SBTi promises a Net-Zero standard for the financial sector in early 2023

Shifting financial flows at scale is key to achieving the transformations needed to reach net zero

Published Tuesday, April 12, the initiative latest guidance document “represents the first step in the development process of the net zero standard”. The SBTi launched its Net-Zero standard for businesses last October, but financial firms are unable to obtain verification against this standard because it does not take into account complexities such as financed emissions and how they can be addressed through engagement and/or divestment.

Financial companies can set targets verified by the SBTi since October 2020. As with the Net-Zero standard for companies, alignment with the Net-Zero standard for financial institutions will be based on net zero targets for 2050 at the latest , underpinned by Intermediate Goals aligned with 1.5C covering all scopes of emissions. Currently, 19 financial institutions have objectives verified in accordance with 1.5C.

This requirement is detailed in the guidance document, which also proposes a fixed definition of net zero for the financial sector and describes the extent to which financial firms must reduce operational and funded emissions before using offsetting.

Regarding the definition of net zero, the document acknowledges that in the absence of a standard definition, the plans of different companies currently cover different emission scopes and financing activities. These discrepancies have led to criticism of some of the larger industry collaborations on net-zero.

As such, the SBTi document indicates that the Standard will require “comprehensiveness – the inclusion of all related activities” in the scope of the objectives, with specific limits to be established in the coming months.

The document recognizes that different organizations use different tactics to mitigate funded emissions, with most using a variety of approaches. Common approaches include engagement with portfolio companies; move money within sectors to support the most efficient companies; reallocate money from high-carbon sectors to low-carbon sectors; assignment; updating exclusionary policies and funding climate solutions.

There is concern that not all tactics are likely to have the same real impact on shows. All tactics have potential advantages and disadvantages. Divestment can lead a high-carbon company to be influenced by climate-neutral investors, for example, thus inducing it to increase its emissions. Yet engagement is often slow, with companies not producing the necessary information and taking the necessary action, and investors extending their timelines for engagement.

The final Net-Zero standard for financial institutions, the document confirms, will be launched in early 2023, following multi-stakeholder consultations, a road test of methodologies and a technical review.

SBTi Director General Dr. Luiz Fernando do Amaral said, “Financial institutions are key players in reducing emissions from the real economy through investment and lending activities. There are signs that the sector is taking on this responsibility. Immediate action is already possible for short-term scientific objectives.

However, when it comes to net zero, it is unclear what this means for the financial sector. Our document provides the clarity we desperately need and will allow us to develop a Net-Zero standard for financial institutions that will help net-zero commitments drive science-based action.

edie recently interviewed Dr Amaral for a story on whether governments should legally require companies – especially large companies in carbon-intensive sectors – to set SBTi-verified targets. Click here to read this feature.

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