July 22, 2024

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The Battle Over How Big Businesses Should Meet Climate Targets, Explained

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When companies like Kering, LVMH, Nike and Inditex set their climate targets they turned to the Science Based Targets Initiative.

The world’s leading arbiter of corporate climate targets acts as a gold standard, signalling whether company commitments to cut planet-warming emissions are in line with international ambitions to cap global warming.

But over the last few months, SBTi has been mired in a chaotic quarrel over what good looks like and whether companies should be allowed to use controversial carbon offsets to help meet their environmental goals.

On Tuesday, the group announced that CEO Luiz Amaral — who has been under pressure to resign for months — was departing for personal reasons. The organisation is expected to update its position on offsets in the coming months. Where it lands could have dramatic implications for how fashion companies formulate their climate strategies.

Here’s a cheat sheet on the issues in play and what they mean for fashion:

What is the SBTi and why does it matter?

The SBTi is a nonprofit whose guidelines are widely viewed as best practice when it comes to setting corporate climate targets. Its validation is relied upon by investors and policymakers to judge whether big businesses’ environmental commitments are up to snuff.

To date the group has signed off emissions goals for more than 5,500 companies (including many of the world’s biggest fashion businesses), signalling their ambitions are substantive enough to help stave off climate catastrophe.

What’s the controversy about?

For years the SBTi has held the position that companies cannot meet emissions targets by relying on offsets — a mechanism that allows companies to compensate for their environmental footprint in exchange for funding schemes like tree planting or forest protection that grant them a carbon credit for every tonne of emissions reduced or removed from the atmosphere.

Instead, its standards to date have required businesses to focus on reducing actual carbon pollution from their own operations and value chains, only turning to offsets to cancel out small amounts of emissions that would otherwise be impossible to cut.

But in April, the group’s board signalled it was considering reversing course to allow companies more leeway to use tools like offsets to address tricky-to-tackle emissions outside of their direct control. For fashion brands, this would cover things like textile manufacturing and processing, which account for the biggest share of the industry’s carbon footprint.

Some companies and industry groups have argued that such tools are needed to funnel money into important sustainability projects, and without them it will be impossible to deliver on environmental goals. In May, the US backed the use of “high integrity” offsets to aid decarbonisation. Critics counter they give industry an easy out to avoid actually decarbonising their operations and delay climate action. The market has also been beset by scandals, with high-profile projects exposed for failing to deliver on promised emissions reductions.

Against this fractious backdrop, the SBTi board’s surprise pronouncement prompted an immediate backlash both within and without the organisation. Pushback came from industry bodies, environmental groups and companies, including H&M Group, which published an open letter in May criticising the proposal to loosen up the SBTi’s stance on offsets.

“The decision weakens corporate climate pledges and makes real decarbonisation efforts within value chains less attractive,” H&M sustainability head Leyla Ertur said in the letter. “Allowing companies to replace decarbonisation action with voluntary carbon market interventions would deter the investments and innovation we need to achieve systemic change.”

What does that mean for fashion?

The SBTi is in the process of drafting an updated standard for net-zero corporate target setting, which will include more clarity on its stance around offsets. Wherever it lands on the issue will have significant implications for how brands conceive their climate strategies.

Pre-pandemic offsets enjoyed a moment of vogue within the fashion sector, with industry giants like French luxury conglomerate Kering Group turning to them to claim carbon neutrality. More recently, they’ve faded from corporate conversations amid rising scrutiny of existing schemes’ credibility.

Companies may be encouraged to revisit this position if SBTi endorses the use of carbon credits. However, much work still needs to be done to rehabilitate the voluntary carbon market.

Just hours before SBTi CEO Amaral’s resignation was announced, a group of more than 80 nonprofits teamed up to condemn the use of such instruments.

“We call for scientific, ambitious, equitable, robust, credible and transparent rules around carbon accounting and corporate climate target setting,” the organisations said in an open letter. “Voluntary and regulatory frameworks on climate transition planning must exclude offsetting.”


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