The Science Based Targets initiative (SBTi), a global organization that helps businesses set emissions reduction goals based on climate science, is developing a standard for financial institutions to set net-zero goals.
In its Net-Zero Foundations for Financial Institutions paper released on Tuesday, SBTi introduces new concepts for defining and setting net-zero goals for banks, asset owners, asset managers, and other financial institutions.
Over 450 major financial institutions around the world controlling assets over US$130 trillion have pledged to achieving net-zero emissions by 2050. In order to set continuous net-zero targets with carbon reductions in line with the Paris Agreement, they will need to take a science-based approach.
SBTi’s Foundations paper, which is set to debut in 2023, lays the way for the SBTi's Net-Zero Standard for Financial Institutions, and will provide the sector with the clarity and scientific foundation it needs to achieve net-zero by 2050.
The paper discusses significant challenges for financial institutions, including a standard definition of net-zero, the use of carbon offsets and carbon credits, and fossil fuel phase-out strategies. To promote reform in the real economy and deliver solutions, the Standard development process will embrace the most recent climate science and methodology.
As a first step toward net-zero, the SBTi is encouraging financial institutions to participate in the Standard development process and set near-term science-based targets. The SBTi will establish a Net-Zero Standard for Financial Institutions over the next year through multi-stakeholder consultations, methodology road-testing, and a thorough technical assessment with a Financial Net-Zero Expert Advisory Group (EAG).
According to SBTi, 19 financial institutions have adopted science-based targets matched with 1.5°C goal, including British asset manager Schroders, French bank La Banque Postale, South Korean bank KB Financial Group, and Swedish private equity firm EQT.
“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,” remarked Luiz Fernando do Amaral, SBTi Chief Executive Officer.
“However, when it comes to net-zero, there is little understanding of what it means for the finance industry,” he added. “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.”