Podcast transcript: How the SBTi is helping businesses navigate the journey to net zero

Bruno Sarda

Hello, I'm Bruno Sarda. Welcome to the EY Sustainability Matters podcast, our regular look at ESG and sustainability topics and how they impact businesses around the globe. Today's episode will explore the important work of the Science Based Targets initiative, or SBTi as it's commonly referred to, and how they support companies to set standardized science-based emission reduction targets to help prevent the worst impacts of climate change. The SBTi is a partnership between the Carbon Disclosure Project, or CDP, the United Nations Global Compact, and the World Resources Institute, along with the World Wide Fund for Nature, with the goal of making science-based target setting for emission reductions the new norm. Their targets are based on the work of the Intergovernmental Panel on Climate Change, or the IPCC, and are aligned with the Paris Climate Agreement, with the aim of limiting global warming to well below 2 degrees Celsius and pursue efforts to limit warming to 1.5 degrees Celsius.

Climate targets and commitments have grown in popularity in recent years, with more and more companies publicly disclosing them, but similar to areas in the sustainability disclosure space, the issue of standardization arose. When companies create their own targets, that often leads to situations where plans either don't cover all geographies, or maybe some of their largest sources of emissions, or a company's ambition would be that what they thought could easily be accomplished, versus what was necessary based on scientific research. So, this is where the SBTi comes in, by providing a clear pathway for companies to reduce their emissions in line with the latest climate science and create standardization in climate target setting. So, we, at EY, actually work closely with the SBTi and support clients in the process of committing to and setting science-based targets, as well as developing pathway strategies and budgets to reduce their emissions in order to meet these targets.

And today, over 4,000 companies, covering more than a third of global market capitalization, have already set science-based targets through the SBTi. And these companies represent a wide range of industries and geographies and their commitments are helping to drive the global transition to a low carbon economy. Now, we're excited to be co-authoring a research report with the SBTi on the current corporate measurement reporting and verification landscape, sometimes known as MRV, as it relates to science-based target setting. So, in this episode, we will explore the challenges companies face in setting climate targets, the role of the SBTi and what sustainability leaders should be considering when driving action on net zero. We will then also dive into some of the SBTi's measurement reporting and verification, or MRV work, and how it further drives transparency and accountability of corporate climate action.

Joining me to discuss this important topic are Rob Bradley, Managing Director at Ernst & Young LLP, and Miranda Nayyar, Manager from the Climate Change and Sustainability Services at Ernst & Young LLP, and our guest, Alberto Carrillo Pineda, Co-founder and Chief Technical Officer of the Science Based Targets initiative, also known as the SBTi. Alberto, thank you so for much for joining us. It's so good to be with you again in this forum. And Rob and Miranda, also great to have you both here, given your individual experience with SBTi, prior to even joining EY. So maybe, can you both speak about that experience quickly, before we kick off, for what I'm sure will be an interesting and informative conversation on the crucial work of the SBTi with Alberto?

Rob Bradley

Right, Bruno, yes, indeed, there's a few hotter topics around right now than how companies are going to credibly both set and deliver on net-zero targets, and it's been a long journey. Certainly, I've been involved with the SBTi in some capacities. I'm a long-term alumnus of the World Resources Institute, which is one of the core members of SBTi's coalition.

Miranda Nayyar

Yeah, and great to be joining the conversation, I've had the pleasure of working at CDP in the Science Based Targets Initiative with Alberto, actually. So, a reunion on the podcast today and happy to be talking through some of the work that we've been doing together in co-authoring a research report on measurement reporting and verification. So, looking forward to the conversation.

Bradley

So, Alberto, thank you very much for joining us today. It's a great pleasure to be talking with you and it's always a pleasure to be working with you and your team. Let's start from the big picture — where are we today?

Clients ask us all the time, what's credible for me, as I set targets on climate and then ultimately, that I deliver them, avoiding charges of greenwashing and delivering things credibly. Where do you see that landscape today, and in particular, what role is SBTi playing right now in helping companies figure out how to be accountable for their targets?

Alberto Carrillo Pineda

Thanks, thanks a lot, Rob. And thanks to all of you for the invitation and likewise, a pleasure to have this conversation and to be working with you in this project. That's a very good question and I would say, this is a new era for corporate climate action, because the journey that most companies have gone through is over the past few decades, they were focusing on understanding their impact on the climate, implementing greenhouse gas accounting practices, and then starting with some carbon management plans. And since the introduction of the Paris Agreement and the emergence of initiatives, like Science Based Targets Initiative and others, the focus shifted and companies started focusing on getting ambition. And that has also been the focus of, I would say, the wider ecosystem.

And we have seen significant progress over the past few years in relation to this. We have now science-based target setting being a common practice. We see very rapid and growing adoption of science-based targeting across different regions, different sectors. And so, we can say that that goal, which is to make the Paris Alliance ambition a common practice, has been met to a large extent. Of course, there are many companies still missing, but then I would say, many others are already on this journey. But then the question is, what happens after that? And how do we create accountability and transparency in the ecosystem to create the trust that is needed that companies are effectively decarbonizing. And for that, I would say, it's a new phase for the entire climate-action ecosystem, including companies, including ourselves, including other standards and other stakeholders.

And I would say the road that we see at SBTi, especially as we are in the process of transitioning from an initiative cost standard-setting organization, is precisely helping create the standards that can create this accountability and that can help stakeholders assess in a credible way. But it also helps companies demonstrate in a credible way that they are effectively reducing their impact on the climate. And this is one piece of the ecosystem, the standards that can help create accountability. We need other parts of the ecosystem as well, including, for instance, the accounting standards that companies use, we need disclosure platforms, we need an accountability ecosystem, journalists in society and many others that basically are needed to create accountability, right? We are one small piece and what we're trying to do is to standardize how companies can credibly demonstrate that they are reducing their impact.

Nayyar

Yeah, thanks for that, Alberto. Really interesting to understand the evolution of where the SBTi has gone and where you are now going, as we look at what companies are thinking of next. And I think, you know, to double click on that a little bit, we'd love to hear your perspectives on what challenges companies and financial institutions are facing today, trying to set science-based targets? And what might they need to consider now and in the future?

Pineda

Well, that's a good question, Miranda, and I would say, yes, the challenges that companies face, of course, change over time, depending on the maturity of the companies themselves managing their climate impact, the sector and the region. And one of the common challenges that we hear from companies is, for instance, in collecting the information that is needed, especially on their value chain emissions, to be able to model their targets.

And I think, now, there's a very good understanding about what it means for a company to set a target that is consistent with the global goals that we have on climate. And we hear that the standards and guidance that SBTi produce help them understand this, but that doesn't take away the challenge of, how do I collect the data? How do I understand where the levers are available for me to reduce my impact on the climate and then go through the entire process of not only setting a target, but also planning how to implement that target and to make sure that whatever companies commit publicly, they can actually deliver.

Bradley

Right, Alberto. I think given the urgency of climate action and the growing sense of that urgency, things can change bewilderingly fast for companies. I think a few years ago, a company that was announcing, say, a renewable energy target, or was investing in carbon markets might be seen as a leader.

Now, we're seeing increasing scrutiny in both of the credibility of goals, but also of the immediacy of follow-up action. How do you see the expectations evolving among the public and among NGOs and other actors of what constitutes leadership for a company? And for companies that want to be seen as corporate leaders, what's going to distinguish them over the next couple of years?

Pineda

Thanks, Rob. Well, I would say we have one North Star that is very clear, right? I would say, one of the things that became clear over the past few years is the fact that the end goal that we have in terms of stabilizing our climate is clear and that means, basically, eliminating the sources of emissions that are currently creating the accumulation of greenhouse gases in the atmosphere. And so, I think moving in the direction of eliminating emissions is always a safe bet for companies. Of course, there's complexity, right? Because when you think about the actual sources of emissions that create climate impact, the relationship that exists between the entity, setting the target and the actual source of emissions in some cases, it can be linked to, for instance, the energy that companies procure.

In some cases, it has links to other materials, other services that they procure, and that are a part of a value chain of the company. In some cases, it can be linked to the products of companies. And so, it, it always creates a challenge to them, really identify and be able to trace the impact and the action that has been taken to mitigate that impact, right? And I think that’s the challenge and I would say where I think there's also a lot of evolution in the wider ecosystem to basically create more transparency and more traceability in terms of the action that companies take to mitigate their impact on the climate.

But I think the North Star continues to be the same and I think there's no reason why companies should not feel confident to move in the direction of eliminating the source of emissions that are in their value chain. And we see that happening at a large scale with multiple companies setting and implementing science-based targets.

Bradley

I don't want you to name names, Alberto, but you work with a lot of companies. Do you feel that there are now companies among those that you work with at SBTi that really are showing the way that are fully up to the task, or the level of ambition both on target setting and implementation that you see as needed?

Pineda

I would say we definitely see a lot of encouraging progress and as we know, setting the ambition right. I think the science-based target is only the first step in the journey. We see definitely that practice already being quite consistently adopted.

And then after that, I would say we definitely observe progress, but that's exactly why we are working on this project, because we need to have clear parameters to be able to assess that progress in an objective way, in a robust way and in a standardized way. And so, it's a bit premature for us at this point to be able to judge without having those parameters in place. And that's our hope of this project and we are also very excited to moving in this direction with support from EY.

Nayyar

Yeah, thanks for that, Alberto. And, you know, talking through that in a little bit more detail, so, thinking about companies preparing to credibly track progress and move toward to achieving their science-based targets, as you mention, the SBTi has begun working on this measurement reporting and verification, or broadly, accountability work and this co-authored research report is one step among many that you plan to take and as you mentioned earlier, this will likely be a long journey of understanding what the SBTi may want to put out and what details will exist for companies.

But do you have any initial perspectives or thoughts for companies who are, you know, setting science-based targets and preparing to track progress? Are there any perspectives you can share today about how companies may prepare for tracking progress against the science-based targets that they've set?

Pineda

Thanks, Miranda. If you think about the different dimensions that we need to progress on, as part of this transition, definitely the North Star is, we need to eliminate emissions from the value chain. But then, we also know that for instance, when companies set targets and in many cases, when companies estimate their impact on the climate, through greenhouse gas accounting standards, for instance, they use in many cases, approximations, right? They use secondary data, they use approximations, because getting the actual data is complicated, it takes time and it takes resources. And I would say, in the longer term, when a company gets to the point where they will want to demonstrate that they have reached a state of net-zero emissions, then it's going to be important to be able to substantiate those claims with robust traceability.

And so, I think any action that companies take in that direction, which is basically improving data collection practices or strengthening access to have primary data from different sources, is very important. And I would say that's one action that we definitely encourage all companies to take. The second one is to be transparent even when those data sources continue to be based on secondary data, on approximations, that we are transparent to all the limitations that exist, the data that is being used. That's also very important and something that we encourage at SBTi and we think brings credibility and trust in the ecosystem. So, improving data collection practices, but also being transparent about the strengths and the weaknesses that exist with the data that exists today.

Bradley

Roberto, just to build on that a little bit, obviously, you know, the SBTi's job is complicated enough, but you're certainly not alone in establishing standards and norms in this space right now. And in particular, of course, a lot of the clients and the audience will be thinking about how to align with the Corporate Sustainability Reporting Directive (CSRD) in the European Union, prospectively an SEC rule for disclosure around climate and other standards, ISSB and others that are emerging.

How do you see your role evolving as the standards become more established? And for the companies that you're working with is it making life more difficult and more complicated to have so many different moving pieces at once?

Pineda

Well, I think it's definitely always a challenge to keep track of the different developments in the ecosystem, but the direction that different actors in the ecosystem and they consist of more broadly is moving into, I would say, it's a good direction, which is basically the direction of well-defined and specialized roles. And what we need to ensure now as a standard-setter and also, other parts of the ecosystem is to ensure that good interoperability between the different parts of the ecosystem, right? Because they, all of them, play an important role. And so, we have now well-established current accounting or legal as accounting standard, like the greenhouse gas protocols and decarbonization institutions, and they play a very important role, which is how to assess impact in the climate, right?

Then, we have emerging standards and regulations in terms of disclosure. As you mentioned the SEC regulations or the disclosure regulations in Europe and we also have international standards that are focused on disclosure. And they're very important, because they provide the incentive to create that transparency that is needed. And then, I would say, the role that we see for SBTi is in helping define once companies move into the implementation of targets how to assess progress in a consistent way, so that they can then disclose this publicly and that this helps the accountability ecosystem. And as part of these, we definitely are aiming for interoperability with the other parts of the ecosystem. And as much conversation as possible to make it as simple as possible for companies and we see this happening in other parts of the ecosystem. So, I would say, this is part of the evolution of the maturity in the ecosystem and I think they're moving in the right direction, overall.

Nayyar

Yeah, thanks for that, Alberto. Another question that comes to mind, just based on what you were describing, some of the findings of the research report that we're working on together talk about the importance of climate transition plans and disclosing financial metrics related to climate change, as well as some of the standardization in the market, as you mentioned, Alberto, around significance thresholds and around verification of underlying data.

So, when we start to think about those types of things for companies who may not have set science-based targets yet, what would you say to them if they were on the fence about setting science-based targets and want to understand a little bit more about what this emerging measurement reporting verification work or accountability work within the SBTi might look for them and how that might evolve in the future, if there are any concerns around what this might mean from a reporting standpoint?

Pineda

Thanks Miranda, I don't think things are going change in terms of what companies are already expected to do when, for instance, they measure their emissions. They are now trying to meet also the emerging disclosure standards or regulations so and then of course, when they set a target, they are still going to set a target. What we are trying to do through this work is to provide clarity about what happens next, right? And I think that's going to provide that missing piece that companies don't necessarily have full clarity today in terms of, okay, I set my target, now I have all the different options to implement my target, how do I have the certainty that it might take this action or this action that counts as part of my target? And how do I report these types of actions, interventions, as part of my target?

And then, what happens when I reach the end of my target cycle, right? So, I think it's going to provide more clarity in the next steps of the journey, after companies set targets.   So, for those companies are in the early paces, they will have the privilege of starting the journey already having more clarity about the whole journey, compared with those that I would say, were more adventurous and started this journey before the ecosystem was as mature as it is today, plus, maturity will get the next few years.

Bradley

Alberto, I'd like to ask you a question that turns us in a slightly different direction. One of the other things that many companies are thinking about, as they look at net-zero targets and what it will take to meet those, are considering what role, if any, carbon markets will play. Now, not a cruel question, so I'm not going to ask for predictions about how the carbon markets will evolve, but I wonder if you could just say a couple of words about the kind of philosophy and the approach of SBTi toward the use of voluntary carbon market credits, in particular?

Pineda

Well, the first thing I want to highlight is as SBTi is strengthening each model as the standard-setting organization we are, I would say, committed to follow best practice for standard-setting. And we went through a process of appointing a special council that is the independent decision-making body for SBTi or everything that relates to our standards. And as we go through the process of developing, for instance, criteria to assess performance, what happens after companies hit targets, we will follow the process that is basically used for standards setting, then inform our position on the use of market instruments and other criteria as well. And so, as part of that, something that we will be doing as SBTi is basically to collect evidence from the wider ecosystem, to understand the type of market instruments that are currently being used, to assess the effectiveness of those instruments in basically supporting credible decarbonization claims and then based on that evidence, and to basically draft provisions to a standard that then are going to be brought into that process.

Of course, the outcome of that and how SBTi's position evolves will depend on the evidence collected to this and then on the decision made by our governance bodies. But I would say, yes, our idea is to approach these in a very robust way, in a very objective way, and then to define and evolve our position of usage of market instruments more broadly through this exercise [INAUDIBLE]. Something I want to mention is not only about carbon creates, there're many other market mechanisms currently being used by companies, some more mature, some less mature, including, for instance, lower electricity certificates, green gas certificates, sustainabilization fuel certificates and there are many other market instruments. And the reality is there's the need to approach these in a very robust way and to provide clarity about the different role that they may play over time.

Bradley

Thanks, Alberto, I'd love to ask a personal question here, I mean, you and I have both been in the climate change business for a long, long time. And sometimes, it can seem like progress is very, very slow. Sometimes, a lot seems to be happening at once. Personally, what makes you feel most excited, or most encouraged at the moment about the work that the SBTi is doing and what we're seeing happen more broadly on climate change?

Pineda

Thanks, Rob. I think I see a lot of exciting things happening. And I would say the part that we have now so many companies are moving in this direction net zero now being implemented at different levels in different jurisdictions, different stakeholders. But we have so much engagement from the financial institutions and I would say so much more scrutiny from media, so much more caution from companies. I think all of that is good, right?

That means that this transition is actually now moving into real implementation — that the climate ambition that was a theory, maybe ten years ago, is really hitting the real economy now. And so, I think that's the most exciting thing. It doesn't mean that it’s easy because the transition is challenging, right? But I think it's really exciting to see how this transition is really being embedded into the economy and all the progress and I would say, all the symptoms that you can see across the entire ecosystem, that this is actually happening. So, we are very excited about this, or personally, I'm very excited about this.

I'm also very excited for SBTi in terms of this transition from an initiative to a standard, and this evolution from focus on ambition, to focus on ambition, progress and performance. And of course, the work that we are doing with you to support this transition in terms of thinking about how we will be able to asses performance over time and the type of management reporting that is needed to enable these.

Nayyar

Thanks, Alberto, for that perspective and we'd love to dive into that in a bit more, as we think about next steps for companies who are setting science-based targets, setting net-zero targets, aligned with the SBTi standard, who are beginning this journey of progressing and achieving these targets. What they can expect next from the SBTi, as it relates to net zero, as it relates to accountability, and as it relates to progressing against their targets in the coming months and years?

Pineda

Thanks, Miranda. That's a great question. And it's not always easy to provide a very simple answer, because this is a dynamic and evolving field as well. But I think what I would say is, as I mentioned, as SBTi is moving to this formal standard-setting structure, and also because of the nature of what we do, we anticipate that we will be conducting regular revisions to our standards to physically bring the learnings from the wider ecosystem, including what we observe in terms of how stakeholders use the standards, but also what we hear from other stakeholders, from companies, from financial institutions, from civil society, and from academia. There's a lot of learning, collective learning, that is happening and we need to embrace continuous learning as part of the evolution of our standards. 

And this includes partly, of course, how the science is evolving and you know, how much progress we make against the global goals that we have, but also how much we learn about how companies and financial institutions set and implement targets. So, our commitment is to continue to develop and evolve our standards to make sure that they remain aligned to the best available science and to best practice, understanding that this is something that changes over time, right? And also, as a standard-setting organization to follow a clear and predictable process to do this, as we understand, of course, the journey that companies follow to set targets and we want to be very mindful of that and a standard-setting organization to follow a very predictable process to revise our standards and to follow the process that is needed to continue to evolve and improve our framework. 

Bradley

Thank you so much, Alberto. It's always a great pleasure talking with you and getting your insights. Bruno, back to you.

Sarda

Thank you, thank you, Alberto and Miranda and Rob. Thanks for the three of you joining us for this fruitful discussion on the benefits and the challenges around corporate accountability of climate commitments, and how the SBTi's work and our own work with the  clients are addressing this. And very excited to see how the SBTi's measurement reporting and verification efforts will actually help advance reporting against climate science-based targets in the future, as we progress toward a lower carbon future. As I said at the beginning of this episode, this is the Sustainability Matters podcast. You can find all past episodes of the show on ey.com or wherever you get your podcasts. Thank you for listening. If you enjoyed this episode of Sustainability Matters, we'd love for you to subscribe. Ratings, reviews and comments are also very welcome.

Please also visit ey.com, where you'll find a range of related and interesting articles that will help put these bigger topics in the context of your business priorities. I look forward to welcoming you on the next episode of Sustainability Matters. My name is Bruno Sarda, you can find me on LinkedIn, feel free to connect with me there. Thanks so much for listening.