Investors face a deadline for phasing out fossil fuel financing, as major oil companies pull their support, according to the SBTi's announcement.
The Science Based Targets initiative (SBTi) has recently launched a new net-zero standard for financial institutions, effective January 2027 after an 18-month transition period. This standard requires banks, insurers, and asset managers to immediately cease financing fossil fuel expansion activities.
Key Requirements of the New Standard
The new standard mandates an immediate end to project finance explicitly linked to fossil fuel expansion. It also calls for an instant stop to general-purpose finance for companies expanding coal operations. Furthermore, the standard requires a phase-out by 2030 of general-purpose finance for oil and gas companies expanding upstream production.
Institutions must also publicly commit to a fossil fuel transition policy and publish a strategy to align their energy-related portfolios with net-zero emissions by 2050 or sooner. While adoption of this standard is voluntary and SBTi lacks enforcement authority, it is widely used by financial institutions seeking third-party validation of their climate commitments.
Support and Reactions
NGOs and climate experts generally welcome the new standard as a clear and significant push raising the bar for financial institutions to align with the 1.5°C global warming limit. Analysts see it as a transformative move to accelerate the net-zero transition in the financial sector.
Oil majors and fossil fuel proponents have not been prominently cited in the coverage, but the standard’s demand to cease financing fossil fuel expansion represents a direct challenge to continued upstream investment in oil and gas. The framework effectively pressures banks and investors to withdraw support from fossil fuel companies seeking to expand production, which will likely cause pushback from sectors dependent on such financing.
Notable Organizations Seeking SBTi Approval
Over 150 organizations, including Schroders, Amundi, Varma, AkademikerPension, PensionDanmark, Strathclyde Pension Fund, TfL Pension Fund, and Elo Mutual Pension Insurance Company, have sought SBTi approval for their net zero plans.
Future Implications
The SBTi's new standards are an important and necessary step forward for the financial sector, according to Waxman. However, the SBTi has paused its work on oil and gas standards, according to a report by the Financial Times.
Reclaim Finance warns that resources from new oil and gas fields planned for approval between 2026 and 2030 would amount to 200 billion barrels, equivalent to 3.6 times global production in 2023. The SBTi's new guidelines, according to Jessye Waxman, policy adviser for the Sierra Club's Sustainable Finance campaign, clarify what constitutes credible net zero plans for financial institutions.
The International Energy Agency (IEA) has warned for the past four years that no new oil and gas capacity is needed if the world is to meet the decarbonisation targets set out in the Paris Agreement. The SBTi standards attempt to address the issue of how investors should respond to fossil fuel expansion, particularly in oil majors like Exxon, Chevron, BP, Shell, and Equinor. A new battleground is now emerging in the financial services industry, with banks, insurers, and institutional investors under increasing pressure to stop insuring, underwriting, and investing in new fossil fuel production. Some of the world's largest oil majors, including Shell Plc, Aker BP ASA, and Enbridge Inc, have withdrawn from the expert advisory group at SBTi due to the fossil fuel phase-out being incompatible with their core business.
[1] Financial Times [2] Bloomberg [4] Reuters
- The new standard developed by the Science Based Targets initiative (SBTi) for financial institutions, as announced in January 2027, requires environmental-science-oriented institutions to align their business strategies with the net-zero emissions goal by 2050 or sooner, and to cease financing fossil fuel expansion activities in various sectors, such as fossil fuel projects linked to expansion and companies expanding coal operations.
- As a result of the new SBTi standard, organizations like Schroders, Amundi, Varma, AkademikerPension, PensionDanmark, Strathclyde Pension Fund, TfL Pension Fund, and Elo Mutual Pension Insurance Company are seeking approval for their net zero plans, signaling a shift towards science-based approaches in finance that prioritize climate-change mitigation and the preservation of the environment.
