← Overview
Theme 2 · Deep-dive

How you deliver is now judged — and the rules are explicit.

V1 said nothing about implementation. V2.0 sets out a clear order for how you cut emissions, and exactly when market instruments may help. Two parts, on the tabs below.

Implementation hierarchy

Cut at source first — descend only when truly blocked.

When you act on your targets, you follow a three-tier order, assessed at the End-of-cycle Assessment. You start with direct cuts; you may act in shared systems where emissions sit there; and you reach for sector-level action only where genuine structural barriers stop you doing more at the levels above.

Direct cuts come first. You only move down a tier when a real-world barrier blocks the one above.

Exhaust each tier before moving down 1 Activity level — DIRECT CUTS Reduce emissions at source in your own operations & value chain Do first 2 Activity pool — SHARED SYSTEMS Act within grids, supply sheds or logistics networks you draw on If pooled 3 Sector level — CONSTRAINED ONLY Broader sector action where structural barriers block tiers 1–2 Last resort Wider tier = higher priority. Most emissions should be cut at tier 1.
The implementation hierarchy — preference runs top to bottom, assessed at the End-of-cycle Assessment.
Tier 1 — direct cuts

A food maker switches a factory gas boiler to an electric heat pump — scope 1 falls in its inventory. It also helps a tier-1 ingredient supplier switch process energy — scope 3 falls. Both are tier-1 actions, because the cut shows up in the physical inventory.

Tier 2 — shared systems

It can't trace which farm grew its wheat, so it funds a regenerative-agriculture programme across the supply shed it buys from. That's a tier-2 action — valid because it matches the same commodity and the system the company actually sources from.

What does “sector-level support” actually mean?

Sector-level action is the last resort. It is for the case where you genuinely cannot cut an emission yourself (tier 1) or within the shared system you buy from (tier 2) — because of a structural constraint. Instead of doing nothing, you support decarbonisation of the same type of activity, in a relevant system, so it still helps reduce the emissions you are responsible for.

Sector-level action — the two tests it must pass

1 · Same activity type. The action must address the same activity, commodity, fuel or energy source that sits in your inventory — not a different one.

2 · Relevant system. It must occur in the same system, or a geographically or systemically relevant system, that you source from or feed into — so the contribution is real, not symbolic.

It is reported separately as a system-contribution; it does not reduce your own inventory.

Source: CNZS V2.0 C21.3, C23, C25.2 · Executive Summary, p.9
Tier 3 — sector level, step by step

A manufacturer needs low-carbon steel, but it is not yet produced at commercial scale anywhere it can buy from — a genuine technological-readiness constraint. So:

Step 1 — it confirms it cannot switch directly (tier 1) and cannot source low-carbon steel through its existing suppliers or supply shed (tier 2).

Step 2 — it signs an offtake agreement with a new low-carbon steel plant being built in a region that feeds the same steel market it buys from. Same activity (steel), relevant system (the market it sources from).

Step 3 — it reports this separately as a contribution to decarbonising the steel system — it does not claim it as a cut in its own footprint, and explains how it complements (not replaces) its direct efforts.

The line companies will try to blur

A structural constraint is a real-world condition external to the company — infrastructure, technological maturity, regulation, market structure, or supply — that materially limits the options available within the target timeframe.

It is not cost, internal preference, or procurement convenience. “Low-carbon steel was more expensive” does not justify dropping to a sector-level action — that steel was available, just pricier.

Descending a tier always carries a reporting duty. For what you must report when you hit a barrier — and what the SBTi accepts as a barrier — see Governance & assurance.

Methodology detail & references
  • Assessed end-of-cycle. The hierarchy is how delivery is judged at the End-of-cycle Assessment, not a target-setting choice.
  • Tier 1 (activity). Actions whose effect appears in the physical GHG inventory (efficiency, fuel switching, supplier cuts).
  • Tier 2 (activity pool). Defined at the smallest reasonable system in which the specific activity can't be feasibly isolated (grids, supply sheds, logistics networks).
  • Tier 3 (sector). Only where structural constraints — technological readiness, or region/site infrastructure, regulatory, market-structure or supply limits — prevent action above; reported with evidence.
References: CNZS V2.0 — §4.1 (C21–C24) · Transition Guide, p.21
Market instruments

Certificates can support delivery — never replace cuts.

Energy and commodity certificates may support action at the activity-pool and sector tiers. The rule to brief stakeholders on first: your physical inventory drives your reduction claims; instruments not reflected there are reported separately as contributions to system change. Then they must pass a set of integrity tests.

Where the number lands

PHYSICAL GHG INVENTORY Basis for your SBTi reduction claims • Direct cuts at source (tier 1) • In-inventory energy attributes e.g. contractual market-based scope 2 → Reduces your reported footprint REPORTED SEPARATELY Contribution to system transformation • Activity-pool & sector projects (tiers 2–3) • Certificates not reflected in the inventory → Does NOT lower your footprint Most pool- and sector-tier instruments report on the right. Only legitimate inventory changes count as reductions.
Two lanes: what changes your physical inventory is a reduction; everything else is reported separately.

Two chain-of-custody models

Instruments carry low-carbon attributes through the supply chain in one of two ways. The difference matters for what you can claim.

MASS BALANCE low-carbon feed conventional feed Sharedprocess output (share carries claim) Claim travels with the physical product, allocated in proportion to low-carbon input. e.g. certified low-carbon feedstock blended into steel or chemicals production. BOOK-AND-CLAIM physical electron / molecule goes to any user attribute certificate goes to claimant The attribute is decoupled from the physical flow and sold separately. e.g. an energy attribute certificate (EAC) for renewable electricity.
Mass balance keeps the claim on the physical product; book-and-claim separates the attribute from it.

The integrity gate

Every instrument must clear these tests. Each is shown with a passing and a failing case.

Activity matching

The instrument must match the same activity, commodity, fuel or energy source as your inventory.
PassA renewable-electricity certificate used for an electricity claim.
FailAn electricity certificate used to offset a steel emission.

Volume matching

Certificates matched to an activity cannot exceed the volume of that activity in your inventory.
Pass100 GWh of certificates against 120 GWh actually consumed.
Fail150 GWh of certificates against 120 GWh consumed.

Attribute preservation — no “carbon-bank” stacking

Attributes follow physical flows proportionally; they can't be re-concentrated onto a subset of product to overstate the outcome.
PassLow-carbon share spread across output in line with input.
FailA batch's attributes piled onto a small “premium” slice.

Additionality & system-level impact

Projects must be additional; instruments must come from programmes that demonstrably grow low-carbon supply.
PassA scheme shown to expand low-carbon commodity supply.
FailA certificate with no demonstrated effect on supply.

Assurance (Category A)

Category A companies obtain third-party assurance over the data and calculations behind the claim.
PassCertificate volumes independently assured.
FailSelf-reported volumes with no assurance.
Not allowed: the “carbon-bank” model

You cannot take a production batch's low-carbon attributes and pile them onto a small slice of product to make that slice look fully green. Attributes must stay proportional to the physical flows that produced them. The SBTi defines this prohibited practice explicitly as a “carbon bank”.

End-to-end worked example

A company buys book-and-claim renewable-electricity certificates for its grid power. It may use them to lower its market-based scope 2 in the inventory — but only up to the volume of electricity it actually consumes (the volume cap).

To stand up, the matching generation must be in a relevant system, the volumes assured (Category A), and the certificates bought from a programme that demonstrably grows low-carbon supply. It cannot claim more certificates than its consumption, and cannot re-stack those attributes onto another product.

Methodology detail & references
  • Where allowed. Market instruments support implementation at the activity-pool and sector tiers; for scope 1 they apply only to fuels/feedstocks sourced from activity pools.
  • Separate reporting. Actions and instruments not reflected in the physical inventory are reported separately as additional activities — not part of the inventory-based reduction claim.
  • Integrity criteria. Activity matching (C25.1), system association (C25.2), conservative quantification (C25.3); for instruments — volume matching (C27.2), attribute preservation / no carbon-bank (C27.4), system-level impact (C27.5); additionality for projects (C26.7).
References: CNZS V2.0 — §4.2 (C25–C27)

← Back to overview  ·  Next: Beyond the value chain →

Editing this page