The Science Based Targets Initiative Launches First Framework for Financial Institutions

(Credit: Pixabay)

by | Oct 5, 2020

(Credit: Pixabay)

The Science Based Targets initiative (SBTi) has launched its first science-based target framework and validation service for financial institutions.

Nearly 1,000 companies in 50 sectors from coal and gas to pharmaceuticals, with a cumulative market cap of $15.4 trillion, have pledged to align their decarbonization plans with the Paris Agreement by adopting science-based greenhouse gas reduction targets (SBTs). But no such target framework was available for banks or other financial institutions — until now.

This announcement marks the first opportunity for the finance sector to add a science-based stamp to their portfolio alignment targets. Fifty-five financial corporations, including Amalgamated Bank (US) Bank J. Safra Sarasin (Switzerland), Standard Chartered (UK), and Eurazeo (France) have already committed to setting science-based targets, and will now work with the SBTi to validate their climate targets against current climate science.

The new target validation service is developed by the SBTi, a collaboration between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). It emphasizes the vital role of engagement with underlying assets to encourage companies to reduce their emissions and ignite climate action. For example, Liontrust Asset Management Plc is using its leverage as a shareholder to demand that companies set more ambitious targets for reducing their impact on the climate.

According to SBTi, its framework highlights the power of financial institutions to redirect capital to companies contributing to the low-carbon transition, and away from those that contribute to climate change.

The SBTi is now inviting financial institutions to submit targets for validation. The first 20 submissions from financial institutions will be assessed free of charge during a pilot phase of the target validation service. Learnings from these target assessments will inform updates to the framework in April 2021.

To qualify for validation by the SBTi, the Scope 1 and 2 portions of financial institutions’ emissions (covering their operations and purchased energy) must be in line with an average annual linear reduction rate of 4.2% for a 1.5°C pathway and 2.5% for a well-below 2°C, and their Scope 3 targets (covering their investments and lending portfolios) must meet specific criteria relevant to each asset class.

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