SBTi develops net-zero standard for finance

'Net-Zero Standard for Financial Institutions will bring clarity to this space'

The Science-Based Targets initiative (SBTi) is developing a standard for financial institutions to set science-based net-zero targets.

In its latest paper, Foundations for science-based target setting in the financial sector, the SBTi announced it would develop a Net-Zero Standard for Financial Institutions through multi-stakeholder consultations, road-testing of methodologies and a technical review with a Financial Net-Zero Expert Advisory Group.

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 recognises 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, and there are 19 financial institutions with approved science-based targets aligned with 1.5°C, including Schroders and Swedish private equity firm EQT.

“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 decarbonisation in the real economy,” Pineda continued.

Mary Schapiro, vice-chair, Glasgow Financial Alliance for Net Zero, added: “We welcome the efforts of the SBTi in bringing standardisation to the space and providing another resource for financial institutions as they transform their commitments into robust targets.”

The paper also sets out some guiding principles for setting net-zero targets – including all relevant activities and emissions, aligning with the most recent science, assessing the real economy impact, and including both decarbonisation and climate solutions – and explores the challenge of creating a common definition of net zero.

Following the paper, the SBTi intends to develop the following:

  • Criteria for the formulation of science-based net-zero targets in the financial sector;
  • A validation protocol to assess net-zero targets against the set of criteria to be developed as part of this process;
  • Detailed guidance for science-based net-zero target setting in the financial sector, including guidance for credible claims.

To support the next phase of this process, further research and consultation is planned to address some of the key technical questions, including:

  • Definitions: how should the net-zero definition and mitigation strategies apply to different types of FIs, given their different abilities to influence and drive emission reductions in the real economy? How can different types of financing activities be captured in the boundary of a net-zero target?
  • Climate solutions: what is the role of climate solutions in net-zero targets, specifically as they relate to metrics and how the rate of climate-solution financing could be tied to science-based scenarios?
  • Carbon credits: how are the use of carbon credits and direct financing of potential carbon credit generating activities related to net-zero claims across an FI’s operations and financing activities?
  • Fossil fuel financing: how can the proposed disclosure, transition, and phase-out approach be addressed in net-zero targets?
  • Net-zero claims: What are the conditions that an FI needs to meet to claim that they are aligned with global net-zero goals?
  • Interim targets: how should the near-term target setting framework for FIs evolve to ensure that it is fully consistent with the net-zero target framework?