The SBTi’s next big step for Net-Zero Finance

At COP26, financial institutions with more than US$130 trillion in assets under management committed to reaching net-zero before 2050. Now, the Science Based Targets initiative (SBTi) is developing the tools and resources to help banks, insurers, private equity firms and the rest of the finance sector achieve their ambitious commitments. As part of the promise to deliver a financial institution net-zero (FINZ) Standard, and following an in-depth selection process, the SBTi is taking the next big step by involving experts from around the world in its FINZ Expert Advisory Group (EAG).

The EAG consists of volunteer advisors from industry, academia, consultancies, non-profit and multilateral organizations with in-depth knowledge in science-based target setting and climate action in the finance sector. The EAG will serve in a technical advisory capacity for the SBTi’s team as it develops the FINZ Standard, providing input and advice to priority topics and decisions.

When forming the EAG, the SBTi’s finance team made five priority considerations for membership:

1. Finance sector experience

2. Climate experience

3. Net-zero implementation experience

4. Contribution to SBTi goals

5. Gender, regional and industry diversity

I am leading this group of industry and scientific experts as the SBTi’s FINZ Manager. Having achieved a Masters in Environmental Technology from Imperial College London in 2021, I bring 30 years’ experience advising major, global financial institutions in structured finance and regulatory consulting, plus most recently co-founding a global trade finance FinTech.

I am excited to oversee this key initiative at a time of increasing public scrutiny towards the finance industry’s efforts to achieve net-zero, alongside the industry’s aims to counter such scrutiny including the creation of GFANZ and other various sector-specific groups (NZBA, NZAOA, etc.). Such moves, although welcome, have not eliminated concerns regarding the lack of tangible progress being made by the industry to align itself with a 1.5°C pathway.

It is against this backdrop, and the consequent need for science-based targeting and validation in the finance space, that the SBTi produced the Foundation for Science-Based Net-Zero Target Setting in the Financial Sector in April 2022, setting out its views on the main issues surrounding a FINZ Standard, which include:

1. What does it mean for a financial institution’s actions to be consistent with net-zero?

2. How should financial institutions address their financed emissions?

3. What role do carbon credits play in net-zero targets?

4. How should fossil fuel financing be addressed in financial institutions’ net-zero targets?

5. How should climate solutions be addressed in net-zero targets?

6. How should near-term science-based targets complement long-term net-zero targets?

The Foundations paper provided much needed clarity on key concepts and definitions, positioning the FINZ EAG to further advance net-zero in the finance sector. More than 110 people applied to join the FINZ EAG, demonstrating clear interest in the SBTi’s finance work, and will enable the SBTi to benefit from a diverse range of expertise.

Given the diversity of the finance sector, with many complex issues requiring bespoke strategies, there is a need to initially focus on a narrower range of key areas identified by the SBTi. These areas will be finalized and further discussed in the coming weeks. The FINZ EAG will meet over the course of the following year, utilizing the SBTi’s Net-Zero Standard for Corporates, the Financial Institutions’ near-term framework and other finance-specific resources to develop the necessary solutions for achieving net-zero in the financial sector. While the SBTi leads the development of the world's first science-based global standard for financial sector net-zero targets, financial institutions must continue setting near-term targets to rapidly cut emissions tied to their operations and investments. Immediate, short-term action and long-term net-zero commitments are both necessary for the finance industry to align with a 1.5°C pathway and prevent the most damaging effects of climate change.