The Science Based Targets initiative (SBTi) has launched a standard for investors wanting to claim their climate ambitions are credible.
The body claims the standard “provides clear, actionable science-based guidance for banks, asset owners and managers, private equity firms and other financial institutions to align their lending, investment, insurance, and capital markets activities with avoiding the worst impacts of climate change and achieving net-zero by 2050 at the latest”.
In order to be validated against the standard, investors will have to publicly commit to reaching net zero by 2050 or earlier.
The pledge must be accompanied by near- and long-term targets, and they must report on their progress annually.
Fossil fuels
Following feedback from the market, SBTi has softened its approach to fossil fuel phase-outs in the final standard, delaying the deadline to 2030.
In April, the initiative put the development of a dedicated Oil & Gas Standard on hold, claiming it wanted to focus on the sector-neutral and financial versions first.
It said it was also “considering technical viability and market readiness”.
This week, the Financial Times reported the decision was driven by the departures of a number of oil majors, following a draft that would have banned them from developing new oil and gas fields if they wanted SBTi verification.
SBTi said in its new standard for investors and other financial institutions that “both the immediate cessation of financial support to expand unabated fossil fuel production capacity and the use of financial institutions’ influence to align companies with a net-zero transition are needed”.
As a result, it requires investors to publish a policy committing to the “immediate cessation” of project finance to expand fossil-fuel activities.
It also requires an end to general financing for companies involved in coal expansion, and “ideally”, the same for oil and gas expansion. On the latter, there should be “an absolute cut off of 2030, designed to allow financial institutions to engage with oil and gas companies”.
Deforestation and real estate
Investors must also commit to assess and publish their deforestation exposure by the end of the decade, and – if exposure is material – they must publish a plan to engage with their portfolio companies on the issue.
The new standard recommends (but doesn’t require) investors to stop allocating capital to buildings that are not “zero-carbon ready”, and increase their support for the retrofitting of existing buildings.
SBTi claims more than 100 financial institutions have previously committed to use its standard.
While most of these are banks, a number of pension funds have stated their intention to do so, including Varma, AkademikerPension and PensionDanmark.
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