In this episode of Sustainable Intelligence, we’re joined by Mark Fischel, Head of Product at Novata. Mark dives into the recent controversy surrounding the Science Based Targets Initiative (SBTi) and its new stance on carbon credits for Scope 3 reduction targets. We discuss the polarizing reactions within the industry, the internal backlash at SBTi, and the broader implications for corporate net-zero strategies. Tune in for a deep dive into this significant shift in ESG practices and what it means for the future.
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Sustainable Intelligence is an interview series from Novata that explores ESG and sustainability in the private markets. From carbon accounting to using data to create value, the series dives into the challenges and opportunities facing private market investors and company leaders as their integrate ESG across the business and respond to regulatory requirements. Each episode centers authentic dialogue, highlighting experts at the forefront of advancing ESG data collection and driving meaningful progress in the sustainability landscape. Listen to more episodes.
Conversation with Mark Fischel (Transcript)
Ella Williamson: Welcome to Sustainable Intelligence, where we discuss all things ESG and sustainability for the private markets, brought to you by Novata. I’m Ella Williamson, and I’m thrilled to be your host today. Joining us is Mark Fischel, Head of Product at Novata. He led the launch of Novata’s Carbon Navigator earlier this year, now being used by over a hundred companies worldwide. Before Novata, Mark started his own business in the world of carbon accounting software.
We’ll be revisiting the topic of the SBTi, Science Based Targets Initiative, and the recent announcement on Scope 3 reduction targets that has caused a real stir in the industry. Mark, we know that the reaction across the market has been pretty polarizing. Can I ask you to go into more detail about what this announcement actually was and what the impact has been?
Mark Fischel: Hi, Ella. Of course. So, a couple of months ago, the Science Based Targets Initiative, or the SBTi, released a short statement indicating that they would be allowing carbon credits as part of Scope 3 reduction targets. This marks a significant departure from their previous stance, which severely limited the role of carbon credits in reduction targets and prioritized emissions reductions above all else. This announcement caused a huge reaction across the markets, and exactly as you say, Ella, it was indeed very polarizing.
Companies selling carbon credits were welcoming the SBTi’s announcements, whereas detractors mentioned that the Science Based Targets Initiative could really no longer call itself science based at all. And, to top it all, SBTi employees actually threatened to resign. They condemned the announcement and the way that it had been conducted, and put pressure on the CEO himself to also resign.
Ella: Wow, so the internal backlash within the SBTi is definitely very telling, and really highlights the polarizing nature of this decision. Now, we know that the SBTi is one of the most respected and influential organizations in the world. Why does this announcement really matter?
Mark: Yes. So this announcement really does matter. Thousands of companies now have set targets with the SBTi. Really that makes the SBTi probably one of the most important bodies worldwide in ensuring and tracking progress towards corporate net zero. Any announcement or decision that they make always causes shockwaves as those companies that have set targets have been planning on a 10 to 30-year time horizon based on the guidance coming out of the SBTi. So knee jerk changes from them are really akin to moving the goalposts. And they really do have significant financial and strategic implications for companies engaged with SBTi. And the rushed manner in which this announcement happened, as well as the controversial nature of carbon credits in general, really added to the general sense of panic and outrage that associated this announcement. And following a few days of activity in the press and all over LinkedIn, SBTi actually was forced to publish a clarification statement in which they stated that there had, in fact, been no change, contrary to popular belief, and that any change would have to go through a lengthy process on their side. So, in other words, this was the equivalent of them saying, nothing to see here, which really begs the question, you know, why did the SBTi make an announcement at all? Ben Elgin in Bloomberg followed up with this whole, furore with a fascinating investigation, which really went into the detail on the ground, exploring a conference that took place a few weeks earlier, where a small number of representatives from the SBTi, a non profit body, were being really pressurized during that conference by lobbyists who were acting on behalf of funders and promoters of the carbon credit industry as a whole.
Ella: Thanks for that, Mark. So it clearly sounds like there are a lot of complex dynamics at play here. How is the SBTi going to maintain its credibility and independence? What is your real take on it all?
Mark: Yeah, so, I mean, for those who have been following closely for a number of years, this actually shouldn’t have been as much of a shock as it was. SBTi has been under pressure for some time to relax their stance on carbon credits because it has really been stunting the growth of the industry as a whole and the SBTi has been accepting submissions from lots of different parties for many months leading up to this announcement. Really, there’s no getting away from the fact that the SBTi really botched this announcement.
It was a classic example of poor governance. You know, the board had a board meeting and then released a couple of sentences with no clear goal or purpose or sensible objective. As they said, no real decision was going to be properly announced until September. So it was really an incendiary announcement, that really, I think undermined the integrity of the institution as a whole. It was really an own goal, and the point around these lobbyists also really brought into question the independence, as you say, of the SBTi as a nonprofit, as a scientific body, they really need to show that they are independent and really taking an impartial stance and doing things in the right way, according to the science.
So, there’s that background, which I think is very important. But I think what was missed in a lot of coverage of this announcement was that why is there a need to add carbon credits as part of the overall package of hitting Scope 3 targets. Well, the answer to that is that really it’s become very difficult indeed for companies to hit their Scope three emissions reduction targets in the timeframe that is remaining, you know, in the 5, 15 years that we have left and companies really have started realizing that. Hence the pressure on SBTi to give them alternative methods to hit their goals and to bring that to life a bit in March of this year, 239 companies — so, a very significant number of companies of all shapes and sizes from some of the biggest to the smallest companies in the world — decided, well, declined to graduate from the two-year process where they set a commitment to set a target to actually setting a target. And the main reason that those companies cited for declining to set the fully blown science-based target was that there was just too many risks and uncertainties associated with reducing their Scope 3 targets. And a lot of that is because the responsibility for those Scope 3 reduction actually sits outside their four walls.
They are relying on external actors, especially their suppliers, to reduce their emissions on behalf of the company in question. So they need other actors to reduce their emissions for them to also hit their Scope 3 target. And so companies, to really hit the trajectory that the SBTi needed them to need more time to support their suppliers to mature and themselves start decarbonizing. And personally, I don’t believe that it’s so unreasonable that over this interim period of five years or so, where companies are helping their suppliers and really pushing them to start decarbonizing, that they should be allowed to make progress towards their Scope 3 target by investing in high quality and, of course, rigorously vetted carbon credits. So this seems like a reasonable, practical approach to supporting the overall transition. But, as we’ve discussed, that doesn’t negate the fact that some of the way that this was handled by the SBTi really wasn’t ideal and could have been done in a better way.
Ella: Absolutely, completely agree. I think that question that you asked at the end there, is this really a long-term solution? Probably not, but probably a necessity at the moment, and it was the abrupt nature of the announcement that has really caused these shockwaves. Mark, thank you so much for all your insights today.
We always love having you on. Until next time, let’s keep building sustainable intelligence together. Find out more at novata.com.
