Calyx Global is pleased to share this guest opinion piece by Alvin Lim, CEO & Co-founder of Climate Bridge International, a leading Asia Pacific-headquartered carbon project development and trading company. The views expressed are Alvin's own and do not necessarily reflect our position. We value his expert perspective and thank him for this thoughtful analysis.

On March 18, 2025, the Science Based Targets initiative (SBTi) released its Corporate Net-Zero Standard Version 2.0 Initial Consultation Draft, offering proposed solutions to how corporations should align their decarbonization strategies with science-based net-zero pathways. Overall, the draft presents a generally positive outlook for market-based mechanisms, with proposed approaches recognizing the role of reduction and removal credits. Some of the proposed solutions represent a meaningful shift in the SBTi stance on using market-based mechanisms and bodes well for companies looking to engage with the carbon markets. However, a few key areas require further clarity, particularly concerning the use of market-based mechanisms in Scope 1 and 3 emissions and their treatment within residual and ongoing emissions frameworks.

Market-based Mechanisms: Acknowledging indirect mitigation

One of the encouraging aspects of the draft is its recognition of indirect mitigation efforts, such as Sustainable Aviation Fuel certificates (SAFc) and Book & Claim approaches. These mechanisms could create new opportunities for companies to use high-integrity environmental attribute certificates (EACs) to support their net-zero commitments. However, the quality criteria for these mechanisms are yet to be defined, leaving some uncertainty about how they will be regulated and applied.

Target Setting Boundaries: Increased flexibility or additional burden?

The draft acknowledges challenges in accessing primary emissions data in corporate value chains and shifts towards non-emissions metrics for Scope 3 disclosures. This is similar in tone to the Voluntary Carbon Markets Integrity Initiative (VCMI) Beta Scope 3 Claim consultation released in September 2024. The VCMI proposed that companies state their current Scope 3 emissions gap and disclose measures that have already been implemented to enable Scope 3 emission reductions. Under this regime, organizations would also report the results of their efforts, alongside a plan to overcome future barriers to Scope 3 emission reductions.

Currently, SBTi requires a company’s climate targets to cover a certain percentage of their emissions, referred to as “fixed minimum coverage.” The proposed update replaces fixed minimum coverage for i) near-term and ii) long-term target-setting boundaries through the introduction of a 5% threshold for material Scope 3 emissions. However, this change could increase the reporting burden on companies for near-term targets versus the previous minimum coverage thresholds.

Prior minimums were set at 67% for near-term targets (if Scope 3 emissions are at least 40% of total Scope 1, 2 and 3 emissions) and 90% for long-term targets, raising concerns about the complexity to comply. SBTi’s research on the 5% threshold shows that approximately 97% of all reported Scope 3 emissions in absolute terms across all sectors would be included in a company target with this change. On a positive note, introducing an Alignment Method (vs. absolute or intensity-based approaches) for target-setting could encourage large corporations to require Tier 1 suppliers to align with net-zero goals. This is an effective way to promote alignment with Tier 1 suppliers while addressing push back from corporates arguing they lack influence over Tier 2 and 3 suppliers.

Residual vs. Ongoing Emissions: A constructive differentiation

A notable addition to this draft is the introduction of the concept of “Ongoing Emissions.” Historically, Residual Emissions covered Scope 1, 2 and 3 emissions that remain at the net-zero target year. Now, Residual Emissions appear to cover only Scope 1 and 2, with the expectation that Scope 2 Residual Emissions will eventually be eliminated by using renewable energy. A key point requiring clarification is why Scope 3 is excluded from Residual Emissions calculations. If interpreted correctly, this could leave room for Scope 3 to be considered as supporting the Beyond Value Chain Mitigation (BVCM) framework.

Option 3 in addressing projected Residual Emissions also provides companies with the flexibility to use additional emission reductions beyond science-based pathway requirements, removals, or a combination of both. One interpretation of this could be read as allowing both reductions and removals to count towards addressing projected Residual Emissions, including the use of reduction technologies from outside a company's value chain.

Ongoing Emissions are introduced to represent GHG emissions that companies continue to release into the atmosphere as they implement the necessary transformations to achieve net-zero emissions. The SBTi aims to incentivize companies to take responsibility for the impact of ongoing emissions by providing optional recognition for these actions.

As an optional leadership practice, companies may take responsibility for their Ongoing Emissions on the path to net-zero, providing flexibility in addressing them either annually or at the end of the target cycle. Encouragingly, companies may address ongoing emissions through BVCM measures, for example, through the use of high-integrity carbon credit purchases, direct financing of mitigation projects, or conservation of carbon in natural ecosystems. This could open the door for both technology- and nature-based solutions, reductions and removals. Nature-based interventions may benefit in particular, as R21.2 highlights that companies should prioritize BVCM actions that provide substantial sustainability co-benefits, such as those that help preserve natural carbon stocks with high biodiversity value and contribute to social well-being. This would also align with the Integrity Council for the Voluntary Carbon Market (ICVCM) recognition that high-integrity carbon credits exist across both reductions and removals.

An interesting point is the language on using CDRs only for Scope 1 with expectations of no Residual Emissions for Scope 2. In addition, in Approach #2 of addressing Residual Emissions, companies are given a degree of flexibility in addressing projected Residual Emissions through additional reductions beyond science-based pathway requirements, removals, or a combination of both. This may limit demand for reductions & removal credits even if reductions are allowed, but it was encouraging that language to include both was considered.

Scope 1: Ambitious but challenging budget approach

The draft maintains a strong emphasis on covering 100% of Scope 1 emissions in target-setting, with options for a budget approach or a linear reduction trajectory. The language around carbon budget conservation is ambitious and commendable as a top-down target-setting approach but may prove difficult for companies to adopt. This is similar to an option proposed by the VCMI Beta Scope 3 Claim released in September 2024 that considered including an emissions trajectory to establish the overall Scope 3 carbon budget. A budget-based accounting approach is ambitious as it ensures that total cumulative emissions from non-linear trajectories do not result in emissions greater than the cumulative emissions resulting from a linear trajectory. As a point of comparison, the carbon budget approach is considered more ambitious because even national governments have yet to agree to a trajectory approach nor have they committed to a carbon budget (area under the curve on the path to net-zero) under the Paris Agreement’s bottom-up approach. Separately, a promising element is the provision for a gradual transition on the minimum durability thresholds for removals over time, which reads positively for nature-based removals on the path to net-zero.

Scope 2: Strengthening market-based renewable energy mechanisms

SBTi’s introduction of zero-carbon electricity and promotion of time- and spatial-matching within the same market enhances integrity. The ability to source zero-carbon electricity from other grids as an interim measure if sourcing is not possible within the same market is also practical and pro-market. Critiques around the use of unbundled renewable energy certificates (RECs) and guarantees of origin (GO) certificates often failing to drive renewable energy deployment, undermining the credibility and effectiveness of Scope 2 target setting were highlighted. The move for zero-carbon electricity targets that remain technology agnostic (allowing for nuclear electricity) to serve as an alternative to Scope 2 market-based emissions reduction targets should drive higher quality market-based renewable energy mechanisms.

Scope 3: More flexible but more demanding

The development to allow interventions at the activity pool level (supply sheds) when direct traceability to specific emission sources is not feasible should reduce the corporate burden of tracing emissions down to the Tier 2 and 3 levels. Moreover, allowing interventions linked to specific emission sources within a company's value chain could also support initiatives that aim to validate industry- & product-specific carbon intensity factors and innovative book-and-claim systems such as those found in SAF and biomethane. However, companies must justify these measures over direct mitigation, ensuring that indirect solutions are used only as interim measures.

Mandatory Scope 3 inclusion for Category A companies (large companies in all countries and medium companies in high and upper-middle income countries), but not for Category B (medium companies in lower-middle and low income countries and small & micro companies in all countries), will likely expand SBTi coverage. However, this change may also raise the ambition for Category A companies as Scope 3 emissions representing more than 5% of total Scope 3 emissions must now be included, as opposed to previously only a minimum coverage threshold of 67% for near-term targets and 90% for long-term targets. This categorization acknowledges differences in size, resources and operating context for Category B companies while still encouraging all companies to act on Scope 3 emissions.

For oil and gas companies, however, the draft remains restrictive, requiring a pathway to net-zero that includes reducing revenue from fossil fuel activities, a challenging requirement for industry players.

Beyond Value Chain Mitigation (BVCM): Recognizing the need for incentives

Previously, the SBTi merely recommended BVCM as an optional measure. The latest draft strengthens this framework by recognizing the need for tangible incentives to drive adoption. While specific incentives remain undefined, this shift signals a more proactive role for BVCM in corporate net-zero strategies.

Small and Medium Enterprises (SMEs): A more inclusive approach

The classification of companies into Category A and Category B introduces more flexibility. This differentiation could allow smaller companies to participate in net-zero target setting efforts without the burden of a more restrictive set of requirements imposed on larger corporations.

Net Zero by 2050: No major changes

SBTi maintains its requirement for net-zero by 2050 across all sectors, reinforcing a universal burden-sharing model. However, for Scope 2, the target year is "by 2040 or earlier," emphasizing an accelerated transition for power sector emissions.

Final thoughts

The SBTi’s Corporate Net-Zero Standard Version 2.0 Consultation Draft represents a largely positive shift toward market-based mechanisms, increased flexibility and a refined approach to residual and ongoing emissions. However, it remains a complex document and clearer guidance is needed, particularly on Scope 3’s role within residual emissions and BVCM. The final version should strive for greater clarity and accessibility to ensure effective implementation by companies across industries.