Financial institutions will now be able to set science-based net-zero targets for the first time, following the launch of a new global standard by the Science Based Targets initiative on Tuesday.

The Financial Institutions Net-Zero Standard provides a framework for banks, asset managers, insurers, private equity firms and others to align their financing activities with limiting global warming and achieving net-zero emissions by 2050 at the latest.

New Framework Offers Route to Decarbonization

The new standard provides financial entities with a structured path to manage climate-related risks, meet rising stakeholder expectations and tap into low-carbon investment opportunities.

According to the SBTi, the framework enables institutions to build resilience and assert leadership in the global transition to a net-zero economy.

A central feature of the standard is its focus on portfolio alignment. It encourages firms to use alignment targets to support high-emitting sectors in reducing emissions and to increase the share of climate-aligned financial activities.

“Their influence on the global economy and ability to engage with their portfolios is unparalleled to accelerate the net-zero transition,” said Alberto Carrillo Pineda, chief technical officer at the SBTi. “With its broad applicability and flexibility, this robust, science-based Standard will help financial institutions drive the net-zero transformation all over the world.”

Emphasis on Transparency and Sector Alignment

The standard builds on the SBTi’s flagship Corporate Net-Zero Standard and includes guidance aligned with sector-specific benchmarks. It requires institutions to enhance the transparency and accuracy of their emissions inventories and expand coverage across all asset classes.

Among the key elements are requirements to either focus on net-zero alignment of clients or set pathways for financed emissions. It also includes recommendations for decarbonizing the built environment.

Tackling Fossil Fuels and Deforestation

In an effort to address some of the most carbon-intensive sectors, the standard introduces policies related to fossil fuels and deforestation. Financial institutions are expected to implement a transition policy that phases out new financial services to the fossil fuel sector and to develop engagement plans for portfolios exposed to deforestation risk.

The standard was developed following two rounds of public consultation and pilot testing with over 30 financial firms. An expert group comprising members from NGOs, academia, and industry also contributed to the process.

Interest in the standard has surged ahead of its release, with nearly 135 financial institutions across six continents having already pledged to set net-zero targets under its guidelines.

A detailed overview is available in the SBTi’s summary document, “Financial Institution Net-Zero Standard in Brief.” The organization also plans to host a public webinar to guide institutions on how to apply the new framework.

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