SBTi's Proposed Standards Represent Important Progress in Tackling Greenwashing and Ensuring Credible, Science-Based Net-Zero Pledges From Financial Institutions

This summer, the Science Based Targets initiative (SBTi) — an international initiative that credibly verifies corporations’ emissions reduction targets — led several stakeholder engagement processes to clarify and tighten the standards for financial institutions seeking to set science-based targets. The SBTi also sought comment on its draft Fossil Fuel Finance Position Paper establishing specific norms for financial institutions continuing to invest in coal, oil, and gas. The comment periods closed August 23.

In its comments, advocacy groups Americans for Financial Reform Education Fund, Public Citizen, and the Sierra Club commended the SBTi for drafting a strong standard on how fossil fuel financing should be treated in corporate emissions-reduction plans that are intended to be aligned with the goals of the Paris Agreement and the consensus of the scientific community.

“Kudos to SBTi for having the guts to pull the plug on failed financial sector engagement with the fossil fuel industry. The draft standard gives banks, insurers, and asset managers a final two-year window to persuade Big Oil to enact credible decarbonization strategies. Barring success, they must divest. Financial institutions shouldn’t be entitled to the SBTi’s stamp of approval unless they are willing to make tough choices: breaking up with fossil fuel companies that refuse to take climate change seriously is at the top of that list,” said Clara Vondrich, senior policy counsel with Public Citizen’s Climate Program.
”SBTi has performed an invaluable service by proposing needed updates to its standards to ensure that financial institutions’ net-zero emissions pledges are credible and based on the best available science, not greenwashing. We encourage SBTi to stand firm on its commitment to scientific rigor in its proposals, and we hope that it fully considers and adopts our recommendations to strengthen its guidance and further minimize the risk of greenwashing,” said Jessye Waxman, Senior Campaign Representative in the Sierra Club’s Fossil-Free Finance campaign.

The SBTi proposed several essential reforms, including criteria to guide the cessation and phase out of financial flows to fossil fuel companies unwilling to make meaningful moves to transition their operations to a clean energy future. Notably, the SBTi also shifted its yardstick for “science-based” away from its prior 2°C pathway to a 1.5°C pathway, in accord with the ambition of the Paris Agreement and in implicit recognition that current warming already has prompted devastating and unacceptable impacts worse than many scientists anticipated. In other areas, the advocacy groups urged the SBTi to tighten its standards, in order to remain a standard setter on transition planning with unimpeachable credibility and integrity.

The advocacy groups urged the SBTi to stand firm on its following recommendations:

• Science-based targets must align with 1.5°C pathways; 2°C is unacceptable.
• Targets must cover both financed and facilitated emissions. In particular, insurers must align underwriting with net-zero pathways.
• New investments in fossil fuel assets and exploration are inconsistent with science-based targets.
• Financial institutions must phase out existing support to fossil fuel projects and companies.
• Fossil fuel phaseout is automatically triggered if a final, brief period of engagement fails to bring the project or company into alignment.
• Financial institutions cannot use carbon offsets to evidence emissions reductions toward their targets. This must be based on emission reductions through direct action within their own operations and value chains.
• Carbon offsets may only be considered as an option to finance additional climate mitigation beyond their science-based targets.
• Financial institutions must track the alignment of their portfolio companies with both net-zero emissions targets and scientifically-grounded transition trajectories.

The groups called on the SBTi to revisit and strengthen the following recommendations:

• Require all companies to set Scope 1, 2, and 3 targets using 1.5°C pathways with no/low overshoot and only a limited level of negative emissions.
• Strictly define what is “limited” for the purpose of negative emissions allowed in transition plans. Negative emissions technologies remain expensive and unproven at scale.
• Require banks to include their asset management divisions, which are currently included as optional for inclusion within bank targets.
• Tighten criteria for financial institutions engaged in third-party asset management, including advisory services for client-led accounts. Near-term targets should either cover 100% of total portfolios, or SBTi should require a minimum threshold for portfolio coverage they will certify.*
• State explicitly that abatement does not apply to the exploration and production of fossil fuels.
• Provide clear guidance and timelines for banks to deal with clients that are not transitioning, including clarifying phase-out criteria.
• Require financial institutions to set 2050 targets for just transition support in the Global South.
• Do not permit the setting of ambitions to be grouped with the implementation of climate targets as a metric for evaluating progress. Disaggregation is necessary to avoid greenwashing scenarios.

SBTi is expected to use the feedback from these stakeholder engagement processes to publish a draft Financial Institutions Net Zero (FINZ) Standard in Q3, lead another round of consultations in Q4, and release a final FINZ Standard in 2024.

*For example, State Street’s near-term target through the Net Zero Asset Manager Initiative covers a mere 14% of total AUM, while Franklin Templeton’s target covers a mere 4.6%. These examples underscore the threats to progress on climate risk that arise when portfolio coverage requirements are left poorly defined.