SMALL AND MEDIUM- SIZED ENTERPRISES (SMEs) FAQs

SMALL AND MEDIUM-

SIZED ENTERPRISES

(SMEs) FAQs

Version 5.3

June 2024

Small and Medium SIzed Enterprises (SMEs) FAQs June 2024 | 2

CONTENTS

PART 1: SME DEFINITION, ROUTE AND METHOD APPROACH ....................................... 3

PART 2: BASE YEAR, RECALCULATIONS AND EMISSION INVENTORIES ................... 10

VERSION HISTORY .............................................................................................................. 13

ABOUT SBTi ......................................................................................................................... 14

Small and Medium SIzed Enterprises (SMEs) FAQs June 2024 | 3

PART 1: SME DEFINITION, ROUTE AND METHOD

APPROACH

1. Why did the SBTi introduce the streamlined route for SMEs?

As SMEs start responding to climate change, a growing number are turning to the Science

Based Targets initiative (SBTi) to demonstrate their commitment to reducing emissions, and

to get help with setting robust, credible targets that are in line with climate science. But many

SMEs remain concerned that they lack the skills or capacity to set these targets. In

response, the SBTi introduced a streamlined target-setting route for small and medium-sized

companies.

2. How does the SME route differ from the standard target validation route?

The SBTi’s streamlined route for SMEs enables them to bypass the initial stage of

committing to set a science-based target and the standard target validation process. SMEs

can immediately set science-based targets (near-term and net-zero options available) by

choosing from one of the predefined target options available in the SME science-based

target setting form. Unlike larger companies, the near-term option does not require SMEs to

set targets for their scope 3 emissions; however, SMEs must commit to measure and reduce

their scope 3 emissions.

3. What specific criteria must a company meet to be eligible for the streamlined

validation route for SMEs according to the new definition implemented by

SBTi?

From 12 February 2024, companies may set targets through the streamlined validation route

for SMEs if all criteria points are met:

1. Have <10,000 tCO2e across scope 1 and location-based scope 2

2. Are not classified in the Financial Institutions (FIs) and Oil & Gas (O&G) Sectors*

3. Are not required to set targets using sector-specific criteria (such as the Sectoral

Decarbonization Approaches) developed by the SBTi (see the SBTi’s sector

guidance documents for requirements)**

4. Are not a subsidiary of a parent company whose combined businesses fall into the

standard validation route*

And three or more are true:

1. Employ <250 employees

†

2. Turnover of <€50 million

†

3. Total assets of <€25 million

†

4. Are not in a mandatory FLAG sector

‡

Following the release of this definition, companies that are still classified as an SME may

choose to set targets through the more stringent standard validation route.

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*Same as Version 4.0 SME criteria that ceased to be in effect on 1 January 2024

**Mandatory FLAG sector companies that meet all other criteria are not affected by this

criterion. Please see the second set of SME eligibility criteria if you operate in a FLAG

sector.

† CSRD alignment. These figures were updated in December 2023 in line with the latest

CSRD definitions and thresholds for SMEs.

‡ See Criterion 1 of the FLAG Guidance

The SBTi exclusively considers the above criteria to classify an entity as an SME and only

entities that fall within this definition can use the streamlined route for SMEs.

4. Can you explain what a "mandatory FLAG sector" is?

A "mandatory FLAG sector" refers to sectors that must adhere to specific sustainability

standards. The following are the concerning sectors:

● Forest and Paper Products–Forestry, Timber, Pulp, Paper, and Rubber

● Food Production–Agricultural Production

● Food Production–Animal Source

● Food and Beverage Processing

● Food and Staple Retailing

● Tobacco

5. Can Financial Institutions and Oil & Gas companies that are SMEs use the

streamlined validation route for SMEs?

No, these sectors are not allowed to use the SME streamlined route. Due to the developing

status of our Oil and Gas guidance, the SBTi has updated its fossil fuel policy. In addition to

its existing policy to not validate targets from fossil fuel companies, it will no longer accept

commitments from these companies, regardless of whether they are an SME or not. As for

Financial Institutions, they are required to use the framework for the finance sector and align

their lending and investment portfolios with the ambition of the Paris Agreement.

6. Why is being a subsidiary of a parent company relevant to whether a business

falls into the standard or streamlined route?

The status of being a subsidiary of a larger parent company is important for SME eligibility

because it ensures alignment with the combined business activities of the parent company. If

the parent company's overall business falls into the standard validation route, the subsidiary

is expected to adhere to the standard route. This approach maintains a uniform level of

rigour and consistency in the target-setting process across the organization.

7. My business is considered an SME under the new definition. Do I need to use

the SME target submission route?

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Not necessarily. Businesses that qualify as an SME under the new definition can use either

the SME route or the standard route for target validation.

8. Are businesses that no longer qualify as an SME required to pay the standard

validation fee rates?

Businesses that no longer qualify as an SME will need to use the standard target validation

route and pay the fee associated with the standard validation route. This includes

businesses updating targets that used the SME route for their initial submissions.

9. How will the SBTi be checking revenue/asset data to confirm eligibility?

The SME validation route requires businesses to submit financial statements that confirm

revenue and asset data. This will enable the SBTi to ensure that businesses requesting to

use the SME route are compliant with the updated SME definition.

10. Why are financial institutions and oil & gas companies automatically excluded

from SME consideration?

Financial institutions were already excluded from SME consideration before the updated

definition, and should still use the SBTi’s Financial Sector Science-Based Targets Guidance.

The combustion of fossil fuels represents the single largest source of carbon dioxide

emissions, which is why the SBTi is currently developing sector-specific target setting

guidance for oil & gas companies. Once complete, companies from the oil & gas sector will

need to use the sector-specific guidance to submit targets through the standard validation

route.

11. Why are only some FLAG companies considered SMEs?

The Global Reporting Initiative's sector classification for Forest, Land and Agriculture (FLAG)

companies is broad and includes many low-emitting, small businesses. That is why some

FLAG companies of a certain size, by employee or revenue, can qualify as SMEs.

12. What happens to companies that were SMEs when their targets were validated,

but are no longer SMEs under the new definition?

The SME definition update is forward-looking, and will not require immediate action from

companies that have already used the SME target validation route. Instead, any business

seeking to use the SME target validation route should adhere to the most recent SME

definition at the time of submitting its application.

13. If my company already has a validated SME target, what should I do if I want or

need to set, update, or upgrade targets through the corporate route?

Companies with current targets set through the SME route who will update or re-validate

through the Corporate route are not eligible for the Target Update Service. These validations

require the level of in-depth review used for New Near Term and Net Zero Target services.

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14. How were the specific requirements related to employees, assets and revenue

determined?

The SBTi performed detailed research into the trends and needs of SMEs in order to assess

the parameters of the new definition. The initiative also took into account widely recognized

standards, such as the Corporate Sustainability Reporting Directive (CSRD), when

considering requirements related to number of employees, annual revenue and total assets.

The CSRD is a directive in the European Union that defines required disclosures for

businesses related to environmental, social, and governance topics.

15. Why does the emissions criteria for the SME definition use location-based

scope 2 as opposed to market-based scope 2?

Location-based scope 2 emissions capture the inventory of scope 2 emissions prior to the

use of market-based instruments (such as Renewable Energy Certificates). This allows for a

more accurate comparison to be made against the 10,000 tCO2e limit in the new SME

definition.

Companies and SMEs that use the standard and SME target validation route, respectively,

will be able to use either location- or market-based scope 2 emissions when setting targets.

16. What are the differences between near-term and long-term targets for SMEs?

The differences between near-term and long-term targets for SMEs are as follows:

Target Year: Near-term targets have a target year set for 2030, which means the emissions

reductions must be achieved by that year. In contrast, long-term targets aim for a target year

no later than 2050. Long-term targets are associated with net-zero targets. This means that

when a company sets a long-term target, SMEs commit not only to reducing scope 1,2,3

emissions at least 90% by 2050 at the latest, but also to neutralizing any unabated

emissions when the target is achieved. However, it's worth highlighting that while net-zero

targets are commonly associated with long-term target years, there are situations where

companies have the capability and resources to achieve net-zero emissions in a near-term

period, which could be before 2050. In these circumstances, the SME may opt for the Net-

Zero only option, which demonstrates that companies can adapt their target-setting

strategies based on their unique circumstances and goals.

Scope of Emissions: Near-term targets are focused on absolute reductions in scope 1 and

2 GHG emissions. Net-Zero targets, on the other hand, encompass a broader scope,

requiring absolute reductions in scope 1, 2, and 3 GHG emissions.

17. What are the target options available for SMEs using the streamlined route?

Target options for SMEs:

● Near-term science-based targets (new or update existing reduction near-term

targets) are absolute scope 1 and 2 GHG emissions reduction targets that should be

achieved by 2030, from a predefined base year.

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● Near-term maintenance targets: Enable companies that have achieved zero scope

1 and/or 2 emissions to sustain their efforts and continuously improve. SMEs

choosing this option must follow GHG Protocol standards, report their progress

annually, and provide supporting documentation for target validation. Additionally,

they can select the maintenance approach that aligns with their specific emissions

profile.

● Net-zero targets include:

● Long-term science-based targets: These are comprehensive, absolute

reductions in scope 1, 2, and 3 GHG emissions, with a goal to achieve them

no later than 2050, from a predefined base year. Additionally, companies with

long-term targets must complement them with near-term targets that must be

aligned to 1.5°C pathways. Companies opting for long-term net-zero targets

over a 5-10 year timeframe (near-term) have the choice of a dedicated Net-

Zero only service. This option is also available for companies with existing

1.5°C-aligned near-term targets.

● A commitment to offset any remaining emissions: This commitment involves

neutralizing any emissions that cannot be reduced, once the long-term

science-based target has been successfully achieved.

18. How do we count the number of employees?

Employee count is determined based on a headcount methodology. This includes the total

number of individuals employed by the organization, encompassing both full-time and part-

time employees. For groups of SMEs where one SME entity belongs to another SME or is

part of a group structure, it's important to consider the total headcount of the group, not just

the headcount of the specific entity that is applying for target setting. This ensures a

comprehensive and accurate calculation of employee numbers, which is essential for

determining SME eligibility and meeting the criteria for target validation.

19. What if my company has a fluctuating number of employees on an annual

cycle?

For companies with seasonal employees or employees whose numbers change on a regular

basis, the average annual headcount of employees must be used to calculate employee

numbers.

20. What information do I need to provide to validate my targets?

Like larger companies using our standard target validation route, SMEs are required to

complete a recent, comprehensive greenhouse gas emissions inventory following the

Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and Scope 2

Guidance. For near-term targets, companies are required to describe the activities

generating scope 1 and scope 2 location based emissions (optionally scope 2 market based

emissions) and provide their emissions in their chosen base year calculated in tCO2e, and

after approval, they are required to publicly report their company-wide scope 1 and 2 GHG

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emissions inventory and progress against published targets on an annual basis. For long-

term targets, companies are also required to describe and provide scope 3 emissions in their

chosen base year calculated in tCO2e. Please check our Target Validation Application

Checklist for Small and Medium-Sized Enterprises (SMEs).

The above information is required when filling in and submitting the SME science-based

target setting form. The validation process will be delayed if any information is missing.

21. What is the process to validate my targets?

To validate your targets, follow this structured process:

i. Eligibility Check: Start by responding to the eligibility criteria questions in our Target

Setting Form to determine if your company qualifies for the SME streamlined

validation route.

ii. Complete the SME Target Setting Form: Provide comprehensive company

information, choose a target, and answer all Criteria-related questions within the

SME target setting form. Ensure you also input your billing information.

iii. Terms and Conditions (T&C): To proceed with your submission, please ensure that

you upload the fully completed Terms and Conditions (T&C) file in accordance with

our provided guidelines.

iv. Due Diligence and Target Approval: The SBTi conducts a thorough review to

ensure all information is accurate and complete. Any missing data or inconsistencies

may result in delays. Upon successful due diligence, you'll receive an email

confirming target approval along with the next steps.

v. Invoicing and Fee Payment: Once the SBTi verifies that the uploaded Terms and

Conditions file is correct, we will share the payment details with your SME. After

making the payment, please send the payment confirmation for the one-time fee to

[email protected]. For specific pricing details regarding the SMEs

validation service offerings, kindly refer to our price structure.

vi. Price structure

Selected Service

Price

Setting new near-term targets (including

maintenance targets) or replacing previous

near-term targets

$1,250 USD*

Setting new net-zero targets ONLY (only

companies with previously set 1.5C near-

term targets are eligible for this option)

$1,250 USD*

Setting near-term targets AND net-zero

targets

$2,500 USD*

*These fees are reduced fee options compared to the standard fee of USD $9,500 and

up (+applicable VAT) (see SBTi offerings here).

**Companies headquartered in developing countries and economies in transition, as defined

by the United Nations Secretariat’s Department of Economic and Social Affairs listed in

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Table B and C on page 141-142, will have the option to request a discount for their target

submission fee of up to 85%. The discount will be applicable for both the near-term and net-

zero target validation services. A revenue threshold for a fee waiver (10M USD) applies to

companies based in developing countries. This discount is available from August 1

, 2024,

which will replace the previous fee exemption option.

vii. Payment verification and target confirmation: Upon receiving the payment

confirmation, the deposit is verified with the SBTi Finance Team. A final confirmation

is sent to the SME, confirming the approval and registration of the target. The email

contains a communications pack and relevant details regarding the target publication.

viii. Target publication The targets will be publicly showcased on both the Science

Based Targets initiative (SBTi) website and our partners' platform, We Mean

Business. Additionally, SMEs actively participating in the UN Global Compact will

receive recognition on this website as well.

22. What if my company is an SME with an approved SBT?

If your company is considered an SME (according to our latest criteria) with an approved

science-based target (SBT), the approved target will remain valid. However, if you wish to

resubmit or update your target, you must utilise the SME science-based target setting form.

According to Criteria V. 5.1 C26, targets should be recalculated as needed to ensure their

relevance and consistency.

23. My company submitted a target using the special route for SMEs. When will it

be published?

Targets submitted via the SME streamlined route will undergo an approval process and,

upon successful due diligence review and payment, will be published on the SBTi website.

This process includes providing companies with a communications welcome pack and

granting permission to use the SBTi logo in their official communications and on their

websites. The duration from application submission to publication may vary depending on

each company's specific circumstances. On average, it takes approximately 60 days to

complete the entire process.

24. How can an SME participate in the Race to Zero campaign?

SMEs can become part of the Race to Zero campaign by adopting a net-zero target. This

decision is in line with the campaign's mission of rallying businesses, cities, regions, and

investors to achieve net-zero emissions by 2050. Once an SME establishes a net-zero

target, they can actively participate in the Race to Zero initiative and play a role in global

climate change mitigation. It's important to note that their involvement in the campaign is

regularly updated on a quarterly basis.

25. Does my SME need to pay for the target validation service?

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Yes, from August 1

, 2024 all SMEs will pay a fee for the target validation service. A

discount

of up to 85% is available for SMEs with revenue of less than $10 million USD and

headquartered in developing countries and economies in transition, as defined by the United

Nations Secretariat’s Department of Economic and Social Affairs. When submitting the SME

science-based target setting form, SMEs must request the discount to be considered. We

encourage large, multinational companies based in developing countries to pay the normal

service fee to ensure the exemption can be reserved for companies that would benefit most

from the waiver.

PART 2: BASE YEAR, RECALCULATIONS AND

EMISSION INVENTORIES

26. Can companies use different base years than the ones provided in the Target

Setting Form?

The available base years follow the calendar year format, ranging from 2018 and onward. As

each year concludes, it becomes available for selection in the subsequent year. The

predefined target options represent a clean representation of the linear annual reduction

rates used by the initiative to classify targets against temperature goals. The predefined

options are in line with keeping global temperature increase below 1.5°C. For more

information about these thresholds for target classification, please consult the Foundations

of Science-based Target Setting paper.

27. When should a company consider recalculating its science-based targets

based on changes to its operations and emissions profile?

If your company acquires a new business or divests from a business line, keep your target.

One of the benefits of using absolute-based targets is that the level of ambition is not

affected. You will need to adjust your base year emissions to include the new organisational

boundary and track progress consistently. According to Criteria V. 5.1 C26, targets should

be recalculated as needed to ensure their relevance and consistency. Recalculation is

triggered by the following changes:

i) If scope 3 emissions become 40% or more of aggregated scope 1, 2, and 3

emissions.

ii) If emissions of exclusions in the inventory or target boundary change significantly.

iii) If there are significant changes in your company's structure and activities (e.g.,

acquisition, divestiture, merger, insourcing or outsourcing, shifts in goods or service

offerings).

iv) If there are significant adjustments to the base year inventory, data sources, or

calculation methodologies, or changes in data used to set targets, such as growth

projections (e.g., discovery of significant errors or a number of cumulative errors that

Please note that effective from August 1 2024 a fee discount has replaced the previous fee waiver

option.

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are collectively significant). Your base year emissions recalculation policy must

include a significance threshold of 5% or less, which applies to emission

recalculations. In the absence of a base year emissions recalculation policy, your

company must agree to apply a 5% significance threshold for emission

recalculations.

v) If there are other significant changes to projections or assumptions used in setting

the science-based targets.

For more information on base year recalculations please consult the GHG Protocol

Corporate Accounting and Reporting Standard.

28. If my company is an SME that does not have scope 1 or scope 2 emissions,

can it still use the predetermined options in the Target Setting Form?

Yes, even if your company is an SME without scope 1 or scope 2 emissions, you can still

utilize the predetermined options available in the SME science-based target setting form

including the maintenance target option which is exclusive to companies accounting with “0”

or nearly “0” scope 1 and/or 2 emissions. The predefined options are designed to

accommodate different scenarios and align with specific criteria for setting targets, including

for SMEs with varying emission profiles. So, you can make use of these options to establish

your science-based targets, provided you meet the applicable eligibility criteria. When

reporting progress against its target, your company must indicate that it does not emit scope

1 emissions or scope 2 emissions and provide documentation that confirms 0 emissions in

scope 1 and/or 2. It must report scope 1 or scope 2 emissions as part of the target progress

reporting if these emissions start being generated during the target period.

29. Can an SME set scope 3 targets?

The SBTi does not require companies using the SME’s streamlined route to set scope 3

targets for near-term targets; however, they must commit to measure and reduce their scope

3 emissions. SMEs can set ambitious scope 3 targets and communicate them on their

website or other public channels; however, these will not be validated by the initiative.

If choosing to set net-zero targets, scope 3 targets would have to be described and reported

on the target validation form. Net-zero targets for SMEs include absolute reductions in scope

1, scope 2, and scope 3 emissions. This allows SMEs to address and reduce emissions

associated with their value chain and indirect activities to align with the Science-Based

Targets initiative's goals and global climate objectives. The SBTi encourages companies to

use SBTi resources to set ambitious scope 3 targets.

30. Can you explain what "tCO2e" means and why it's relevant to the criteria?

"tCO2e" stands for metric tons of carbon dioxide equivalent. This unit is essential because it

serves as a standardized measurement for quantifying greenhouse gas emissions. Its

significance in the criteria lies in its role in defining the maximum allowable emissions across

specific scopes (scope 1 and location-based scope 2) to determine eligibility for the

streamlined route.

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31. What's the significance of scope 1 and location-based scope 2 emissions in

the criteria?

Scope 1 emissions typically refer to direct emissions from sources that a company owns or

controls, while location-based scope 2 emissions are related to purchased energy (electricity

and heat) consumed by a company. These criteria set specific limits on emissions to ensure

that SMEs have a relatively low carbon footprint to qualify for the streamlined route. For

more information, consult the GHG Protocol Corporate Accounting and Reporting Standard.

32. Do the predetermined options mean SMEs cannot use other science-based

target methods, such as the Sectoral Decarbonization Approach (SDA)?

The streamlined SME route focuses exclusively on absolute targets, offering simplicity and

ease of use. This approach simplifies target setting for SMEs by providing predefined target

options, eliminating the need to delve into various target-setting methodologies and data

input. Climate science emphasizes the necessity of decoupling emissions from growth for all

types of targets, be they absolute or intensity-based. Even though the SDA takes into

consideration the initial intensity of the company and the projected growth to calculate a

target, it also requires the reduction of absolute emissions across all sectors.

Following the November 2023 release of the updated definition, companies that are still

classified as an SME may choose to set targets through the more stringent standard

validation route.

33. Is there any specific guidance on how to annually report progress against our

targets?

Like larger companies using our standard target validation route, SMEs are required to

complete a recent, comprehensive GHG emissions inventory following the Corporate

Standard and the Scope 2 Guidance and publicly report company-wide scope 1 and 2 GHG

emissions inventory and progress against published targets annually.

Disclosure through standardized comparable data platforms is recommended like CDP’s

annual questionnaire, though annual reports, sustainability reports and the company’s

website are acceptable. For guidance on measuring and reporting emissions, we

recommend the toolbox provided by the SME Climate Hub: https://smeclimatehub.org/tools/.

34. Is there guidance on how to implement set targets and how to achieve

emissions reductions?

The SBTi does not provide detailed resources on emissions reduction measures to achieve

the set targets. Those measures will differ from sector to sector and company to company.

We recommend referring to the toolbox of the SME Climate Hub for guidance on how to

reduce your own emissions as well as value chain emissions:

https://smeclimatehub.org/tools/.

For the most comprehensive and specific information, we recommend referring to the official

SBTi resources or reaching out to us directly at [email protected].

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VERSION HISTORY

Version

Change/update description

Release date

Effective dates

Version 5

● Updated SME definition

● Addition of FAQs to explain the definition

November 1,

2023

N/A

Version 5.1

● Updated revenue and total asset

thresholds to align with latest CSRD

definitions and thresholds for SMEs

● Clarification that the power generation

criterion only applies to non-renewable

power generation assets

December 14,

2023

January 1, 2024 -

February 13,

2024

Version 5.2

● Removal of previous pricing

● Grammatical edits to reflect that the

definition has gone into effect

● Clarification on Corporate services that

SMEs are eligible for when updating

targets

February 13,

2024

February 13,

2024 – August 1,

2024

Version 5.3

● Updated fee exemption/waiver to fee

discount for eligible companies

● Updated brand template

June 4, 2024

August 1 2024

Small and Medium SIzed Enterprises (SMEs) FAQs June 2024 | 14

ABOUT SBTi

The Science Based Targets initiative (SBTi) is a corporate climate action organization that

enables companies and financial institutions worldwide to play their part in combating the

climate crisis.

We develop standards, tools and guidance which allow companies to set greenhouse gas

(GHG) emissions reductions targets in line with what is needed to keep global heating below

catastrophic levels and reach net-zero by 2050 at latest.

The SBTi is incorporated as a charity, with a subsidiary which will host our target validation

services. Our partners are CDP, the United Nations Global Compact, the We Mean Business

Coalition, the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF).

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