Financial institutions to stop funding fossil fuels by 2030 under new SBTi standard

The Science Based Targets Initiative has unveiled its new Financial Institutions Net Zero Standard, which aims to guide the financial sector’s alignment with climate goals and requires them to stop funding new fossil fuels by 2030.

The standard is aligned with SBTi’s flagship Corporate Net Zero Standard and other relevant sector-specific standards and guidance in order to support integration into existing risk and investment processes.

Banks and investment firms with science-based targets will now be required to align with the new guidance, which introduces a number of new criteria – one of which is “an absolute cut off of 2030” for the financing of oil and gas companies involved in expansion.

This was welcomed by activist investor group ShareAction as “a clear signal that financial support for fossil fuel expansion must come to an end”. But Xavier Lerin, Senior Research Manager at ShareAction, regretted that the deadline was pushed to 2030 following pushback from industry – a date “well beyond the timelines outlined in credible climate scenarios to keep global warming within safe limits”.

“At a time when the dangers of climate change are accelerating – floods, fires, and deadly heatwaves are already here – the world cannot afford half-measures. We call on signatories of the initiative to adopt the highest end of the standard’s requirements to ensure their targets and fossil fuel commitments are robust enough to realistically meet net zero goals,” he added.

SBTi Financial Institutions Net Zero Standard requirements

Among other innovations, the SBTi’s Financial Institutions Net Zero Standard expands asset class coverage to ensure broad applicability, requires the improvement of the quality and transparency of emissions inventories, and provides guidance on decarbonising the built environment.

Under the standard, banks, asset owners and managers, private equity firms and other financial institutions will also be allowed the option to focus on the net zero alignment of their customers, as an alternative to setting pathways for financed emissions.

However, they will be required to calculate and publish the ratio of clean energy to fossil fuel financing they provide – a measure long requested by activists.

In addition, the standard requires financial sector firms to assess, monitor, disclose and address deforestation exposure in their portfolios, with an engagement plan required to address significant risks.

Net zero transition in the financial sector

The standard is published at a time when many financial institutions have retreated from their climate commitments, exiting climate alliances and delaying climate targets. Just this month, HSBC left the Net Zero Banking Alliance (NZBA), following the example set at the start of the year by Wall Street banks.  

Several financial institutions, including Wells Fargo and CCP Investments, have also scrapped some of their climate commitments, including targets to achieve net zero by 2050. 

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.”