Understanding SBTi Targets and Greenhouse Gas (GHG) Protocol in Digital Advertising

As companies look to address the environmental impact of their business activity, ambitious yet feasible emissions reduction targets are necessary. For businesses (inside and outside of the digital advertising ecosystem) reduction targets serve multiple goals; they act as benchmarks for sustainability strategies and action plans, allow firms to be held accountable to their environmental objectives, and signal a company’s commitment to decreasing its footprint. In the absence of guidelines, however, setting such reduction targets can be a difficult task to undertake. What sources of emissions must be included? What level of reduction should firms aim for? What period should reduction plans be based on, and how often should progress be checked? Having a common reference point to answer these questions is paramount. Thankfully, businesses can refer to the Science Based Targets initiative’s (SBTi) Corporate Net-Zero Standard, a framework created to guide them in becoming net-zero organisations. 

To help businesses in the digital advertising industry kick-start their reduction journey, we’ve outlined some key information on how the SBTi Standard works, how reduction targets can be set, and the specific challenges of the SBTi target adoption to the digital advertising industry below. 

We have also released a complimentary podcast episode here, where we dive into the intricate world of carbon emissions in digital advertising further with Benjamin Davy, Sustainability Director at Teads.   

How does the SBTi Corporate Net-Zero Standard work?

The framework set out by SBTi lays a path for firms to achieve net-zero, otherwise understood as the state in which a business has a (on balance) non-negative contribution to environmental degradation and climate change. As a reminder, corporate emissions are categorised into three scopes, defined by the Greenhouse Gas Protocol:

• Scope 1 emissions are direct emissions from owned or controlled sources.
• Scope 2 emissions are indirect emissions from the generation of purchased energy.
• Scope 3 emissions are all indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream emissions.

The SBTi Standard declares that organisations achieve net-zero by:

1. Reducing scope 1, 2, and 3 emissions to zero or a residual level consistent with reaching global net-zero emissions or at a sector level in eligible 1.5°C-aligned pathways.

2. Permanently neutralising any residual emissions at the net-zero target year and any GHG emissions released into the atmosphere thereafter.

Simply put, the definition of net-zero put forward by SBTi is based on scientific estimates of how much global emissions have to be reduced for the average global temperature to rise by a maximum of 1.5 degrees Celsius by 2050. The SBTi also defines separate reduction targets for sectors such as shipping and power generation that are significantly more carbon-intensive. Firms that operate in all other sectors may follow the generic, cross-sectoral pathway to net- zero. An Information and Communication Technology (ICT) pathway exists in the SBTi framework, which focuses on data centres, and fixed and mobile network operators. The ICT-specific pathway also features a formula to calculate a reduction target for emissions resulting from data centre operations. There is currently no SBTi pathway specifically designed for marketing and advertising activity.

How does a company set a reduction target under the Corporate Net-Zero Standard?

Under the SBTi framework, companies set two targets: a long-term target that expresses the total level of emissions reduction required in each sector, and a short-term target of a 5-10-year horizon that describes the reduction path they will take. Once their short-term target date is reached, a new short-term target is calculated. In summary, short-term targets are milestones to ensure accountability and progress towards the long-term goal of net-zero emissions.

1. Setting organisational boundaries & developing an emissions inventory

The first step to establishing SBTi targets is developing a complete greenhouse gas inventory in compliance with the GHG Protocol, which includes 95% of scope 1 and 2 emissions, as well as a complete scope 3 inventory. When setting organisational boundaries, companies must select one of the following consolidation approaches for this inventory:

A. Equity Share - emissions from an operation are accounted for by a firm according to its share of equity in the operation.

B. Financial Control - all emissions that the firm has financial control over are accounted for.

C. Operational Control - all emissions that the firm has operational control over are accounted for.

Scope 3 inventories used for SBTi submissions must be developed per the GHG Protocol Scope 3 Standard and GHG Protocol Scope 3 Calculation Guidance. These documents contain criteria for determining which upstream and downstream activities should be accounted for. The Scope 3 Standard also provides a list of activities that must always be included in a company’s emissions inventory for science-based targets submission. These are referred to as mandatory scope 3 emissions.

Two-thirds of mandatory scope 3 emissions must be included in the short-term target if scope 3 emissions represent more than 40% of a company’s total emissions, and 90% must be included in the long-term target regardless. By making this distinction, the SBTi Standard provides some leeway to companies facing scope 3 assessment challenges.

Regarding scope 1 and 2 emissions, 95% must be covered by both near-term and long-term reduction targets.

2. Setting targets

Companies can then set short- and long-term targets relative to a base year they define. The company’s emission profile from the base year must be representative of its current environmental performance and allow for ambition in terms of improvement. Subsidiaries may set their own targets, but must also be included in the parent company’s SBTi submission using the selected consolidation method.

Unless a company’s SBTi submission is based on sector-specific targets, near-term targets are calculated based on a reduction rate of 4.2% per year, and long-term targets are fixed at an overall reduction of 90%. These are absolute emissions targets, referring to the total of a company’s emissions rather than the GHG intensity of its activity. For scope 2 emissions, targets may be substituted by an 80% and 100% renewable energy procurement target by 2025 and 2030 respectively. Renewable energy certificates (RECs) and virtual power purchase agreements (VPPAs) are accepted here.

Scope 3 targets may be defined separately either in terms of physical intensity, using a self-defined metric (e.g. CO₂e per kb), or economic intensity, using CO₂e per unit of value added. These must be reduced by at least 7% year-on-year and 97% overall. Another option for near-term scope 3 targets is to set supplier and customer engagement targets, which aim for SBTi target establishment across a firm’s value chain.

What are a company’s commitments under the SBTi?

The SBTi framework allows businesses to set credible, verifiable targets that are informed by the current scientific understanding of the effect of global economic activity on climate change. Companies that wish to set emissions reduction targets using the Corporate Net-Zero standard must embark on an extensive process to develop verified emissions inventories and targets. The SBTi publishes a record of all targets set under the framework and checks for compliance with the Standard’s requirements on a rolling basis. As such, the organisation can ensure that firms with active targets are working to carry out their commitments - by issuing annual emissions reports, for example. Companies that are found to be non-compliant risk being removed from the SBTi database.

SBTi targets are a long-term commitment for companies; besides pledging that it will achieve net-zero before 2050, a company with SBTi targets also commits to issue short-term targets and report progress perpetually until net-zero is achieved.

What are the challenges relative to SBTi target adoption in digital advertising?

According to IAB Europe’s latest State of Readiness Report, only 18% of firms have set environmental reduction targets, through SBTi or otherwise, with a further 15% of respondents claiming they are in the process of establishing targets. The digital advertising ecosystem, spanning from advertisers to publishers, has certain unique challenges to address relating to greenhouse gas (GHG) inventory development and reduction target-setting:

1. Lack of consistent application of protocol and standards. Not all greenhouse gas inventories are born equal. Apart from the obvious comparison that can be drawn between the levels of reduction that different companies aim to achieve, inventories and targets can also vary significantly depending on which activities are accounted for, and how their resultant emissions are modelled. Most importantly, in the absence of sector-specific guidance related to corporate emissions reporting, multiple interpretations of GHG Protocol and SBTi standards may be valid and verifiable. The selection of which scope 3 activities to include can range from business to business. Certain activities may be excluded because the firm does not have access to high-quality data, and including the activity would reduce the overall quality of the GHG inventory. In the long-term, the SBTi states inventories will cover the sources of at least 90% of scope 3 emissions. Before we get there, the current list of mandatory scope 3 emissions sources may not suffice in addressing major components of the digital advertising value chain. For example, from a publisher's perspective, the emissions resulting from SSP activity would fall under Scope 3.11 in the GHG Protocol, “Use of Sold Products”. These are indirect use-phase emissions that are excluded from the Scope 3 Standard’s minimum boundary and considered optional.

2. Technical complexity and interdependence. Most firms report scope 3 emissions that outweigh their scope 1 and 2 emissions. This is especially true for the digital advertising ecosystem, where a majority of companies rely on partners for services such as cloud storage and computing. In addition, multiple ad tech, data, verification, and measurement platforms are activated for each delivered impression. While there are vendors trying to map the programmatic supply chain and offer estimates for GHG emissions across it, further work is required to increase the quality of their models and enable businesses to truly understand their scope 3 emissions. Optimally, both the demand and supply side should source corporate intensity figures directly from their tech partners to be compliant with recommendations in the GHG Protocol Corporate Standard. At the moment, they may not even be able to identify all the businesses included in their programmatic supply/demand chain at one point or another, rendering accurate scope 3 reporting impossible.

3. Reliance on major diversified firms. The digital advertising industry is reliant on key tech providers with operations that are diversified both in terms of scope and geography. Companies looking to develop GHG inventories and set SBTi targets require emissions data that is specific to the services they purchase and business units they partner with. However, corporate emissions reports often lack the level of granularity required to obtain intensities at a business unit or media product level, leaving firms with no information on the level of emissions that should be included in their scope 3. This challenge may be addressed should tech providers issue product-level intensities, the need for which is highlighted in GHG Protocol documentation in the cases of diversified suppliers.
   
4. Lack of education is highlighted as a key obstacle to environmental sustainability by 90% of the industry according to our report. We must not forget that the conversation on sustainability is still at a nascent stage, and a lot more work is required to move the digital advertising industry along the learning curve. As more business leaders are educated on the importance of sustainability, and pressure from clients, partners, investors, and regulatory bodies grows, we are bound to see the pool of businesses with SBTi targets grow as well. At the moment, our research suggests that a non-negligible part of the digital advertising industry still regards sustainability as an unknown or potential cost centre rather than an opportunity.

5. Lack of financial resources. As aforementioned, the development of a GHG inventory and the setting of SBTi targets represents a substantial commitment, with financial implications. Firms may be holding off for now due to the cost of establishing a dedicated sustainability lead or working with an external advisor or consultancy. Furthermore, they may be hesitant to commit to the long-term costs associated with collecting scope 1, 2, and 3 data, publishing annual emissions reports, and investing in GHG footprint reduction. In an unstable market environment, and one in which firms are burdened with adapting to paradigm shifts such as the deprecation of third-party cookies, sustainability may not top the priority list for all.

Designing an emissions reduction strategy can be challenging, but it’s important that businesses make a start by setting targets.  To help businesses in the digital advertising ecosystem take action, our Sustainability Standards Committee brings industry stakeholders together to create and share best practices and develop standards that help reduce the amount of energy consumed and emissions produced by digital advertising.

Committee participation is open to all members of IAB Europe and key resources produced by the committee can be explored in our Sustainability Hub here. 

For more information on the committee and how you can get involved, please reach out to Lauren Wakefield - wakefield@iabeurope.eu or Dimitris Beis - beis@iabeurope.eu.