Think tanks warn against Scope 3 flexibility as corporate climate targets remain insufficient

Despite slow improvement in aligning carbon reduction goals with a 1.5ºC scenario, most companies’ climate targets remain insufficient and unsubstantiated, with think tanks warning that efforts to introduce flexibility around Scope 3 decarbonisation would further undermine ambition.

Analysing the climate strategies of 51 major companies across the automotive, utilities, fashion and food sectors based on quality, credibility and comprehensiveness, the latest Corporate Climate Responsibility Monitor (CCRM) published today by NewClimate Institute in collaboration with Carbon Market Watch, finds that none of them currently have high-integrity targets.

Corporate climate plan integrity still lacking

Among the firms included in the report, the median absolute emission reduction commitment is just 30% of full value chain emissions between 2019 and 2030 – short of the 43% reduction required to limit global warming to 1.5ºC according to the Intergovernmental Panel on Climate Change (IPCC).

Just two companies’ climate plans (Enel and Iberdrola) were deemed to have reasonable levels of both transparency and integrity, while Inditex and H&M were commended for their transparency, despite lacking in integrity. Korean utility KEPCO and Toyota were the lowest-rated firms in the list, with commitments that only amount to a 5-20% greenhouse gas reduction by 2030. 

Frederic Hans, climate policy and corporate climate responsibility lead at NewClimate Institute, said: “Four years into the critical decade for action on climate change, some companies have understood the need to set 2030 targets  that are aligned with the latest climate science and substantiated by credible measures to achieve them. However, there still is a concerning lack of commitment and urgency from too many companies to undertake credible climate action.”

VCMI Scope 3 flexibility claim would ‘nullify’ value chain targets

In this context, the think tanks warn that proposals to introduce flexibility for Scope 3 emission reduction targets would “entail backsliding on already insufficient commitments”.

In particular, the Scope 3 flexibility claim being considered by the Voluntary Carbon Market Integrity Initiative (VCMI) as part of its Claims Code of Practice would “effectively nullify” the targets of many companies, including Volkswagen, Toyota, Danone, Adidas, Stellantis and Mars.

In response to this criticism, VCMI has released a statement saying that its Scope 3 flexibility claim “enables urgent action now by requiring companies to purchase and retire high-quality carbon credits, while transitioning to net zero”, adding that “use of credits is in addition to – and will not count towards – a company’s emissions reductions targets”.

The organisation is still in consultation with market participants on this claim, which it aims to finalise before the end of the year.

SBTi verification: “significant degree of leniency”

The validation process used by the Science-Based Targets Initiative (SBTi) (widely regarded as the de facto voluntary standard for corporate climate targets despite some degree of criticism) is also questioned in the report. 

22 of the companies covered by the monitor have had their targets approved by the SBTi as 1.5ºC or 2ºC-aligned – a verification they often refer to in climate communications. But by comparing the SBTi’s temperature rating to that of the Transition Pathway Initiative, the MSCI Net Zero Tracker and the Planet Tracker, as well as its own assessment, the monitor  “points to multiple areas for improvements of its current validation practice”.

In particular, NewClimate Institute and Carbon Market Watch recommend “a more stringent focus on Scope 3 emissions as part of 2030 validations, addressing legacy issues stemming from outdated validations and validation methods, and the exclusion of potentially misleading ‘insetting’ practices”.

Underlining the current “polarisation and uncertainty” around climate regulation (as exemplified by the numerous lawsuits seeking to prevent the SEC’s climate disclosure rule from taking effect), Thomas Day, carbon markets and corporate climate action lead at  NewClimate Institute urged voluntary initiatives such as VCMI and SBTi to strengthen their standards and “reward the gold standard of corporate climate action”.

“Rather than allowing further flexibility that would weaken already insufficient targets, a refinement of the standards to focus more specifically on the most critical emission sources for each sector could help companies to better navigate the challenges of their transition,” he added.