The SBTi Net-Zero Standard: Building Your Enterprise Decarbonization Roadmap

Net-Zero: Definition and Scope

The SBTi Net-Zero Standard, published in October 2021, provides a global framework for companies to set long-term decarbonization targets aligned with science. The standard clearly defines "net-zero" as reducing total emissions by 90 percent or more and neutralizing residual emissions through permanent carbon removal (SBTi Net-Zero Standard, 2021).

This definition aims to prevent claims of "net-zero" based solely on purchasing carbon offsets. The priority is always emissions reduction.

Standard Requirements

1. Near-Term Target (Mandatory)

Every net-zero commitment must include a near-term target:

• At least 4.2 percent annual reduction in Scope 1 and 2 emissions within 5-10 years (1.5°C-aligned)
• Meaningful Scope 3 emissions reduction target

2. Long-Term Target (Mandatory)

By 2050 or sooner:

• At least 90 percent reduction in total emissions including Scope 1, 2, and 3
• Reduction must align with sectoral pathways

3. Neutralization (Mandatory)

For residual emissions (maximum 10 percent):

• Permanent carbon removal technologies (e.g., direct air capture, BECCS)
• Conventional carbon credits are insufficient for neutralization

4. Beyond Value Chain Mitigation (Recommended)

SBTi encourages companies to invest in climate finance beyond their value chain while pursuing their targets. This is not mandatory but strongly recommended (SBTi Corporate Manual, 2023).

Validation Process

Net-zero validation includes additional requirements beyond near-term target validation:

1. Commitment: Submission of net-zero commitment letter to SBTi
2. Target development: Base year selection, sectoral pathway analysis, target calculation for all scopes including Scope 3
3. Submission: Formal submission of targets to SBTi
4. Assessment: Technical review by SBTi experts
5. Approval: Public publication of the target

The process typically takes 12-18 months (SBTi, 2023).

Building Your Decarbonization Roadmap

Step 1: Baseline Assessment

This is the foundation everything else builds on. Without a comprehensive inventory, target calculations are meaningless:

• Complete your Scope 1, 2, and 3 emissions inventory in accordance with the GHG Protocol Corporate Standard and Scope 3 Standard
• Determine your base year (2015 or later) — choose a year that represents normal operations, not an anomaly year
• Map your emissions-intensive activities and sources to identify where the 90 percent reduction will come from
• Conduct a Scope 3 screening of all 15 categories to identify which are material for your company

For most companies, Scope 3 constitutes 70-90 percent of total emissions. The net-zero target's requirement to cover all scopes means your Scope 3 data strategy is not optional — it is the target's core challenge.

Step 2: Identify Reduction Levers

Scope 2 is typically the fastest to decarbonize — switching to renewable electricity through PPAs or green tariffs can achieve near-zero Scope 2 within 2-3 years. Scope 1 requires capital investment in process changes. Scope 3 is the longest horizon, requiring coordination across the entire value chain.

Step 3: Target Calculation

Determine your reduction targets using SBTi's sector-based pathways. Two approaches are available:

• Sectoral Decarbonization Approach (SDA): Allocates the global carbon budget to your sector and then to your company based on activity level. Best for homogeneous sectors (power generation, cement).
• Absolute contraction approach: Applies a uniform percentage reduction across all companies regardless of sector. Simpler but less sector-sensitive.

For net-zero, the long-term target must achieve at least 90 percent reduction across all scopes. The remaining 10 percent must be addressed through neutralization — permanent carbon removal, not conventional offsets.

Step 4: Implementation Plan

For each reduction lever, develop a detailed implementation roadmap:

• Investment requirement and timeline: Capital and operating expenditure estimates for each decarbonization initiative
• Expected emissions reduction: Quantified impact in tCO2e per year
• Responsible team and performance metrics: Clear ownership and measurable KPIs
• Dependencies and risks: Technology maturity, supply chain readiness, regulatory assumptions

The implementation plan should align with your financial planning cycle. Board approval for capital-intensive decarbonization projects (e.g., fuel switching, process electrification) requires integration with standard CAPEX planning processes.

Step 5: Monitoring and Reporting

SBTi expects annual reporting of progress against approved targets. The CDP platform is the preferred channel for this annual progress reporting. Annual monitoring should track:

• Emissions trajectory against the target pathway
• Implementation status of reduction initiatives
• Changes requiring base year recalculation
• Updated Scope 3 data quality and coverage

Frequently Asked Questions

Do carbon credits count toward net-zero targets? No. Carbon credits do not count toward near-term or long-term reduction targets. They can only be used for the neutralization phase as permanent carbon removal. Conventional offset credits do not meet this requirement (SBTi Net-Zero Standard, 2021).

Which sectors have available pathways? SBTi has published guidance for numerous sectors including energy, transport, chemicals, cement, iron and steel, aluminium, textiles, food and agriculture, financial services, and ICT.

What does validation cost? SBTi validation fees vary by company size and follow a publicly available fee schedule.

Action Plan

1. Complete your emissions inventory including Scope 3
2. Review your sectoral pathway
3. Identify your reduction levers and investment requirements
4. Submit your commitment letter to SBTi
5. Submit your targets for validation within 24 months

Action Item: Setting a net-zero target is an ambitious step, but it is achievable with proper planning. Completing your emissions inventory and submitting your SBTi commitment are the first two steps of the journey.