Earning Leadership status with SBTi could cost companies billions 

Starting next year, companies can gain recognition from the Science Based Targets initiative (SBTi) for taking responsibility for ongoing emissions. The move, one of several significant changes in the initiative’s updated Corporate Net-Zero Standard, is a departure for the organization, which until now has focused on guidelines for target setting and emissions reductions. 

To estimate what it will cost leading companies to achieve one of the SBTi’s three recognition tiers, Trellis used a calculator developed for the purpose by Supercritical, a carbon removal marketplace. Here’s what we discovered.

How recognition is awarded

Version 2 of the SBTi’s net-zero standard details three tiers of recognition that companies can shoot for:

• Engaged companies purchase carbon credits equivalent to 1 percent of their total annual emissions or apply an internal carbon price to the same quantity of emissions, and use the proceeds to support climate solutions.
• Advanced businesses must cover all Scope 1 and 2 emissions, together with additional Scope 3 emissions such that the total comes to at least 10 percent of the company’s footprint. Organizations can address the emissions using credits or a carbon price approach; if they opt for the latter, it must be set at $20 per metric ton of carbon dioxide equivalent (tCO2e) or more.
• Leadership status goes to large companies that apply a carbon price of at least $80/tCO2e to 100 percent of their emissions. The funds generated must be used to buy enough credits to match the company’s footprint. Any remaining money can be used on additional credits or other climate solutions. 

To gauge the cost of achieving these tiers, Supercritical’s calculator starts with a company’s current emissions data for Scopes 1, 2 and 3. It then calculates the emissions that would be expected between now and 2035 if the company were to follow one of the net-zero decarbonization pathways used by SBTi. Finally, the model estimates the cost of using the carbon price approach to achieve each of the recognition levels. (SBTi does not specify a price for the engaged level, but recommends a minimum of $20/tCO2e. Trellis used this price.)

What it will cost companies

Heavy emitters seeking Leadership status will face costs that Mai Bui, Supercritical’s director of climate science and policy, described as “eye watering.” Trellis ran the numbers on a sample of major companies to illustrate her point.

Annual cost of achieving recognition tiers

Which companies will seek the higher tiers?

Leadership status is off the table for Rio Tinto and Ford, the two heaviest emitters in our sample: The investment required is greater than recent profits. Aside from that, however, many of the companies could conceivably afford recognition at the higher tiers. One question for sustainability leaders will be when it makes sense to invest in climate solutions outside their company’s value chain rather than prioritizing work in house and with partners.

Current spending provides some clues as to when that might be the case. Large tech companies boast relatively high profits-to-emissions ratios, making substantial investments in beyond-value-chain projects more attractive. But even for this group, an Advanced label may be more realistic than Leadership.

Microsoft, for example, is committed to becoming carbon negative by 2030 and has been stockpiling credits at the date nears. If it meets that pledge — a live question given the additional emissions caused by its data center investments — the tech giant would likely pass the carbon credits criteria for Leadership. But it may not pass the other test, because the company’s internal carbon price of $100/tCO2e only applies to business travel emissions; other emissions sources are subject to a $15/tCO2e fee. (Microsoft would also have to re-enter the SBTi process; its net-zero commitment expired in 2024.) 

Several other companies, including Swiss Re and Etsy, also use levies in excess of the $80/tCO2e threshold for Leadership, but again the fees apply to a subset of emissions. A list of internal carbon prices compiled by the Carbon Capital Lab, a sustainability consultancy, includes just two businesses — Planet A, a VC fund, and Mentimeter, a software firm — with fees that meet the Leadership criteria.