Banks, private equity firms and other financial institutions are now able to set science-based targets aligned with net-zero as a result of the Science Based Targets initiative’s (SBTi) release of the Financial Institutions Net-Zero Standard.
The standard provides clear, actionable science-based guidance for banks, asset owners and managers, private equity firms and other financial institutions to align their lending, investment, insurance, and capital markets activities with limiting global warming and achieving net-zero by 2050 at the latest.
Building on the success of the SBTi’s financial institutions near-term criteria, this well-tested standard has already generated strong market demand, with nearly 135 financial institutions across six continents having committed to set net-zero targets against it.
Financial institutions can set a clear route to build resilience, meet evolving stakeholder expectations, manage climate-related risks, and capitalize on emerging opportunities to position themselves as leaders in the global transition to a net-zero economy.
These companies can now enable and emphasize portfolio alignment with net-zero, using alignment targets to incentivize them in the near-term to support high-emitting sectors, increase the share of climate-aligned financial activities across their portfolio, and leverage their influence to drive real-world decarbonization.
The key innovations of the new standard include: expanding asset class coverage to ensure broad applicability; requiring the improvement of the quality and transparency of emissions inventories; allowing financial institutions the option to focus on the net-zero alignment of their customers as an alternative to setting pathways for financed emissions; and providing guidance on decarbonizing the built environment.
The standard also addresses key climate challenges through requirements focused on the most emission-intensive activities, including addressing deforestation exposure. Under the standard, there are expectations for financial institutions to assess, monitor, disclose and address deforestation exposure in their portfolios, with an engagement plan required to address significant risks. In addition, there is a fossil fuel transition policy requirement that sets out clear steps and timelines for ceasing new financial activities and insurance services to the fossil fuel industry.
“Financial Institutions have the ability to play a transformative role in the transition to net-zero,” said Alberto Carrillo Pineda, Chief Technical Officer at the SBTi, in a statement. Their influence on the global economy and ability to engage with their portfolios is unparalleled to accelerate the net-zero transition. With its broad applicability and flexibility, this robust, science-based Standard will help financial institutions drive the net-zero transformation all over the world.”