SBTi’s new standard just raised the bar on what counts as a credible net-zero target. Here’s what changed and your transition timeline.

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Contents

1. What changed and what stayed the same
2. Category A and what it demands
3. Scope 3: a narrower but sharper requirement
4. Ongoing Emissions Responsibility: the new role for carbon credits
5. The transition timeline
6. What this means for Australian organisations

When SBTi published Version 1.0 of its Corporate Net-Zero Standard in 2021, the task was straightforward: get companies to commit. More than 11,000 organisations did. From the start, a gap opened between those commitments and what companies were doing to deliver them.

V2.0, published on 11 June 2026, is SBTi’s attempt to close that gap. The standard has been in development for over two years, through two public consultations and pilot testing with more than 370 companies. The result tightens the framework and shifts the focus to credible implementation.

For Australian organisations setting or renewing science-based targets, particularly those already subject to AASB S2 mandatory climate disclosure, V2.0 introduces obligations that will require real preparation. The transition window is shorter than it might appear.

What changed and what stayed the same

The 1.5°C ambition is unchanged. Companies still need to set near-term targets covering Scope 1, 2, and material Scope 3 categories, and a long-term net-zero target. The science underpinning those requirements has not moved.

The bigger shift is in delivery. V2.0 introduces five-year target cycles with mandatory end-of-cycle reviews, annual Scope 1 and 2 reporting requirements, and a separation of Scope 1 and 2 into distinct targets. Under V2.0, each Scope requires its own reduction commitment. That sounds like formatting until you consider that many companies have been managing electricity emissions under a market-based Scope 2 methodology and their combustion emissions under a far slower plan. Separating them exposes the quick wins for what they are and forces attention onto the harder, slower work.

The standard rewards “best efforts”. Companies that miss targets while demonstrating genuine action and transparency about barriers can remain in the programme. This is not a lower standard. Companies that fall short face tighter renewal targets in the next cycle. The intent is to keep genuinely committed organisations in the framework rather than removing them for circumstances outside their control.

Category A and what it demands

V2.0 replaces the old SME/non-SME distinction with a formal two-tier classification. Category A covers large enterprises with a net turnover above €450 million or more than 1,000 full-time employees, and medium-sized companies in high-income countries that either have ≥10,000 tCO₂e Scope 1 and 2 emissions or meet two of three size thresholds: a balance sheet above €25 million, turnover above €50 million, or 250 or more employees.

Category A carries obligations that did not exist under V1.3.1, starting with a Climate Transition Plan published within 12 months of target validation. That plan needs to include a credible decarbonisation pathway with milestones, annual emissions reporting commitments, and evidence of board-level accountability. SBTi is explicit that it must reflect genuine strategic intent.

Category A companies must also obtain limited assurance on their base-year Scope 1, 2, and 3 emissions. For organisations that have been managing their GHG inventories without third-party verification, this is a material change in preparation and cost. The assurance requirement applies at each new target cycle, not just the first.

Scope 3: a narrower but sharper requirement

V1.3.1 required companies to set targets covering at least 67% of total Scope 3 emissions. V2.0 replaces that with a materiality threshold. Category A companies must set targets for every Scope 3 category that represents 5% or more of their total Scope 3 footprint. Categories below that threshold can be excluded, but only with a public justification and a documented plan to address them over time.

The 5% rule concentrates Scope 3 obligations on the categories that carry the most emissions and, in most cases, the most commercial influence. For a manufacturer, that will likely be purchased goods and services and use of sold products. For a financial institution, financed emissions. For a retailer with significant freight, upstream and downstream transport. The 67% rule allowed companies to aggregate their way to compliance. The 5% rule does not.

The standard also introduces expanded pathways for acting on those material categories: direct supplier and customer engagement, activity pool-level action, and category-specific approaches.

Ongoing Emissions Responsibility: the new role for carbon credits

The most misread change in V2.0 is the Ongoing Emissions Responsibility (OER) framework, which governs how carbon credits and contributions are treated.

Carbon credits still cannot count toward Scope 1, 2, or 3 reduction targets. OER contributions must be accounted for separately from the GHG inventory and cannot be netted against reported emissions. That position held from V1.0 to V2.0.

What is new is a formalised voluntary recognition system for companies choosing to address their ongoing emissions before they reach net zero. Verified mitigation outcomes mean permanent carbon removal, not emissions avoidance or reduction. There are three tiers:

• Engaged: cover at least 1% of total ongoing Scope 1, 2, and 3 emissions through verified mitigation outcomes or a contribution budget.
• Advanced: cover at least 10% of total ongoing emissions, including 100% of Scope 1 and 2, via verified mitigation outcomes or a contribution budget of at least USD 20 per tCO₂e.
• Leadership: available to Category A companies; cover 100% of total ongoing Scope 1, 2, and 3 emissions at a minimum contribution rate of USD 80 per tCO₂e, directed to verified mitigation outcomes.

Participation in OER is voluntary until 2035. From 2035, Category A companies face a mandatory requirement to support eligible carbon removals, starting at a minimum of 1% of their Scope 1-3 footprint and rising to 100% by their net-zero target year.

Companies with existing carbon credit portfolios cannot assume those instruments qualify under OER. Credits used for OER must be permanently retired when claimed, must not be double counted, and cannot count toward Scope 1, 2, or 3 target implementation. The detailed conditions for claims will be published through SBTi’s upcoming Claims System.

The transition timeline

V2.0 takes effect on 1 February 2027. The transition period gives companies time, but it is not open-ended.

• V1.3.1 remains valid for target submissions until 31 January 2028.
• From 1 February 2028, all new submissions must use V2.0.
• Companies setting or renewing targets in 2026 should do so under V1.3.1; SBTi has explicitly recommended this.
• Companies with existing near-term targets retain those targets through their target timeframe but should check their mandatory five-year review date.
• Companies with 2030 targets should begin preparing their 2030-2035 cycle targets under V2.0 from 2028.

What this means for Australian organisations

For organisations already reporting under AASB S2, V2.0 arrives at a critical moment. The first mandatory climate disclosure reports are now public. Many read as compliance documents rather than credible climate strategy. V2.0 sets a firmer test for what a science-based target means, and for any transition-plan claim made in an S2 disclosure.

There are four steps worth taking now:

• Check your Category A status: Thresholds are assessed on consolidated group figures in euros, averaged across the two most recent financial years. If you are close to the thresholds, run the numbers before the next target cycle opens.
• Map your Scope 3 categories against the 5% threshold: If you have not completed a full Scope 3 inventory, this is the prerequisite for everything else under V2.0. Without it, you cannot know which categories require targets, which can be excluded, or what your OER obligations will look like from 2035.
• Assess your assurance readiness: If your GHG inventory has not been through limited assurance, that process takes time and requires an evidence trail that most organisations are not maintaining. The earlier you build it, the less disruption at validation.
• Use the transition window deliberately: V1.3.1 remains a credible framework and the pathway to V2.0 has flexibility built in. Organisations that enter V2.0 with robust data and clear governance will have a material advantage over those that do so under time pressure.

About the Author

Farhan Ahmed is a consultant at sustainability strategy consultancy BWD Strategic, specialising in GHG accounting, decarbonisation strategy, and climate disclosure.