SBTi developing standard to assess investors’ net zero commitments
The Science Based Targets initiative (SBTi), one of the key organizations focused on aligning corporate environmental sustainability action with the global goals of addressing and limiting climate change, announced today the publication of “Foundations for Science-Based Net-Zero Target Setting in the Financial Sector,” a new paper aimed at establishing standards for setting and assessing financial institutions’ net zero goals.
Founded in 2015, SBTi was formed as a collaboration between CDP, World Resources Institute (WRI), the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC), with the goal to establish science-based environmental target setting as a standard corporate practice.
Last year, SBTi launched a Net Zero Standard, which it will use to assess and certify corporate commitments to achieve net zero emissions. The new paper builds on that initiative, moving toward a standard designed specifically for financial institutions. The finalized Net-Zero Standard for Financial Institutions is anticipated to be launched in early 2023.
The process to develop a climate standard for finance comes amid a surge of commitments by companies across the financial services sector to support net zero goals. At UN COP26 climate in November, the Glasgow Financial Alliance for Net Zero (GFANZ) revealed that the capital represented by financial sector firms aligned with global net zero goals has now reached over $130 trillion, or roughly 40% of global financial assets.
According to the initiative, however, while net zero targets at financial institutions proliferate, the definitions and activities included under the commitments vary significantly, creating difficulty in assessing the goals, and in comparability and measurement of real-world impact. Differences highlighted by the paper include the range of services covered by the pledges, the mitigation tactics and strategies used to achieve the goals, and the inclusion or exclusion of Scope 3 emissions. The paper is aimed at addressing the “pressing need to develop a common understanding of what net zero means for financial institutions to ensure that the targets are consistent with the action needed to reach net-zero emissions at the planetary level in line with societal climate and sustainability goals.”
Dr. Luiz Fernando do Amaral, SBTi Chief Executive Officer (CEO), said:
“Financial institutions are critical players in driving real-economy emissions reductions through investments and lending activities. There are signs the sector is embracing this responsibility. Immediate action is already possible for short term science-based targets. However, when it comes to net-zero, there is little understanding of what it means for the finance industry. Our paper provides the clarity that has been desperately needed and will enable us to develop a Net-Zero Standard for Financial Institutions that will help net-zero pledges deliver science-based action.”
The paper sets out two primary conditions that must be met in order for financial institutions’ targets to be compatible with reaching net zero. These include aligning all financing with pathways that limit warming to 1.5 degrees, and neutralizing residual emissions through financing activities that permanently remove an equivalent amount of CO2 from the atmosphere. The paper also addresses issues for the sector including the use of offsets and carbon credits and fossil fuel phase-out approaches.
Alberto Carrillo Pineda, Managing Director and Co-Founder of the SBTi, said:
“Having launched the world’s first framework for corporate net-zero target setting in line with climate science last year, the SBTi recognizes the need to create a similar standard that leverages the unique role financial institutions play in global emissions reductions. More than 900 companies are already committed to setting science-based net-zero targets. The SBTi’s Net-Zero Standard for Financial Institutions will bring clarity to this space and ensure that the growing momentum in the financial sector translates into science-based decarbonization in the real economy.”