Key Takeaways

What Happened: The Science Based Targets initiative (SBTi) released Version 2.0 of its Corporate Net-Zero Standard, a revised framework for setting, implementing, reporting, and assessing progress against corporate net-zero greenhouse gas (GHG) targets. The new standard takes a revised, more pragmatic approach, meeting the moment with updated rules on voluntary action and enabling more pathways to achieve deeper decarbonization. Version 2.0 expects companies to mobilize “all available levers” to reduce GHG emissions, including chain-of-custody and sectoral approaches to reduce supply chain emissions where appropriate. The new standard also recognizes that companies may face implementation barriers and enables companies to make progress toward their targets while addressing these barriers transparently over time. Importantly, SBTi acknowledges ongoing work by the Greenhouse Gas Protocol and the International Organization for Standardization (ISO)—each of which has recently released new, updated, or proposed standards relevant to operationalizing Version 2.0—and addresses alignment and coordination across these overlapping but distinct frameworks.

Who’s Impacted: Version 2.0 represents a significant change that will impact a wide range of companies, including those with SBTi-validated targets, companies planning submissions (especially for new or renewed targets after January 2028), entities in renewable energy development, and entities involved in supply chain decarbonization or sectoral decarbonization projects that may count toward SBTi targets. Version 2.0 validation is expected to begin in February 2027; companies may continue to submit under Near-Term Criteria Version 5.3 and Corporate Net-Zero Standard Version 1.3.1 until January 31, 2028. After that date, new submissions must follow Version 2.0.

How and When to Act: Companies should use the current transition period to decide whether to submit under the current framework (an option through the end of 2027) or prepare for Version 2.0. Companies should also review GHG inventories, transition plans, electricity procurement arrangements, market-based instruments, carbon removal strategies, supply chain interventions, and desired or current climate-related claims. Companies with 2030 targets should begin preparing for the next target cycle, because Version 2.0 may require updates to inventory data, target-setting methods, reporting systems, governance processes, and procurement or market-instrument strategies.

There is significant new opportunity for decarbonization within certain supply chains, given SBTi’s endorsement of book-and-claim, mass balance, and other mechanisms to address supply chain emissions within a sector. Carbon project developers and marketers should understand how the new standard treats market instruments and assess potential impact on demand; the same is true for certain providers of renewable power, which may rely on corporate power purchase agreements and renewable energy certificate (REC) sales to fund project development or maintain revenue streams.

Overview

Version 2.0 shifts SBTi’s approach from primarily target validation toward implementation, progress tracking, and support for broader decarbonization.

At a high level, Version 2.0 introduces or expands: company categories with differentiated requirements; more flexible Scope 1, 2, and 3 target-setting options; a target implementation hierarchy for direct reductions, low-carbon electricity, projects, and market instruments; a new Ongoing Emissions Responsibility framework with expanded treatment of carbon removals and neutralization; a new SBTi Assurance Model; and stronger governance and transition-planning requirements.

New Updates: Categories, Governance, and Progress Assessment

Version 2.0 introduces company categories based on company size, geography, and implementation capacity, with an aim to accommodate small and medium-sized enterprises:

• Category A includes large companies from all countries and medium-sized companies from high-income countries. Category A companies generally face more extensive obligations, including mandatory near-term Scope 3 target-setting and additional assurance and reporting requirements.
• Category B includes medium-sized companies from lower-income countries and small companies from all countries. Category B companies are subject to a more limited, core set of requirements and may voluntarily adopt additional elements.

Near-term (5-year) Scope 1 and 2 targets are required for all companies. Long-term Scope 3 targets are optional but encouraged for all companies. Companies may also set an optional long-term net-zero target that seeks to “neutralize” (i.e., eligible carbon removals or otherwise mitigate) residual emissions. Residual emissions are expected to be 10% or less of a corporate total in a net-zero year of 2050 or sooner. 

Version 2.0 also strengthens governance expectations. The company’s highest level of governance must approve the targets and oversee implementation to ensure senior leadership commitment. SBTi did not retain proposals that would have required a public net-zero commitment or public net-zero “ambition” before validation. Instead, internal approval at the highest level of governance (which may vary by organization) is required before target submission.

Companies must develop and maintain transition plans describing how targets will be implemented, including key actions, timelines, and assumptions. Because SBTi validation does not substitute for legal or regulatory review, companies should assess transition plans separately under applicable climate disclosure rules, consumer protection laws, securities laws, contractual requirements, and claims-substantiation standards.

Version 2.0 adds a progress assessment phase. The new SBTi Assurance Model includes Target Validation and End-of-cycle Assessment. Companies must complete an end-of-cycle assessment within 12 months after the target time frame closes and submit a target progress assessment covering progress, implementation barriers, and actions taken or planned. Category A progress assessments must be supported by independent third-party assurance over the reported data and calculations underpinning target progress.

Modifications to Target-Setting Requirements

Version 2.0 consolidates and replaces the prior Corporate Net-Zero Standard, including Near-Term Criteria V5.3, and replaces the mandatory five-year target review requirement. Targets generally operate in five-year cycles, with companies expected to monitor significant changes that may require reassessment or revalidation and to undergo an end-of-cycle assessment at the close of each cycle.

For targets submitted under Version 2.0, companies generally must use the most recent year with comprehensive data as the near-term target base year, rather than older historical base years. Companies submitting or renewing targets may therefore need to revisit baseline inventories and supporting data.

Validation remains paused for companies directly involved in fossil fuel exploration, extraction, mining, or production until sector-specific methods or guidance are finalized (which SBTi states are under development). Companies with fossil fuel-related activities should review applicable SBTi fossil fuel policy and eligibility criteria before assuming eligibility.

Version 2.0 separates Scope 1 and Scope 2 targets. Category A companies must set separate Scope 1, Scope 2, and Scope 3 targets (near-term; long-term Scope 3 is optional). Category B companies must set separate Scope 1 and Scope 2 targets; Scope 3 target-setting remains optional unless they choose to set a broader net-zero target.

Scope 1

Scope 1 emissions are emissions from sources a company owns or controls, such as company vehicles, boilers, or on-site industrial processes. Near-term targets generally cover a five-year period, while long-term targets must be set for 2050 at the latest. Near-term Scope 1 targets must cover 100% of direct emissions. Under Version 2.0, companies may use one or more of three options to set these targets:

• Absolute emissions reduction: reduce total Scope 1 emissions on a trajectory aligned with net-zero by 2050. Companies are encouraged, but not required, to set a long-term Scope 1 target.
• Emissions intensity reduction: reduce emissions intensity for covered activities using applicable sectoral decarbonization pathways. Companies must also set a long-term Scope 1 target.
• Asset transition: reduce emissions according to an Asset Decarbonization Plan, which may be used for sectors with long-lived capital assets where a linear pathway may not reflect practical decarbonization timing. Companies must also set a long-term Scope 1 target.

Scope 2

Scope 2 emissions are indirect emissions from purchased electricity, steam, heating, or cooling. Near-term Scope 2 targets must cover 100% of purchased and consumed energy. Companies may generally set Scope 2 targets by reducing Scope 2 emissions and/or increasing the share of low-carbon electricity used for implementation. Category A companies with rapidly increasing electricity demand must include a Scope 2 emissions-reduction target, rather than relying only on a low-carbon electricity alignment target.

Version 2.0 introduces new requirements for low-carbon electricity—defined to include renewable and nuclear energy, as well as electricity generation with carbon capture and storage—including a “deliverability” criterion. In general, low-carbon electricity must be deliverable to the relevant electricity consumption through geographic matching within deliverability regions or contractual arrangements with necessary transmission rights. The standard provides flexibility for legacy arrangements, qualifying power purchase agreements, and electricity markets facing structural supply constraints. In keeping with the broader SBTi shifts, sectoral approaches (such as procuring RECs from other grids) also are allowed where structural barriers prevent deliverability. Version 2.0 also encourages new-build investment by presumptively allowing contracts of up to 15 years, but allowing longer contracts for newer renewable energy facilities (less than 36 months old).

Version 2.0 does not require hourly matching for all companies: annual matching remains the basis for Scope 2 target progress, while certain companies with significant electricity use must calculate and report the share of electricity consumption matched hourly with low-carbon electricity. At the same time, SBTi indicates that this shift is positioning the standard to move closer towards hourly matching over time, particularly as it seeks to align with the Greenhouse Gas Protocol’s forthcoming revisions to Scope 2 guidelines.

Companies engaging in renewable energy procurement should review contractual mechanisms and ensure that counsel reviews existing or new renewable energy procurement contracts for alignment with these new and emerging SBTi requirements.

Scope 3

Scope 3 emissions cover the rest of a company’s value chain, including emissions from suppliers, customers, transportation, product use, and end-of-life treatment. Only Category A companies are required to set near-term Scope 3 targets, and longer-term Scope 3 targets are optional for both Category A and B (unless a long-term net-zero target is also set). Consistent with the Greenhouse Gas Protocol, Scope 3 emissions are divided into 15 distinct categories in accordance with the Greenhouse Gas Protocol representing different types or sources of emissions (purchased goods and services, waste, use of sold products, etc.).

Version 2.0 replaces the prior minimum percentage Scope 3 coverage requirement with a relevance-based target boundary. Category A companies must set near-term targets for each covered Scope 3 category that individually represents at least 5% of Scope 3 emissions, including categories such as purchased goods and services, transportation and distribution, business travel, use of sold products, and end-of-life treatment. Companies may exclude categories or activities below the 5% threshold, and certain specified exclusions are allowed where companies have limited operational or contractual influence, but exclusions must be justified and reported.

Version 2.0 also expands options for near-term Scope 3 targets. Companies may set absolute emissions-reduction targets or use alignment-based approaches, such as increasing the proportion of suppliers or customers that are in transition or net-zero aligned, or category- or activity-specific targets. Upstream options may include purchasing lower-carbon commodities or increasing the share of aligned suppliers. Downstream options may include increasing the share of aligned customers, increasing sales of lower-carbon products, or designing products with circular end-of-life solutions. In all cases, ensuring proper GHG reporting, allocation of relevant reporting rights, and supply chain traceability is important—all of which are established through supply chain contracts.

Target Implementation Hierarchy and Market-Based Mechanisms

While emissions reductions in a company’s operations remain prioritized, Version 2.0 recognizes a much broader role for market-based mechanisms—a significant shift for SBTi that will unlock additional GHG mitigation action across supply and value chains. Where direct traceability is not feasible, companies may take action within shared systems, such as electricity grids, gas grids, supply sheds, or logistics networks. Where direct or shared-system actions are limited, companies may resort to broader sector-level market-based actions.

This hierarchy is relevant for energy attribute certificates, commodity certificates, book-and-claim systems, mass-balance models, power purchase agreements, and other contractual instruments. These instruments may support implementation of GHG targets if companies use them within SBTi’s guardrails and satisfy applicable legal requirements. Where an action or instrument is not reflected in the company’s physical GHG inventory, the company must account for and report it separately, consistent with current Greenhouse Gas Protocol standards. Companies should assess whether instruments meet Version 2.0 integrity criteria, including verifiability, temporal alignment, prevention of double counting, and transparent accounting and reporting. Companies should also track ongoing work on the Greenhouse Gas Protocol’s Actions and Market Instruments (AMI) Standard, which will impact how market instruments are accounted for and reported.

Version 2.0 also recognizes certain projects as tools for target implementation. Projects implemented by or on behalf of a target-setting company may support target progress if they occur in the company’s operations or value chain, relate to the same activity reflected in the company’s inventory, are accounted for in proportion to the company’s support, and result in measurable emissions reductions. These projects may include insetting or similar actions designed to reduce supply chain emissions. Companies should expect certain SBTi guardrails, especially where claims relate to activity-pool or sector-level actions rather than direct inventory reductions.

Ongoing Emissions Responsibility and Carbon Removals

Version 2.0 combines interim removals and beyond-value-chain mitigation into a unified Ongoing Emissions Responsibility (OER) framework. OER addresses climate actions companies may take in addition to reducing Scope 1, 2, and 3 emissions in their operations and value chains.

Initially, OER encourages voluntary participation and a recognition framework for eligible carbon removals or other climate contributions. These contributions remain separate from assessed progress toward Scope 1, 2, and 3 emissions-reduction targets and generally may not be netted against a company’s GHG inventory or used to satisfy emissions-reduction targets.

Starting in 2035, the OER framework requires Category A companies to support eligible carbon removals equivalent to at least 1% of their ongoing Scope 1 to 3 emissions, including a minimum share of long-lived removals rising linearly to 100% by the company’s net-zero target year, and no later than 2050. This requirement is distinct from a company’s emissions-reduction targets and addresses responsibility for emissions that continue while a company works toward net-zero.

Once a company reaches its net-zero target year, the framework requires that it neutralize residual emissions with carbon removals. Version 2.0 adds criteria for those removals, including durability expectations. In general, long-lived GHG emissions, such as fossil carbon dioxide emissions, must be neutralized with long-lived removals capable of storing carbon for centuries to millennia. Other residual emissions may be neutralized with shorter-lived removals or a combination of short- and long-lived removals. SBTi recommends, but does not require, that removals used for neutralization are not simultaneously claimed against countries’ Nationally Determined Contributions. Companies must disclose whether removals used for neutralization are correspondingly adjusted.

Practical Takeaways

Version 2.0 greatly expands pathways to participate in SBTi while maintaining integrity and increasing the importance of implementation planning. Companies should use the transition period to:

• determine whether they are a Category A or Category B company;
• evaluate whether to submit new or renewed targets under current standards before January 31, 2028, or prepare for Version 2.0 validation;
• review board, senior management, and cross-functional approval processes for target submission, implementation oversight, progress tracking, and periodic reassessment;
• review renewable electricity, low-carbon electricity, energy attribute certificate, and power purchase arrangements for Version 2.0 requirements;
• assess supply chain interventions and whether market instruments, certificates, chain-of-custody models, or project-based actions can support target implementation under Version 2.0; and
• assess whether carbon-removal, OER-related, or climate-contribution strategies align with Version 2.0 requirements by reviewing climate-related claims substantiation, disclosures, and contract terms addressing durability, delivery risk, reversal risk, corresponding adjustments, registry treatment, and permissible claims.

Beveridge & Diamond's Climate Change and Carbon Markets team counsels clients across the full life cycle of clean fuels and environmental markets. The firm’s expertise includes compliance and voluntary programs, corporate GHG reporting, complex commercial transactions, and advice on development, implementation, and substantiation of decarbonization strategies, supply chain programs, renewable energy, and market instrument arrangements. Our attorneys have worked on the ground in regions across the globe, advising on local regulatory compliance, stakeholder engagement, and voluntary decarbonization programs.