Dive Brief:
- The Science Based Targets initiative released the final version of its Financial Institutions Net-Zero standard Tuesday, which it said gives the finance sector a framework “to align [its] lending, investing, insurance underwriting and capital market activities with net-zero.”
- SBTi, which validates whether global corporations’ net-zero targets are aligned with leading climate science, said in a release that FINZ is the first framework to allow banks, asset owners and managers, private equity firms and other financial institutions to set science-based net-zero targets for 2050.
- The standard was piloted last year by 30 financial institutions and built off the organization’s previous near-term target setting criteria for the sector, as well as stakeholder input SBTi received. The final standard includes an option for institutions to either focus on their financed emissions or their customers’ net-zero alignment, according to the release.
Dive Insight:
SBTi said in a brief explainer the standard is designed to be used by entities that generate 5% or more of their revenue from lending, asset owner investing, asset management investing, insurance underwriting or capital market activities.
The framework aims to guide companies through an “expected net-zero journey” that first entails a public commitment to reach net-zero emissions by midcentury, followed by a base year portfolio assessment. The journey would also involve establishing policies and near- and long-term portfolio targets; conducting assessments and reporting progress; and assessing progress at the end of target cycles and setting new targets, according to a one-pager from SBTi.
The standard notes that financial institutions “play an enabling role” in the global climate transition and “have the power to influence the direction of the economy and accelerate progress” on achieving global net-zero emissions. SBTi Chief Technical Officer Alberto Carrillo Pineda said in the release that the financial sector’s economic influence and ability to engage portfolios is “unparalleled” when it comes to the broader transition.
“Financial Institutions have the ability to play a transformative role in the transition to net-zero,” Carrillo Pineda said. “With its broad applicability and flexibility, this robust, science-based standard will help financial institutions drive the net-zero transformation all over the world.”
FINZ is aligned and designed to be interoperable with SBTi’s broader Corporate Net-Zero Standard, with entities also being required to set non-portfolio targets using the flagship framework and/or sector standards.
The standard will require financial institutions to phase out new “general purpose financing or insuring of companies involved in oil and gas expansion immediately or by 2030 at the latest.” Financial institutions would also be required to adopt policies to immediately stop explicit project financing of fossil fuel expansion and general purpose financing of coal expansion.
Global banks increased investments in fossil fuels and fossil fuel expansion year-over-year in 2024, after both numbers had fallen in the prior two years, according to the Rainforest Alliance Network’s annual Banking on Climate Chaos report. FINZ requires companies to create a net-zero transition plan for any portfolio energy activities by midcentury. SBTi said the standard is also designed to allow financial institutions to engage with oil and gas companies as part of that transition.
“Today marks a key point of progress in setting a clear standard all financial institutions should meet to align their financing with climate goals,” Xavier Lerin, senior research manager at U.K. based climate nonprofit ShareAction, told ESG Dive. “Importantly, the standard sends a clear signal that financial support for fossil fuel expansion must come to an end.”
FINZ requires entities to address deforestation risks across their portfolio and commit to assess and publicly disclose their deforestation disclosure by 2030. If the assessment finds “significant” exposure, institutions would also be required to develop an engagement plan to address its deforestation risk at the next target cycle at the latest, which SBTi said is usually five years after target validation.
The standard also recommends that entities commit to increase financing for retrofitting existing buildings for decarbonization and cease new financial activities “for buildings that are not zero-carbon ready.”
SBTi is also in the process of piloting a draft update of its broader Corporate Net-Zero Standard, with a company survey portion of the pilot open until Aug. 15.
