progress toward emission reduction targets and net zero goals, they often overlook crucial impacts of climate mitigation.

For instance, forest conservation projects such as REDD+, though not directly involved in new CO2 removal, play a vital role in global climate mitigation by sequestering carbon and safeguarding biodiversity.

Recognising this, the SBTi allows companies to endorse projects beyond their immediate operations, categorising them as BVCM (Beyond Value Chain Mitigation) efforts. These are integral to the Corporate Climate Strategy but aren't tethered to the company’s specific emission reduction targets. Consequently, BVCM projects are not required to demonstrate a net environmental benefit greater than the company’s unabated emissions(SBTi Above and Beyond, p101).

However, to gain recognition, BVCM projects must meet stringent quality standards. The SBTi recently endorsed the Claims Code of Practice by the Voluntary Carbon Market Initiative (VCMI) as a crucial framework for evaluating carbon credit utilisation in corporate climate commitments. The VCMI introduces three tiers of claims—Silver, Gold, or Platinum—guiding companies in determining the necessary credits for meeting their climate goals.

In recognising the VCMI as a definitive rulebook, the SBTi aims to provide clarity and guidance on the credible utilisation of carbon credits within corporate climate strategies.

How to make a BVCM Claim

To set a BVCM pledge, companies need to address the following steps, clearly defined in the Above and Beyond Report on BVCM by the SBTi:

1. Establish and disclose a validated Net Zero climate target aligned with the SBTi’s Net-Zero Standard and ensure they have a comprehensive decarbonisation strategy by:
   • Developing a complete GHG emission inventory using Carbon Accounting tools
   • Setting, submitting, validating, and disclosing a Net Zero target
   • Creating, disclosing, and working towards a net-zero aligned climate transition plan
2. Consider the internal use and define a BVCM strategy by:
   • Identifying the business case and strategic objectives for BVCM. For example, a food company might find supply chain resilience opportunities through restoring landscapes connected to its supply chain, or a heavy emitting industry might consider funding the scale-up of CDR technology.
   • Defining the time frame and scale of the BVCM pledge
   • Setting quality standards and guardrails for BVCM activities and investments
3. Select high quality credits and investing approach by:
   • Designing a portfolio of BVCM activities and investments, following ICVCM recommendations for selecting high-quality credits
   • Defining the adequate investment approach according to the selected BVCM strategy, i.e. Ton for Ton, Money for Ton, and Money for Money.
4. Finally, after setting clear decarbonisation targets and selecting high-quality BVCM projects, an organisation must:
   • Establish a BVCM measurement, reporting, and verification (MRV) framework through an independent third party
   • Report annually on BVCM activities, investments, and outcomes
   • Make transparent and accurate BVCM claims

It is important to note that, at the time of publication, the SBTi does not plan to validate BVCM claims. The SBTi focuses on defining voluntary claims related to the commitment to and achievement of near- and long-term science-based value chain abatement and net-zero in alignment with SBTi standards. Other market players, like the Voluntary Carbon Market Integrity Initiative (VCMI), are working to define BVCM-related claims, focusing on the use of high-quality carbon credits.

Conclusion -  How Carbon Credits support Net Zero

Hence, according to the SBTi, to reach the IPCC's below 1.5°C threshold, corporate climate strategies should adhere to a clearly defined mitigation hierarchy. This hierarchy primarily focuses on reducing internal emissions while increasingly supporting external climate mitigation efforts. Indeed, the initial focus should be on internal emissions abatement, aiming for a 50% reduction by 2030 and 90% by 2050, in line with the IPCC's scientific findings.

Secondly, companies should consider addressing emissions outside their own value chain by investing in projects, such as those supported through carbon credits, that demonstrate a significant mitigation impact through the BVCM mechanism.

Lastly, to tackle the remaining emissions and achieve Net Zero, companies are advised to neutralise 10% or less of remaining emissions through permanent carbon removals.

Carbon credits have become a powerful tool for measuring climate mitigation impacts and outcomes. For this reason, credits are increasingly integrated within corporate climate strategies, such as BVCM and net zero strategies. While the challenge remains to ensure the high quality and integrity of the credits, many initiatives strive to provide clarity and guidance within the VCM space.

For more information, we recommend visiting the SBTi, BVCM or VCMI websites.