SBTi Version 2.0: More Flexible, More Practical… and Much More Accountable

The Science Based Targets Initiative’s Corporate Net-Zero Standard Version 2.0 shifts the emphasis from simply validating targets towards demonstrating credible implementation. With mandatory climate-related disclosures under AASB S2 and increasing stakeholder scrutiny, organisations must now demonstrate not only ambition, but also a credible pathway to delivery.

For more than a decade, the Science Based Targets initiative (SBTi) has been the benchmark for validating corporate greenhouse gas (GHG) emissions reduction targets. Since its launch in 2014, it has helped thousands of organisations align their decarbonisation ambitions with climate science, giving investors and customers confidence that published targets are more than aspirational commitments.

In Australia, the importance of SBTi has grown with the introduction of mandatory climate-related financial disclosures under AASB S2. While AASB S2 does not require companies to obtain SBTi validation, it does require organisations to disclose climate-related targets, explain how they were determined, describe how progress will be measured and state if they have been third-party validated.

This presents a challenge for companies that set targets in the era of voluntary climate reporting, without robust governance in place. In some cases, companies are walking back on previous emissions reduction pledges. Companies that want credible targets need to consider how to demonstrate this. For many, SBTi remains the strongest answer.

What Has Actually Changed in SBTi’s Corporate Net-Zero Standard Version 2.0

The Science Based Targets initiative (SBTi) was initially established to validate whether corporate emissions reduction targets were aligned with climate science. Its primary focus was on setting a standard for credible climate action and ensuring that organisations adopted targets consistent with global net-zero ambitions.

Version 2.0 of SBTi’s Corporate Net-Zero Standard aims to help organisations integrate climate action into everyday business decision-making while increasing accountability among those with SBTi-validated targets.

The most obvious change is that Version 2.0 moves away from a "one-size-fits-all" approach. Instead of applying broadly consistent requirements to every organisation, the new standard differentiates requirements according to company size, geography and operating context.

Perhaps the biggest practical change is that Version 2.0 recognises that setting a science-based target is only the beginning. Increasingly, organisations will be expected to demonstrate that their targets are supported by realistic transition plans, robust governance and high-quality emissions data.

Key Technical Changes Include:

Company Categories

• ‍Version 1.3.1: Common requirements for most companies.‍
• Version 2.0: Companies are classified into one of two categories (A or B) based upon size, emissions profile and economic context. Category B companies have more optionality on the criteria.

Base Year

• ‍Version 1.3.1: Fixed historical emissions baseline.
• Version 2.0: Greater flexibility to update baseline years following significant structural changes and to better reflect current operations.

Near-Term Targets

• ‍Version 1.3.1: Single near-term target (typically 5–10 years from baseline year.)
• Version 2.0: Targets for Scope 1, 2 and 3 to be set every 5 years.

Scope 1 & 2

• ‍Version 1.3.1: Can be combined or separate commitments. Scope 2 target can be set on location or market-based emissions.
• Version 2.0: Separate targets across both scopes where this better reflects operational circumstances. Targets on the increasing use of low-carbon electricity or absolute Scope 2 emissions reductions. Absolute, location-based, Scope 2 reduction target mandatory for companies expecting >20%/year electricity usage growth.

Scope 3

• ‍Version 1.3.1: Prescriptive coverage requirements.
• Version 2.0: Greater flexibility based on emissions profile and value chain influence, while maintaining high ambition.

Renewable Energy

• ‍Version 1.3.1: Hourly matching not required, no age limit on EACs.
• Version 2.0: Hourly matching stays voluntary via a recognition program for major electricity users (10GWh+/year), while geographic and temporal matching rules tighten.

Offsets

• ‍Version 1.3.1: Only residual emissions neutralisation 2050 onwards.
• Version 2.0: Ongoing emissions responsibility with mandatory, escalating need responsibility for procuring removal credits starting in 2035 through to residual emissions neutralisation by 2050. Recognition for varying levels of voluntary climate contributions before 2050.

Transition Planning

• ‍Version 1.3.1: Encouraged.
• Version 2.0: Expected as part of demonstrating target credibility.

Governance

• ‍Version 1.3.1: Limited validation focus.
• Version 2.0: Stronger Board and executive accountability.

Assurance

• ‍Version 1.3.1: Limited emphasis.
• Version 2.0: Mandatory third-party assurance of baseline emissions, further scrutiny from SBTi assurance model.

Disclosure

• ‍Version 1.3.1: Focus on validated targets.
• Version 2.0: Greater transparency regarding implementation, assumptions and progress.

Better Alignment With AASB S2

Although SBTi and AASB S2 have different objectives, they are becoming increasingly complementary, creating opportunities to streamline climate reporting and target validation efforts.

AASB S2 requires organisations to disclose governance, strategy, climate-related targets, transition plans, metrics and progress against those targets. Version 2.0 now expects many of the same building blocks to support target validation.

For example:

• Board governance arrangements can satisfy both frameworks.
• Transition plans prepared for AASB S2 provide much of the evidence expected by SBTi.
• Improvements to emissions inventories and data assurance support both investor reporting and target validation.
• Annual reporting against climate targets can satisfy both disclosure expectations.

Organisations implementing AASB S2 can leverage much of the same governance, data and reporting infrastructure, enabling SBTi validation with minimal duplication of effort.

What Should Companies Do Now?

Companies with existing V1.3.1 validated targets are already advanced, well prepared for AASB S2 disclosures, and do not need to replace them with a V2.0 target before 2028.

For companies without validated targets, the priority is to build towards one. High-quality emissions data and strong governance provide the foundation; the next step is a credible emissions reduction pathway and transition plan. If these are still developing, the organisation may not be ready for SBTi validation but understanding the gap is valuable. AASB S2 requires disclosure of the transition plan, including where one is not yet in place. Demonstrating a clear understanding of the gaps is more credible than simply saying “no transition plan”.

Importantly, a transition plan is more than technical feasibility. It must be costed, financing planned and embedded in strategy, all feeding into AASB S2 disclosures. With expectations rising and Australia pursuing net zero, now is the time to prepare. Designing AASB S2 programs with future SBTi requirements in mind can strengthen disclosures while avoiding duplicated effort.

How Can Pangolin Associates Help?

SBTi's evolving requirements mean organisations should start considering their next steps now, whether they already have validated targets or are just beginning their target-setting journey.

• ‍‍For organisations with existing near-term targets, Pangolin Associates can help assess the implications of Version 2.0 and prepare for the next target review cycle, including the development of post-2030 targets.‍‍
• ‍For organisations setting targets for the first time, there remains an opportunity to validate under Version 1.3.1 before the end of 2027. We can help you establish targets that meet current requirements while positioning your organisation for a smooth transition to Version 2.0.‍
• For organisations contemplating target setting, we can provide support through forecasting emissions pathways, identifying reduction opportunities, and assessing their financial implications on your organisation. This will enable you to set informed targets, develop credible transition plans, and move forward with confidence in your decarbonisation journey.