Corporate target-setting is undergoing significant transformation
In the voluntary carbon market, demand is largely influenced by the Science Based Targets initiative (SBTi) corporate net-zero emissions guidance package, which is now voluntarily followed by nearly ten thousand large companies. The “Corporate Net-Zero Standard V2” draft standard published by the organization last November marks a turning point in corporate target-setting and tracking in several respects. From the perspective of the carbon market, the most important element of the standard is the acceptance of market-based structures and the regulation of their use.
In addition, the standard also brings progress in the assessment of insetting—i.e., market-based interventions aimed at decarbonization along the corporate value chain. While the organization was previously cautious about the concept due to its imprecise definition, the current draft handles the issue in a much more structured way, with a strong emphasis on scientific integrity, in full alignment with the “Actions and Market Instruments (AMI) Phase 1 White Paper” published by the GHG Protocol.
The new Science Based Targets initiative standard explicitly states that insetting is not a “loophole” for offsetting, but an important tool for value chain decarbonization,the scientific integrity of which must be ensured. Similarly to the GHG Protocol, SBTi also avoids the term insetting as a standalone accounting category. Instead, the standard identifies insetting as a form of Value Chain Interventions.
The standard defines the place of insetting in the system
Value chain interventions are considered a fundamental part of the corporate decarbonization process under the standard, but only under certain conditions. The justification for recognition is that the activity demonstrably helps the company achieve its science-based targets by verifiably reducing the footprint of its own value chain.
For an insetting project to be recognized as a step toward net-zero targets, it must meet strict criteria. First, its position within the value chain must be proven. Second, the intervention must be physically or operationally linked to the company’s supply chain; thus, the standard requires a physical and economic connection between the project and the company’s products. If both conditions are met, the result of value chain–based interventions must be reported not as external offsetting, but as an actual reduction in the company’s Scope 3 inventory.
The draft recognizes the strategic importance of insetting in two areas. In terms of emissions reduction, insetting plays a role in helping suppliers transition to new technologies, which directly reduces Scope 3 emissions. On the other hand, value chain–based interventions also support the system-level resilience of supply chains. In other words, beyond emissions reduction, they specifically encourage interventions that improve biodiversity, water security, or the effectiveness of other sustainability objectives within the value chain.
Market-based certificates also emerge
The draft also addresses market-based certificates. A very important step forward is that market-based certificates can legitimately be integrated into the decarbonization process. Moreover, such certificates may also “move” along the value chain.
The standard explicitly allows that the results of insetting projects may appear in the form of market certificates and circulate within the value chain. However, this is only possible under very strict chain-of-custody requirements, provided that the raw material used is closely linked to production.
A very important rule is that external offsetting remains strongly limited and must be reported separately from value chain interventions (insetting). The standard therefore clearly distinguishes between neutralization and value chain–based decarbonization interventions. Neutralization only becomes relevant after approximately a 90% reduction of emissions, to address the residual emissions that are not reducible due to technological or economic constraints.
