SFI Managing Director
5 min read
A Destination
Imagine that by 2030, 75% of Fortune 500 companies are collectively allocating more than $40B to critical climate interventions for which there is no market mechanism. Participating companies are attracting top talent, garnering praise from environmental advocacy organizations, and raising capital from climate-aware and climate-agnostic investors at favorable rates. They are protected from failures of their climate-related contributions by robust governance structures across a collection of platforms, themselves responsible for appropriately stewarding corporate capital toward stated objectives.
To determine their contribution amount, companies choose between itemized or standardized emissions calculations. Companies opting for standardized inventories calculate their contributions based on a percentage of profits and may choose among platforms targeting critical, time-sensitive climate interventions. Companies that opt for itemized accounts hold assets[1] against their residual liabilities in trust to ensure carbon solvency over defined durations of no less than 50 years.[2]
These annual corporate climate contributions protect natural carbon sinks, stabilize critical ecosystems, accelerate coal transitions in emerging economies, catalyze carbon removal technologies, and transfer wealth to countries that contributed the least to climate change but suffer its worst impacts. In parallel, the public sector has stepped up to implement global standards for carbon accounting and accountability that shift green premiums into green savings.
In this 2030, the public and private sectors have paved a path to achieving geological net zero by 2050, thanks in large part to corporates being willing to fail fast and evolve from Plan A to Plan B to Plan C.
Current state of play
As we near the end of 2024, this version of 2030 may seem remote, but it is not out of reach. The leaders of voluntary climate action simply need to call their own bluff.
Currently, over 4,000 companies and financial institutions have set emissions reductions targets validated by SBTi.[3] The total number of companies that signed-up in 2023 marked a 102% increase over all previous years combined.[4] SBTi’s continued growth across market cap penetration and global reach point to its centrality as a voluntary standard setter. But whether SBTi’s rise can translate to a fall in real economy emissions is dubious. Obscured in the top line growth is a quiet yet growing exodus among early adopters, along with a loud and growing refrain among those that remain: Could there be a more efficient and effective approach to corporate emissions reduction plans and investments?
Entering the “Bermuda Triangle” of Corporate Climate Action
Corporate climate action under the SBTi framework follows a standard roadmap: (1) build an emissions inventory to set a “science-based” target; (2) invest in a suite of interventions to achieve stated targets; (3) make climate claims to stakeholders in relation to those targets. But rather than being placed on a path to meaningful emissions reductions, corporates often find themselves stuck in a Bermuda Triangle - bounded by inventories, interventions and claims - struggling to find their desired destination amid increased public scrutiny of climate claims. Why hasn’t the roadmap guided corporates to more effective and efficient progress toward a stable climate?
Let’s start with step 1: The inventory. To participate in its Corporate Net Zero standard, SBTi requires companies to furnish figures according to the Greenhouse Gas protocol’s Scope 1, Scope 2, and Scope 3 emissions categories. This means all 4,000 companies with SBTi targets have endured the administrative burden of collecting loads of estimated data for reporting purposes. In fact, according to a 2024 study from the IBM Institute for Business Value, spending on sustainability reporting exceeds spending on innovation by 43%.[5] Born from good intentions, inventory building has become Frankenstein’s monster.
Having invested significant time and resources in creating a mishmash of estimated Scope 1, Scope 2, and Scope 3 emissions counts, companies must then allocate remaining resources toward “interventions”. The menu of corporate interventions ranges from efficiency investments to renewable energy procurement, and from R&D and lobbying to purchasing avoided emissions credits or carbon removals. Most companies are not in the business of climate science, so evaluating the efficiency and efficacy of interventions is a tall if not expensive ask.
Inventories and interventions add-up, or rather, “net”, to claims. Companies invest in climate action to make claims to their stakeholders. Claims are the return on climate-related investment.[6] Corporate investment on inventories and interventions is on the scale of advertising campaigns or philanthropy: it does not appear anywhere on corporate balance sheets. Instead, claims are evaluated in the currency of public opinion. As carbon markets falter again, and as SBTi’s stature and longevity get called into question over governance concerns, corporates are left wondering what, exactly, they can claim and whether these claims offer a risk adjusted return on investment.
Plan B
Companies and advocates are increasingly recognizing the perils and pitfalls of the inventory, interventions, claims triangle and have been working diligently on patches to stem the bleeding. They range from incremental revisions to the Greenhouse Gas Protocol to integrity councils for voluntary carbon markets and centrally prescribed transition pathways.[7] This patchwork of piecemeal fixes built on the same set of tools and tactics could be called Plan A. Finding patches within Plan A can be useful in the near-term, but such effort is, at its core, focused on improving a broken system that will not result in practicable corporate actions nor desirable climate outcomes.
Plan B, then, is the notion that there is a better framework than the inventory, intervention, claims triangle. Plan B imagines building new approaches from the ground-up including carbon accounting reform [8] and a new target setting framework with requirements for setting interim goals and progress tracking. Most importantly, Plan B tactics are focused on creating a system that would allow companies to actually hit their climate targets—a far from certain reality in the world of Plan A.
Plan C
Both Plan A and B, however, still rely on the premise that all companies can accurately measure their own emissions, readily access accurate emissions data from every company in their supply chains, and, in turn, implement a series of interventions relevant to their entire supply chain, wherever that labyrinthine data pathway may lead. SFI supports carbon accounting reform and believes some approaches under Plan B can result in significant improvements in both the near- and long-term.
In the meantime, and in parallel, Plan C imagines a simpler approach to corporate climate action: A mechanism by which companies can easily and conservatively establish a measure of their climate responsibility and inform financial contributions necessary to meet climate commitments. Those dollars would be directed to a small number of centralized platforms responsible for implementing high-impact, measurable, mitigation and/or adaptation, loss and damage activities. Measurement and impact would be paramount but the platforms, where expertise and resourcing would be aggregated, would be on the hook for demonstrating success rather than participating companies. Frontier [9] and Symbiosis [10] show early potential for the kinds of buyers and sellers clubs we envision in Plan C.
Many companies are already voluntarily investing in climate action today. Plan C could provide a pathway to ensure they are optimizing for climate impact and simultaneously lower barriers to entry for additional companies to take action.
Of course, there are still many questions to be explored around Plan C. Our team at SFI is actively pursuing those questions through research and practitioner engagement. To learn more about Plan C, check out this recording of SFI Fellow Peter Freed’s seminar from October 10th, 2024.[11]
Endnotes
[1] Robert S. Kaplan, Karthik Ramanna, and Marc Roston, “Accounting for Carbon Offsets,” Harvard Business Review, July 2023, https://hbr.org/2023/07/.
[2] Marc Roston, Alicia Seiger, and Thomas Heller, “What’s Next After Carbon Accounting? Emissions Liability Management,” Oxford Open Climate Change 3, no. 1 (July 21, 2023), https://doi.org/10.1093/oxfclm/kgad006.
[3] “About Us,” Science Based Targets Initiative, n.d., https://sciencebasedtargets.org/about-us.
[4] Science Based Targets Initiative, “SBTi Monitoring Report 2023,” July 2024, https://sciencebasedtargets.org/resources/files/.
[5] “Beyond Checking the Box,” IBM, n.d., https://www.ibm.com/thought-leadership/institute-business-value/en-us/report/sustainability-business-value.
[6] Climate advocates will also point to risk management as a driver for corporate climate action. Climate risk poses existential risk to the global economy but aligning corporate emissions inventories with normative targets is an entirely separate exercise from risk management. Risks can be strategically allocated to parties better equipped to handle them, or in the case of governments, transferred the bearer of last resort. For more see our 2021 book: Settling Climate Accounts: Navigating the Road to Net Zero.
[7] Marc Roston, Julien Maire, Alicia Seiger, and Thomas Heller. “Pathways Versus Incentives: Climate Activism to Climate Aligned Portfolio Management,” Oxford Open Climate Change 4, no. 1 (July 29, 2024). https://doi.org/10.1093/oxfclm/kgae013.
[8] Robert S. Kaplan and Karthik Ramanna, “Accounting for Climate Change,” Harvard Business Review, November 2021, https://hbr.org/2021/11/.
[9] “An Advance Market Commitment to Accelerate Carbon Removal,” Frontier, n.d., https://frontierclimate.com/.
[10] “Symbiosis Coalition | Nature-Based Carbon Removals,” Symbiosis Coalition | Nature-Based Carbon Removals, n.d., https://www.symbiosiscoalition.org/.
[11] Peter Freed, "SFI Seminar: Plan C - Rethinking Corporate Climate Commitments," Stanford Sustainable Finance Initiative, October 2024, https://sfi.stanford.edu/events/classseminar/sfi-seminar-plan-c-rethinking-corporate-climate-commitments-peter-freed-sfi
