The Science-Based Targets initiative (SBTi) is introducing a new climate target-setting framework aimed at financial institutions, particularly those with significant fossil fuel investments. Nate Aden, SBTi’s finance lead, highlights that the goal is to encourage financial institutions to reduce real-world emissions by transitioning away from fossil fuel funding, rather than penalizing them. 

The framework requires institutions to stop financing new fossil fuel projects and align their existing fossil fuel exposure with a 1.5°C climate target. Coal projects, for example, must be phased out by 2030 in OECD countries and by 2040 elsewhere. The SBTi is also introducing tiered expectations based on the institution’s level of influence over their clients’ emissions, such as project finance versus SME loans. 

The ESG standards set by the SBTi will include legally enforceable guidelines, with an emphasis on fossil fuel financing. Financial institutions must also comply with any conflicting regional legislation or regulations. While the focus is on banks, insurers, and investors with major fossil fuel exposure, feedback from initial pilot programs has been largely positive. 

Aden stresses that without addressing fossil fuel financing, climate stabilization is impossible. The SBTi’s new rules aim to make fossil fuel-related net-zero requirements legally and contractually feasible. The final standard will be published after industry feedback is reviewed and approved by SBTi’s technical council and executive board. 

The initiative reflects growing global pressure on financial institutions to adopt sustainability strategies that align with climate goals, further solidifying the role of ESG in finance. 

Sources : 

https://www.responsible-investor.com/its-time-says-sbti-as-it-pulls-plug-on-financing-fossil-fuels/ 

https://sciencebasedtargets.org/sectors/oil-and-gas