Science Based Targets initiative starts development process for net-zero finance standard

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The Science Based Targets initiative (SBTi) provides new concepts for banks, asset owners, asset managers and other financial institutions to define and set net-zero targets in a new paper.

The Foundations Paper on Net-Zero for Financial Institutions 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.

Dr. Luiz Fernando do Amaral, Chief Executive Officer of SBTi, commented on the announcement: “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).

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).

Moreover, 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.

Alberto Carrillo Pineda, Managing Director and Co-Founder of the SBTi, added: “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 found on the SBTi website.