Evolution of the SBTi Finance Sector Framework

The Science Based Targets initiative (SBTi) published its first framework for financial institution (FI) target setting in October 2020. Since then, more than 60 FIs have used the target-setting methods, criteria, and guidance that comprise the framework to develop and submit near-term science-based targets (SBTs) for validation and more than 150 additional FIs have publicly committed to setting SBTs.

To further expand climate action among FIs and address recent developments in climate accounting and net-zero platforms, we are updating our 2020 FI Near-Term Framework and introducing a new FI Net-Zero (FINZ) Standard, both of which will include new fossil fuel criteria for financial institutions. This blog describes the development, stakeholder review and implementation of these new resources.

Changing Context for Financial Institutions’ Climate Action

As illustrated in the March 2023 Intergovernmental Panel of Climate Change (IPCC) AR6 Synthesis Report, the finance sector is integral to driving the emission reductions needed to stabilize our climate. The AR6 report found that finance for mitigation must increase by three to six times by 2030 to limit warming to below 2°C, not including financing needs for adaptation. However, the emissions impact of investment and lending activities is not always immediately clear. Our FI Near-Term Framework addresses the lack of financed emissions data by specifying methods and criteria at the asset class level, for example requiring physical intensity targets (gCO2e/kWh) for any electricity generation project finance.

While a growing group of FIs and stakeholders are using the FI Near-Term Framework to set robust SBTs, the SBTi has discerned some challenges associated with setting climate targets in the finance sector. These challenges are due to a variety of reasons, including: maturity of emissions accounting in the sector, minimum coverage thresholds, sector method availability, managed assets inclusion and exclusion of green or solution finance activities. In response, we are evolving our framework and developing new resources to enable more FIs worldwide to set climate targets in line with science and accelerate real economy emission reductions.

Meanwhile, the elaboration and increased adoption of financed emissions accounting methods from the Partnership for Carbon Accounting Financials (PCAF) and the rise of net-zero initiatives under the Glasgow Financial Alliance for Net Zero (GFANZ) have helped FIs to better understand their current climate impacts and emerging expectations on how to address them. In addition to addressing the challenges highlighted above, the new SBTi resources for FIs build on the increasing availability of financed emissions data with reference to the GFANZ net-zero initiatives to enable interoperability.

New SBTi Resources for Financial Institutions

In consultation with the FI Expert Advisory Group, we are updating the FI Near-Term Framework and introducing our new FINZ Standard. Drafts of these resources will be published by the SBTi in Q2 2023 for public consultation.

Following the recommendations from the UN Secretary High Level Expert Group on Net Zero, the updated resources will include a new SBTi Fossil Fuel Finance Position Paper for public consultation. The Fossil Fuel Finance Position Paper will help FIs address their most emissions-intensive investment and lending activities. The table below summarizes the resource development process and our expectations regarding key aspects to be included in subsequent versions.

Summary of Upcoming SBTi Finance Resources

Note: This is an overview. Additional details will be included in the upcoming drafts.

Stakeholder Review and Implementation

The upcoming publications will commence a stakeholder review process that will include webinars, an in-depth explanatory blog, road testing by leading FIs, workshops and a public survey. Stakeholders who wish to have their say are invited to join the SBTi Finance mailing list for updates. As usual, the SBTi will publish a summary of the stakeholder feedback received and how we have addressed key points in our revised version.

After completing the public consultations, and revising the FI Near-Term and FINZ resources based on inputs, we will launch the new versions for implementation. The FI Near-Term Framework will continue to be an available resource for FI SBT development and assessment until at least six months after the publication of the FINZ Standard V1.

Considering the imminent evolution of the NT Framework and the FINZ Standard, the SBTi is allowing FIs that have publicly committed to setting an SBT to extend their submission deadline until six months after the publication of the FINZ Standard V1. The extension is optional. FIs that wish to partake of this extension must inform SBTi prior to their current public expiration date. The SBTi Finance website contains further details about the extension for affected FIs.

The SBTi is continuing to evolve over time to reflect developments in science and market practice. We look forward to receiving stakeholder feedback on these draft resources for FIs and supporting real economy emissions reductions.