The Science Based Targets initiative (SBTi), a leading organisation focused on aligning corporate environmental sustainability actions with global climate goals, has announced the release of its Financial Institutions Net-Zero (FINZ) Standard. This new standard aims to enable banks and investors to set net-zero-aligned targets for their lending, investing, insurance, and capital markets activities.
A key requirement of the new standard is the publication of a “fossil fuel transparency policy,” which mandates an immediate halt to project financing for new fossil fuel projects. Additionally, it requires financial institutions to cease financing for oil and gas companies involved in fossil fuel expansion activities by 2030.
Founded in 2015, the SBTi aims to establish science-based environmental target setting as a standard corporate practice. Its main functions include defining and promoting best practices in emissions reductions and net-zero targets in line with climate science, providing technical assistance to companies setting science-based targets, and offering independent assessment and validation of emissions reduction targets. The organisation published its flagship cross-sector Corporate Net-Zero Standard in 2021 and is currently developing an update to this standard, Corporate Net-Zero Standard V2.
The new FINZ Standard is designed to complement the SBTi’s cross-sector standard, covering Scope 1, 2, and most Scope 3 emissions. It focuses on financial sector-specific activities such as lending, asset owner investing, asset manager investing, insurance underwriting, and capital markets activities.
To align with the new standard, financial institutions must first commit at the entity level to achieve net-zero by 2050 or sooner. They must identify their “in-scope” financial activities, such as lending and investing, defined as those representing 5% or more of revenues. Activities are prioritised by sector, with fossil fuels as the highest priority, followed by transport, industrial, energy, real estate, and forest, land, and agriculture (FLAG).
Financial institutions are required to conduct base year assessments for each in-scope financial activity, which includes a greenhouse gas (GHG) emissions inventory, the share of climate-alignment for each in-scope financial activity, and the ratio of clean energy to fossil fuel exposure.
The standard introduces a “No-deforestation assessment,” requiring institutions to commit to assess and publish their deforestation exposure by 2030. If significant, they must publish an engagement plan to address deforestation in their portfolios by their next five-year target cycle. Additionally, the standard recommends that financial institutions publish a real estate policy to cease new financial activities for buildings not zero-carbon ready and to increase retrofitting activities.
The standard also offers flexibility for selecting near-term portfolio targets, allowing financial institutions to focus on the net-zero alignment of their customers and increase the share of climate-aligned financial activities across their portfolio. For long-term targets, companies must set one long-term net-zero alignment target for each in-scope financial activity.
Financial institutions are required to publicly report annually on their GHG emissions, climate-alignment and sector metrics, clean energy to fossil fuel exposure ratios, and deforestation exposure. At the end of each target cycle, typically every five years, firms must assess and communicate their progress against their targets and set new targets if they have not yet achieved net-zero.
The SBTi began work on the new standard in 2021, with two public consultations and pilot testing by over 30 financial institutions. The organisation notes that 135 financial institutions have committed to setting net-zero targets in line with the standard.
Alberto Carrillo Pineda, Chief Technical Officer at the SBTi, stated, “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.”
