SBTI AND ITS IMPLICATIONS FOR ASSET VALUATION DURING THE TRANSITION

In the current stage, climate change and environmental risks are creating an urgent demand for the reduction of greenhouse gas emissions. The Paris Agreement, signed in 2015, set a core objective of keeping the rise in global average temperature within the range of 1.5–2°C compared to pre-industrial levels, thereby compelling nations and businesses to take more decisive actions. This represents an inevitable shift of the era, driving organizations to reconsider their development strategies based on sustainability criteria.

Moreover, the pressure from investors, markets and related policies has been steadily increasing. Instruments such as the European Union’s Carbon Border Adjustment Mechanism (CBAM), Environmental–Social–Governance (ESG) funds and new environmental standards are all aimed at encouraging businesses to cut emissions and shift toward lower-carbon operating models. This emerging trend has driven many companies to join the Science Based Targets initiative (SBTi) to develop emission reduction pathways grounded in clear and transparent scientific standards.

What SBTi is

The journey of joining SBTi begins with a company’s commitment, followed by the development of specific targets, the submission of documentation for validation, the move toward public disclosure and regular reporting of results. This process enables businesses to establish a governance system that is clear, transparent and accountable.

Main Requirements of SBTi

The main requirements of SBTi include measuring and accounting for greenhouse gas emissions in accordance with the GHG Protocol. These are divided into three scopes of emission reduction:

• Scope 1: Direct emissions from a company’s own operations.
• Scope 2: Indirect emissions from purchased electricity, heat, and energy.
• Scope 3: Emissions across the supply chain and the product life cycle.

Set near-term emission reduction targets (5–10 years), requiring a minimum annual reduction of 4.2% for Scope 1 and Scope 2, along with long-term targets by 2050 to reach net zero — reducing at least 90–95% of emissions while allowing the use of appropriate offsetting methods to compensate for the remainder (not exceeding 10%). These requirements not only drive companies to act more sustainably but also create significant impacts on related asset values.

Impact on Asset Valuation During the Transition

In the transition toward a sustainable operating model aligned with SBTi standards, the impacts on a company’s asset value are multi-dimensional, encompassing both risks and opportunities.

When businesses fail to keep pace with emission reduction standards or continue operating carbon-intensive assets such as coal plants, outdated technologies, or non-green industrial zones, they face the risk of stranded assets. These assets may be “stranded” within the supply chain or become unsellable at their original value due to high operating costs, ultimately undermining the business model.

In addition, the cost of carbon emissions is rising due to increasingly stringent carbon taxes and emission fees, particularly in the context of intensifying global competition. Companies holding assets that fail to meet green standards will face difficulties in accessing capital and international customers and may even encounter legal risks or restrictions within global supply chains.

Meanwhile, companies that proactively adapt to SBTi standards and demonstrate clear commitments can benefit from incentive policies and emerging market trends. Assets or projects that meet green standards — such as office buildings certified with LEED, EDGE, or LOTUS, or renewable energy projects - are valued higher than assets that fail to meet environmental criteria.

Adjustment of Valuation Methods

In practice, the market is witnessing the emergence of new benchmarks based on green assets, thereby creating a clearer value gap between compliant and non-compliant assets. This will drive investors and businesses to place greater focus on assets that are well-positioned to adapt to green and science-based standards.

Examples by Industry

Green Transition Example: Ørsted

A typical example of the Green Transition is Ørsted (Denmark, renewable energy), which transformed from an oil and gas company into one fully dedicated to renewable energy. Formerly known as DONG Energy, Ørsted was once engaged in oil, coal, and thermal power. From around 2008 onward, the company shifted its focus toward renewables—particularly offshore wind, while also investing in onshore wind and solar power—gradually phasing out coal and oil & gas. By 2017, it had divested all oil and gas activities and rebranded itself as Ørsted to reflect its commitment to a green energy model.

The company invested heavily in offshore wind projects, expanded into new markets, and innovated in technology and transmission infrastructure, while also making additional investments to strengthen its supply chain and manage capital costs. Its geographic footprint expanded to countries such as the United States, Taiwan, and the UK, taking advantage of renewable energy policies, government offtake contracts, subsidies, tax credits, and long-term agreements. Ørsted also launched brand positioning and environmental goals such as reducing greenhouse gas emission intensity, achieving carbon neutrality (net zero) by specific milestones, and setting a vision to become one of the world’s greenest companies, aligning with international standards such as SBTi.

This bold transition enabled Ørsted to be ranked as the “World’s Most Sustainable Energy Company” (Corporate Knights Global 100) and to become the largest offshore wind developer worldwide, capturing around 25–30% of the global market share between 2020 and 2023. Ørsted’s share price multiplied several times between 2016 and 2021, reflecting the confidence of financial markets.

Challenges in SBTi Implementation

Despite its clear benefits, the implementation of SBTi also presents significant challenges. We summarize the key operational and financial hurdles below:

Developing a reporting system and continuously collecting reliable data requires businesses to strengthen their ESG management capacity and invest in technology as well as highly skilled personnel. This creates a significant organizational and financial leap, especially for small and medium-sized enterprises that lack sufficient resources to quickly adapt to higher standards.

Moreover, to achieve SBTi targets, businesses need in-depth ESG management capabilities, a solid understanding of international regulations and standards, and the appropriate measurement and reporting tools. This creates requirements for personnel, technology, and long-term strategies to ensure flexible adaptability to new market and regulatory demands.

Conclusion

SBTi and Its Implications for Asset Valuation During the Transition are not merely environmental commitments, but powerful factors reshaping the valuation of a company’s long-term assets and projects. Businesses that proactively adopt these standards not only contribute to environmental protection but also create competitive advantages, enhancing their access to capital and international customers in the future.

The influence of SBTi will transform valuation practices, drive green capital flows, and establish new market benchmarks. Therefore, companies that understand and actively implement transitions aligned with SBTi standards will have a higher chance of future success while also contributing to a more sustainable global economy than ever before. At the same time, this presents an opportunity for the valuation industry to provide new Valuation/Advisory services for purposes such as assessing the residual value of legacy assets, determining new investment values and their impact on corporate value, and integrating ESG/SBTi risk–opportunity analysis into the valuation process.