In Short

• The SBTi introduces a net-zero guideline for financial institutions for the first time.
• It addresses specific climate challenges, including deforestation and fossil fuel investments.
• Nearly 30 financial firms tested the Standard during its pilot phase.

The Science Based Targets initiative (SBTi) has introduced a new set of guidelines for financial institutions for the first time, helping them align with net-zero goals.

The Financial Institutions Net-Zero Standard will be a dedicated, science-based standard for banks, asset managers, insurance companies, and private equity firms to set their net-zero emissions targets. The objective is to align financial activities such as lending, investing, and underwriting with net-zero goals by 2050, as well as to reduce the effects of global warming.

With the help of the new Standard, businesses in the financial industry have clear and practical guidance to meet stakeholders' expectations, manage climate-related risks, and identify business opportunities tied to the transition to a low-carbon economy.

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Through the portfolio alignment approach, a principal feature of the Standard, financial organisations can use their influence on the businesses they invest in—particularly those from high-emitting sectors—to transition to net-zero. Some of these measures include setting alignment targets, expanding climate-aligned investments, and supporting the decarbonisation of their portfolios.

Compatible with other SBTi frameworks makes it easier for financial enterprises to adopt the Standards within their existing risk management and investment processes.

Some of the updates introduced include: the expansion of asset classes, meaning more types of financial products are included; increased transparency and tracking of emissions data; guidelines for decarbonising the built environment; and an option to focus on clients' net-zero progress.

The Standard also addresses deforestation and fossil fuels, two primary climate challenges. To this end, businesses are expected to monitor and control their exposure to deforestation and, thereby, create a meticulous plan to deal with it, as well as a fossil fuel transition policy with the aim of thwarting funding to new fossil fuel projects.

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The launch comes on the heels of close consultation with industry experts and financial firms, including input from NGOs, practitioners, and academics. The pilot testing saw more than 30 institutions participating, and roughly 135 financial institutions from around the world have already set targets in line with the framework.

Alberto Carrillo Pineda, Chief Technical Officer at the SBTi, said: “Financial Institutions have the ability to play a transformative role in the transition to net-zero. Their influence on the global economy and ability to engage with their portfolios is unparalleled to accelerate the net-zero transition.

"With its broad applicability and flexibility, this robust, science-based Standard will help financial institutions drive the net-zero transformation all over the world.”

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Source: SBTi