Financial organization SBTi introduces Net Zero Standard for banks and investors

Financial organization SBTi introduces Net Zero Standard for banks and investors

A significant shift is taking place in the financial sector as 135 institutions have committed to adopting the Science Based Targets initiative's (SBTi) Financial Institutions Net-Zero (FINZ) Standard [1][3]. This new standard aims to align financing activities with global net-zero goals, enhancing transparency, accountability, and climate impact reduction across finance portfolios.

The FINZ Standard requires financial institutions to set net-zero targets for their lending, investing, insurance, and capital markets activities [4]. To meet these targets, institutions must adhere to a series of key requirements.

Key Requirements of the FINZ Standard

1. Entity-level net-zero commitment by 2050 or earlier. Financial institutions must commit to reaching net-zero emissions across their operations and portfolios by 2050 at the latest [1][3].
2. Assessment and targeting of "in-scope" financial activities representing at least 5% of revenue. Institutions must classify and measure emissions associated with significant financial activities such as lending, investing, underwriting, and capital markets [1].
3. Fossil fuel finance phase-out policy. Institutions must immediately stop financing new coal and oil field expansions and cease financing new oil and gas projects by 2030, clearly separating general-purpose finance from fossil fuel growth support [2].
4. Science-based portfolio emissions targets aligned with a 1.5°C pathway. Financial institutions must measure and publicly disclose financed emissions (Scope 3 category 15+), and set interim milestones consistent with the global net-zero target, covering all lending, investing, underwriting, and capital market operations [2][1].
5. Deforestation risk assessment and disclosure by 2030. Institutions must evaluate deforestation risks in their portfolios, disclose publicly, and if significant exposure is found, develop engagement plans to mitigate those risks within the next target cycle (usually five years) [3].
6. Support for building decarbonization. The standard recommends increasing financing for retrofitting existing buildings and ceasing new financial activities linked to buildings not ready for zero-carbon standards [3].
7. Greenhouse gas emissions disclosure from clients. Businesses seeking finance must provide credible, measurable, and verifiable decarbonization plans aligned with SBTi pathways [4].

Other Requirements and Recommendations

• Financial institutions are required to base year assessments for each in-scope financial activity, including a greenhouse gas (GHG) emissions inventory, the share of climate-alignment, and the ratio of clean energy to fossil fuel exposure [2].
• The standard recommends that financial institutions publish a real estate policy committing to cease new financial activities for buildings that are not zero-carbon ready [3].
• In-scope financial activities are classified on a priority basis by sector, with fossil fuels as the highest priority, followed by transport, industrial, energy, real estate and forest, land and agriculture (FLAG), and other sectors [5].
• At the end of each target cycle, firms are required to assess and communicate their progress against their targets, and to set new targets if they haven't yet achieved net zero [6].
• For long-term targets, companies must set one long-term net-zero alignment target for each in-scope financial activity [6].
• The SBTi began work on the new standard in 2021 and has gone through two public consultations, and pilot testing by more than 30 financial institutions [7].
• The fossil fuel transparency policy requires an immediate end to project financing for new fossil fuel projects and a 2030 end to financing for oil and gas companies involved in fossil fuel expansion activities [2].

The SBTi, founded in 2015, aimed to establish science-based environmental target setting as a standard corporate practice [8]. With the release of the finalized FINZ Standard, banks and investors are now empowered to set net-zero-aligned targets for their activities. This move is a significant step towards a more sustainable financial sector and a global net-zero future.

[1] Science Based Targets initiative. (2022). FINZ Standard. Retrieved from https://www.sciencebasedtargets.org/initiatives/financial-sector

[2] Science Based Targets initiative. (2022). Fossil Fuels. Retrieved from https://www.sciencebasedtargets.org/resources/sectors/fossil-fuels

[3] Science Based Targets initiative. (2022). Real Estate. Retrieved from https://www.sciencebasedtargets.org/resources/sectors/real-estate

[4] Science Based Targets initiative. (2022). Client Engagement. Retrieved from https://www.sciencebasedtargets.org/resources/sectors/client-engagement

[5] Science Based Targets initiative. (2022). Scope of the FINZ Standard. Retrieved from https://www.sciencebasedtargets.org/resources/sectors/financial-sector/scope

[6] Science Based Targets initiative. (2022). Target Setting. Retrieved from https://www.sciencebasedtargets.org/resources/sectors/financial-sector/target-setting

[7] Science Based Targets initiative. (2022). FINZ Standard Timeline. Retrieved from https://www.sciencebasedtargets.org/initiatives/financial-sector/finz-standard-timeline

[8] Science Based Targets initiative. (2022). About Us. Retrieved from https://www.sciencebasedtargets.org/about/about-us

1. Financial institutions, as part of the Science Based Targets initiative's Financial Institutions Net-Zero (FINZ) Standard, are required to commit to reaching net-zero emissions across their operations and portfolios by 2050 at the latest.
2. To meet their net-zero targets, financial institutions must measure and publicly disclose financed emissions and set interim milestones consistent with the global net-zero target, covering all lending, investing, underwriting, and capital market operations.
3. The FINZ Standard recommends an immediate end to project financing for new fossil fuel projects and a 2030 end to financing for oil and gas companies involved in fossil fuel expansion activities.
4. Financial institutions must evaluate deforestation risks in their portfolios, disclose publicly, and if significant exposure is found, develop engagement plans to mitigate those risks within the next target cycle.

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