The Science Based Targets initiative (SBTi), one of the key organizations focused on aligning corporate environmental sustainability action with the global goals of limiting climate change, announced the release of its finalized Financial Institutions Net-Zero (FINZ) Standard, aimed at enabling banks and investors to set net zero-aligned targets for their lending, investing, insurance and capital markets activities.
Among the key requirements set out for financial institutions to achieve goals aligned with the new standard is the publication of a “fossil fuel transparency policy,” requiring an immediate end to project financing for new fossil fuel projects, and to end financing for oil and gas companies involved in fossil fuel expansion activities by 2030.
The SBTi was founded in 2015 with the goal to establish science-based environmental target setting as a standard corporate practice. The organizations’ key functions include defining and promoting best practice in emissions reductions and net-zero targets in line with climate science, providing technical assistance to companies who set science-based targets, and providing companies with independent assessment and validation of their emissions reduction targets. The organization published its flagship cross-sector Corporate Net-Zero Standard in 2021, and is currently in the process of developing an update to the standard, Corporate Net-Zero Standard V2.
The new Financial Institutions Net-Zero Standard is designed to complement the SBTi’s cross-sector standard, with the Corporate standard covering Scope 1, 2 and most Scope 3 emissions, and the new FINZ standard focusing on financial sector-specific activities such as lending, asset owner investing, asset manager investing, insurance underwriting, and capital markets activities.
Under the new standard, financial institutions aiming to set aligned targets must first commit at the entity-level to achieve net-zero by 2050 or earlier, and identify their “in-scope” financial activities, such as lending, investing, etc., defined as those representing 5% or more of revenues, with activities classified on a priority basis by sector – with fossil fuels as the highest priority segment, followed by transport, industrial, energy, real estate and forest, land and agriculture (FLAG) in the second segment, followed by other sectors and subsets.
Financial institutions are then required to base year assessments for each in-scope financial activity, encompassing a greenhouse gas (GHG) emissions inventory, the share of climate-alignment for each in-scope financial activity, and the ratio of clean energy to fossil fuel exposure.
Under the standard’s new fossil fuel transparency policy, financial institutions are required to publish policies to immediately end project finance explicitly linked to fossil fuel expansion activities and general purpose finance of companies involved in coal expansion, end general purpose finance to oil and gas companies involved in expansion by 2030, and to transition portfolio energy activities to net zero by 2050.
The new standard introduces a “No-deforestation assessment,” requiring financial institutions to commit to assess and publish their deforestation exposure by 2030, and if the exposure is significant, to publish an engagement plan to address deforestation in their portfolios by their next 5-year target cycle. Additionally, 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, and to increase financial activities dedicated to retrofitting existing buildings.
The new standard also provides companies with flexibility in selecting their near-term portfolio targets, allowing the option to focus on the net-zero alignment of their customers and increase the share of climate-aligned financial activities across their portfolio, as an alternative to setting pathways for financed emissions. For long-term targets, companies following the new standard are required to set one long-term net-zero alignment target for each in-scope financial activity.
Financial institutions under the new standard are also required to publicly report annually on their GHG emissions, climate-alignment and sector metrics, clean energy to fossil fuel exposure ratios and deforestation exposure. At the end of each target cycle, typically on a 5-year basis, 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.
The SBTi began work on the new standard in 2021, and said that it has gone through two public consultations, and pilot testing by more than 30 financial institutions. The organization added that 135 financial institutions have committed to set net-zero targets against the standard.
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.”
