Benchmark prior transactions, bonds, loans or company profiles using over 300 credit metrics.

Comparables

AI transcripts & instant analysis, making earnings season easier than ever.

Earnings

Say goodbye to CTRL + F with our powerful search. Thousands of documents text searchable for any keyword or phrase.

Search

A full suite of ESG data and analysis. Built for your workflow

We've successfully predicted more than 65 price sensitive events - before they happened.

Deal predictions

Spot undervalued credits and potential future restructurings with our purpose-built tools.

Distressed and Restructuring

We use AI to aggregate newsflow from 2,000 sources, and deliver it to your inbox quicker than anyone else.

News

Full Financial profiles with 3 statements, KPIs, segment splits & credit metrics. All traced to source documents.

Financials

New deal analysis and covenant comparison tools, understand key risks in seconds not days.

Covenants

Track high yield deals from issuance through to maturity, with integrated legal, credit and ESG analysis.

High Yield Bonds

Shine a light on private markets with 9fin's news and legal analysis of syndicated loans

Leveraged Loans

21st century tech and expert analysis to help CLO teams make informed decisions faster.

Structured Credit 

Find information others can't see in one of the fastest growing corners of finance

Private Credit 

Oliver Wise

Sammy Cole

The SBTi sent shockwaves through the world of sustainable finance after it announced plans to change its stance on carbon credits.

The Science Based Targets initiative provides the global gold standard for emissions target setting (read 9fin’s guide to the SBTi here).

And, until now, the SBTi’s stance on carbon credits has been clear: only use them for emissions that cannot otherwise be reduced (max 10% of emissions).

But on Wednesday, 9 April, the SBTi changed course; it said it would now allow carbon credits to be used in scope 3 emissions targets, thereby seemingly taking a much more accommodating approach to offsets.

Carbon credits, also known as offsets, allow companies to compensate for their emissions by investing in projects that remove or reduce greenhouse gas emissions from the atmosphere.

This means companies using offsets aren’t actually reducing their own emissions; instead, they’re financing a reduction elsewhere.

The announcement generated plenty of headlines, social media uproar, and an SBTi staff revolt. But it also sparked conversations on the lack of progress towards net zero targets and the resulting need for carbon credits to supplement these targets.

To dig into the variety of responses across the market, we spoke to some industry experts. We also hosted a Cloud 9fin podcast on the topic last week (see more here).

According to a source with a lot of experience in carbon markets, the “biggest red flag” in the SBTi’s decision was the lack of the consultation with employees.

SBTi staff responded to the announcement through an open letter, claiming they were not consulted on the board’s decision, and that governance rules were not followed.

The letter highlighted that the statement made by the SBTi had caused “concern, confusion and damaged the trust of critical stakeholders”.

The SBTi quickly followed up with a clarification. It said it has not yet made any change to existing standards. Any potential changes will be published in July, after extensive research, a public consultation, a technical council review and approval, and consideration and adoption by the SBTi board of trustees, it added.

“The fact that there is such a misunderstanding between the board and the employees is disturbing,” said Ewa Suszek, an ESG communications expert.

There are a few theories as to why the SBTi could have made such a rash decision. The group has faced intensifying lobbying from voluntary carbon market players, but also apparently from the US government.

Advisors to former US climate envoy, John Kerry, heavily lobbied the SBTi to reverse its opposition to the use of carbon credits, according to sources to the Financial Times. This comes at the same time the US is developing its own carbon credit standards.

As well as this, SBTi representatives reportedly faced lots of requests to relax their position on offsets at a conference focused on carbon credits last month, according to Bloomberg. The conference was hosted by the Bezos Earth Fund, a supporter of the voluntary carbon market but also one of the main funders of the SBTi.

In Suszek’s view, “The fact that the SBTi represents corporate interests presents a reputational challenge.”

“The SBTi is balancing ambition and commerciality,” Zaneta Sedilekova, director of climate at biodiversity risk consultancy firm Planet Law Lab, told 9fin.

Governance issues aside, the SBTi’s decision stoked an intense social media debate. The decision has been met with a lot of criticism, but many were also quick to point out the positives.

Nawar Alsaadi, CEO and founder of Kanata Advisors, told 9fin he is supportive of the idea.

“Carbon credits can be a critical channel to funnel nature-related capital to developing countries,” he said, adding that for “scope 3 in particular, [they] touch on an area that companies can’t really control”.

However, it’s vital that the SBTi get the details right, said Alsaadi. Whether the idea will work or not “depends on how it will be structured, to what extent companies can use carbon credits, and under which conditions”.

Not everyone 9fin spoke to was supportive. One source told us they are worried the decision will open the door to more greenwashing due to the cheap cost of offsets. They did point out though that they would be comfortable with the decision if there is a robust compliance mechanism. The problem is that “we’re a very long way off having a credible carbon market”, they added.

Sedilekova also agreed “the integrity of carbon markets is a huge problem”.

Before they’re sold to corporations, most offsets are initially verified by external parties to confirm that they actually lead to the reductions in emissions they claim.

Unfortunately, offsets approved by some of the largest and, in theory, most reputable external verifiers have been criticised by media outlets like Bloomberg and The Guardian for having questionable methodologies that overstate the emissions removed by a project.

In some cases, offsets have even been linked with the removal of indigenous populations from their land. Read more here.

Even if there is a risk offsets aren’t credible, Alsaadi argued it is clear we need to make a change to the current approach we take on reducing emissions.

He highlighted a report published by Accenture, which outlined that only 18% of companies are actually on track to meeting their targets.

According to Alsaadi, “The system we have today isn’t working; that’s the reality.”

9fin found that just 15% of companies on its database had set SBTi targets and many issuers lack emissions reduction targets aligned with the Paris Agreement.

Many companies may also find it challenging to engage with suppliers on climate issues. HY issuer Tendam, for example, has over 3,000 suppliers, 312 of which are clothing suppliers. Of its clothing suppliers, 92% are located in the global south. Another HY name, Asda, has 2,851 tier 1 suppliers, just for its stores, of which 48.6% are located in the global south. Tenneco has 42,917 suppliers all across the globe.

Allowing companies to use offsets could, therefore, be a way to encourage more companies to set climate targets by reducing the barriers to entry.

It seems as if we’re going to need offsets in some form or another, but the lack of regulation and standardisation in the market has meant that it’s been linked with excessive greenwashing.

As pointed out by Alsaadi, “Those critical have a reason to be sceptical”.

There is much that can go wrong with the process if it isn’t managed properly.

Alsaadi highlighted that, without standards, and without accountability, markets can’t function. And we’ve seen this negative impact in the voluntary market, according to him.

Another 9fin source said that they would be more comfortable with the SBTi’s decision if there was a robust compliance mechanism. But, with the lessons learnt from the pitfalls of the voluntary carbon market, it is clear that this will take time.

If the SBTi sticks with its decision to be more flexible surrounding carbon credits, there’s certainly still a need to establish sufficient guidelines and guardrails.

One 9fin source said that the SBTi needs to define which scope 3 emissions can be offset. They added that this can only be the case only after companies have exhausted their own measures.

Sedilekova told 9fin that the requirements related to offsets could be staggered.

For example, she said that “companies could start by offsetting all of their scope 3 emissions and then reducing the amount they offset by 7% year on year, where that 7% is replaced by real reductions in scope 3 emissions” (greenhouse gas emissions need to fall by around 7% between 2020 and 2030 to meet the 1.5°C goal).

“This way, the SBTi's decision can be seen as removing barriers to entry and taking its members on a journey from commerciality to ambition,” according to Sedilekova.

Whatever avenue the SBTi decides to take, Ewa Suszeck told us she thinks that companies will continue to look for opportunities to make their goals credible. And with limited or even no other options available, she believes it’s likely they will continue to go to the SBTi.

Enjoyed this article? Our customers receive news and analysis ahead of the crowd on the 9fin platform. To request a trial, click the button below.

Crunch time for SBTi in carbon offset debate

Karis Hustad

European LevFin Wrap — Altered docs help Alter Domus, missing M&A

Jane Komsky

ConvergeOne — Excluded lenders to argue against ‘staggering’ premium for majority lender group

Larry Feldman

Diamond Sports Group — Major league teams sound alarm on Comcast renewal strikeout

William Hoffman

David Bell

Waiting for the M&A dam to break — Key takeaways from the Goldman Sachs Leveraged Finance Conference

Turbocharge your trading desk P&L, with the market's fastest news alerts.

Sales & Trading

Save time, react faster to news, outperform your peers.

Asset Managers & Hedge funds

Save time, pitch more efficiently, and win business.

Investment Banks

Spot novel covenants, save time drafting and win business.

Crunch time for SBTi in carbon offset debate

Read all our public content for free

Recently Published

European LevFin Wrap — Altered docs help Alter Domus, missing M&A

ConvergeOne — Excluded lenders to argue against ‘staggering’ premium for majority lender group

Diamond Sports Group — Major league teams sound alarm on Comcast renewal strikeout

Waiting for the M&A dam to break — Key takeaways from the Goldman Sachs Leveraged Finance Conference

What are you waiting for?

Cookies & Privacy