Science Based Targets initiative launches net-zero finance standard development process with Foundations paper

• New Foundations Paper on Net-Zero for Financial Institutions tackles key issues for the sector, including defining net-zero, the use of offsets and fossil fuel phase-out.

• Paper provides concepts the sector will need to transform net-zero commitments into robust targets and actions.

• This work builds on the SBTi’s Corporate Net-Zero Standard, launched in October 2021

The Science Based Targets initiative (SBTi), the global body enabling businesses to set emissions reduction targets in line with climate science, is publishing a Net-Zero Foundations for Financial Institutions paper that provides new concepts for defining and setting net-zero targets for banks, asset owners, asset managers and other financial institutions.

Financial institutions with US$130 trillion in assets under management are now committed to reaching net-zero emissions before 2050. However, a science-based approach is needed for them to set consistent net-zero targets with emissions reductions in line with the Paris Agreement and 1.5°C. The Foundations paper paves the way for the SBTi’s Net-Zero Standard for Financial Institutions, which is due to be launched in early 2023 to bring the clarity and scientific basis the sector needs to align with net-zero by 2050.

The paper addresses key issues for financial institutions; specifically, a standard definition for net-zero, the use of offsets and carbon credits and fossil fuel phase-out approaches. The Standard development process will incorporate the latest climate science and methodologies to drive change in the real economy and deliver solutions.

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 SBTi is calling on financial institutions to engage in the Standard development process and set near-term science-based targets as the first step in achieving net-zero. Over the next year, the SBTi will develop a Net-Zero Standard for Financial Institutions through multi-stakeholder consultations, road-testing of methodologies and a robust technical review with a Financial Net-Zero Expert Advisory Group (EAG). Financial institutions and other stakeholders seeking to learn more about the SBTi Net-Zero Finance Standard development process can learn more here.

There are already 19 financial institutions with approved science-based targets aligned with 1.5°C, including Schroders (British asset manager), La Banque Postale (French bank), KB Financial Group (South Korean bank) and EQT (Swedish private equity firm). What’s more, as of April 2022 over 50 financial institutions are committed to setting net-zero targets and more than 140 additional financial institutions are committed to setting near-term targets.

Remko Fischer, Programme Lead at United Nations Environment Programme Finance Initiative (UNEPFI), said: “UNEP FI welcomes the SBTi Foundations paper and is pleased to have contributed to the Expert Advisory Group review of this document. We look forward to continuing to collaborate with SBTi on the development of robust 1.5°C-aligned protocols and standards for financial institutions.”

Mary Schapiro, Vice Chair, Glasgow Financial Alliance for Net Zero (GFANZ), said: “Ambitious action is necessary to prevent the irreversible and catastrophic consequences climate change will have on the planet and the global economy. As financial institutions make progress on their commitments to limit global warming to 1.5°C, defining net-zero and the criteria to assess that goal is critical. We welcome the efforts of the SBTi in bringing standardization to the space and providing another resource for financial institutions as they transform their commitments into robust targets."

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."

The Foundations Paper on Net-Zero for Financial Institutions can be accessed here. The SBTi Finance Net-Zero Foundations launch webinar is scheduled for 9-10am EDT / 3-4pm CEST April 12, 2022. To register or view a recording of the webinar, click: https://sciencebasedtargets.org/events/net-zero-finance-launching-the-standard-development-process.