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Standards body said revisions to guidelines and criteria would enable financial institutions to set near-term emission reduction targets in line with a 1.5C scenario
The Science Based Targets initiative (SBTi) has today unveiled a raft of revisions and resources designed to help financial institutions set ambitious near-term emissions reduction targets, including the introduction of new criteria for phasing out fossil fuel financing.
The changes to SBTi criteria, which are set to come into force on 30 November 2024, include increased minimum emissions reduction requirements for financial institutions looking to get targets approved by the standards body.
Under the new criteria, financial firms with validated targets must align their operational and power emissions from a pathway aligned with "well-below" 2C of warming to one aligned with 1.5C of warming. They must also meet Scope 1 and Scope 2 emissions reduction targets in a five-to-10-year timeframe, down from the five-to-15-year window they were afforded previously, according to the SBTi.
The non-profit has also added further specific guidance on what emissions financial firms' climate targets should cover, including clarification that targets must cover at least 67 per cent of Scope 3 financed emissions.
Financial institutions looking to secure SBTi validation for their climate goals have also been pointed to new fossil fuel finance criteria for how firms can disclose, halt, transition and phase out "fossil fuel–related activities".
The SBTi Fossil Fuel Finance Targets method, set out in a consultation paper last year, has been included in a list of methods available to financial institutions required by SBTi to establish targets for their fossil fuel financing activity.
The four-step process starts with financial institutions annually disclosing the climate impact of the financial services they provide coal, oil and gas sectors, and the actions they are taking to reduce or eliminate these emissions.
The method then calls for financial institutions to publicly commit to the immediate cessation of financial flows to the coal value chain, with the exception of financing for decommissioning activities. Institutions must also publicly pledge financial flows to all unabated oil and gas value-chain associated activities at the project level, and new financial flows to companies involve in the expansion of oil and gas production or capacity.
The method then requires investors to embark on a process of engagement with fossil fuel companies they work with to align with 1.5C-climate goals, including by encouraging coal, oil and gas companies to set their ambitious near-term science-based climate targets.
Finally, it calls on companies to establish a firm deadline for a phase out of all financial activities linked to "unaligned" companies and projects.
The SBTi said the overall aim of the updated criteria was to align requirements for financial institutions with those it had set out for companies its Corporate Net Zero Standard, while also enhancing the "clarity, actionability and usability" of existing rules, streamlining coverage requirements, and formally embedding its new Fossil Fuel Finance Targets method into its standards.
Financial institutions that submit targets for validation at the SBTi before 30 November have the option to be assessed against the old or new criteria, the SBTi said. However, all financial institutions with climate goals approved by the SBTi will be required to update targets against the new criteria within five years from their last validation date.
The new financial sector guidelines comes amid intense scrutiny of the SBTi's Corporate Net Zero Standard, for which proposed tweaks are expected to be unveiled in July that could open up greater scope for companies to use carbon credits to offset their Scope 3 emissions.
Any such changes to the Corporate Net Zero Standard are likely to provide highly controversial, however, with the non-profit having forced to contend with a major internal row between stakeholders in favour of giving firms more wriggle room for using carbon credits and those warning that doing so could open the door to more corporate 'greenwashing'.
You can now sign up to attend the fifth annual Net Zero Festival, which will be hosted by BusinessGreen on October 22-23 at the Business Design Centre in London.
