SBTi’s new standards address SAFc
When Bitcoin first appeared as a tangible asset class, accountants were lost on how to classify it on balance sheets. Should it be reported as cash, inventory, intangible asset or something else? When Tesla bought $1.5bn worth of Bitcoin in early 2021, it classified the holdings as indefinite-lived intangible asset.
Lack of standards on how to treat Bitcoin resulted in massive undervaluation of balance sheets. This was because accounting rules lacked clarity on how to recognise these assets.
But this changed in 2023 when the Financial Accounting Standards Board (FASB) finally issued clear guidance. It advised that cryptos must be measured at fair value with changes reflecting in the income statement. This resulted in a 170% increase in corporate ownership of Bitcoin.
Sustainable aviation fuel certificates (SAFc) sit today where crypto was before 2023. Corporates treasurers write cheques to purchase SAFc and sustainability auditors verify the impact. But when it comes to reporting these SAFc as decarbonisation action, the current ESG reporting frameworks and standards do not offer clear answers.
But last month, the Science Based Targets initiative (SBTi) launched its Corporate Net Zero Standard Version 2 paving way for more clearer guidelines on how companies can incorporate use of SAFc to meet their climate targets.
The SBTi’s draft makes an important distinction for SAF usage. It classifies the fuel under both direct mitigation and indirect mitigation categories. “The physical use of SAF falls under direct mitigation, while the use of SAFc falls under indirect mitigation,” Amberlyn Saw, decarbonisation solutions specialist at Watershed tells us.
While the use of physical SAF remains the gold standard for aviation decarbonisation, challenges in scaling it are barriers for corporates. Using SAFc through book and claim means they can claim benefits without using the fuel. But companies still await clear SBTi guidance on whether SAFc purchases will count toward their net zero targets.
But Watershed says that the new draft on SBTi standards is a step towards progress. It establishes key rules on when and how companies can use SAFc. It also sets a key requirement that indirect mitigation can only work when physical traceability is infeasible.
While this serves as the baseline for how to use SAFc, there are hints of other emerging principles. One is keeping SAF exclusive to aviation emissions and not to offset other sources; mandating third-party verification and preventing double counting. But the key shift in the draft is conceptual.
“Broadly, the v2 draft reframes ‘indirect mitigation’ as ‘sector-level actions,’ which reflects the work Watershed is advancing in partnership with Sustainable Aviation Buyers Alliance: mobilising aggregate demand to accelerate SAF and grow the sector, even where companies lack direct control,” Saw tells us.
The new draft deals with various aspects of SAFc, but Saw identifies several gaps which require clarification. “The current draft allows companies to use Environmental Attribute Certificates for volume alignment but not emission intensity targets, and only for activity pool and sector level actions. It’s unclear how companies will receive and communicate their purchases given this new guidance,” she tells us.
“The draft does not define project-based accounting pathways for indirect mitigation. For example, if a company financially supports SAF production or purchases SAFc outside its own direct travel or fuel use, there is limited guidance on how the company ties it back to their climate targets. There is an opportunity to refine the balance between thoughtful accounting pathways while incentivising the decarbonisation investments our planet needs.”
For companies with existing targets, confusion will remain. “It’s still unclear how the rules will apply to companies with existing v1 targets; this will require more clarification,” Saw adds. While the SBTi standards are sector agnostic, the draft doesn’t explicitly mention SAFc.
“There are no explicit references to SAFc, but the SBTi’s overall approach to EACs will impact how SAFc is used and accounted for,” Saw says.
But the SBTi’s draft also emphasises indirect mitigation as time-limited. It views SAFc as transitory acceptable only until direct reduction isn’t feasible. This makes the use of SAFc transitional rather than permanent making it a tool to drive market transformation, not substitute for operational changes.
The consultation on the SBTi’s standards closes today, with final guidance expected in 2027. The decisions, after a wait of another two years, will determine the future of book and claim to scale SAF. Maybe we will see a two-fold increase in use of SAF (similar to what happened in corporate Bitcoin ownership) once clear guidance is issued making it easier for corporates to use SAFc as tool in their climate goals.
Subscribe to our free newsletter
For more opinions from SAF Investor, subscribe to our email newsletter.