Financial organization SBTi unveils Net Zero Standard for Financial Institutions, including banks and investors
The Science Based Targets initiative (SBTi) has unveiled the Financial Institutions Net-Zero (FINZ) Standard, a comprehensive set of guidelines designed to help banks and investors align their lending, investing, insurance, and capital market activities with net-zero emissions by 2050 or earlier.
The FINZ Standard aims to enable these financial institutions to set net-zero aligned targets for their operations, thereby contributing to the global effort to limit global warming. Key requirements include:
- Entity-Level Net-Zero Commitment: Financial institutions must publicly commit at the organizational (entity) level to achieving net-zero greenhouse gas emissions by 2050 or earlier.
- Organizational and Portfolio Boundaries: Institutions must define organizational boundaries, covering all relevant subsidiaries, and identify all in-scope financial activities, segmenting those generating at least 5% of total revenue to ensure comprehensive coverage of their portfolio.
- Governance Framework: They are required to publish the governance framework overseeing their net-zero targets, demonstrating accountability and management involvement.
- Climate Transition Plan: While not mandatory, institutions should publish a credible climate transition plan that substantiates their commitments and details how targets will be met.
- Base Year Selection: Institutions must select a base year against which progress is measured, ensuring transparency and comparability over time.
- Fossil Fuel Transparency Policy: There is a requirement for an explicit policy prohibiting financing for new fossil fuel projects immediately and ending financing by 2030 for oil and gas companies involved in fossil fuel expansion activities.
- Deforestation Risk Management: Institutions must address deforestation risks across their portfolios, commit to assess these risks, and publicly disclose deforestation impacts by 2030.
- Target Focus Options: The FINZ Standard provides flexibility, allowing institutions to either focus their targets on reducing financed emissions directly or on aligning the net-zero pathways of their customers and portfolio companies.
- Alignment with Climate Science and Corporate Standards: The FINZ Standard is fully aligned with the SBTi’s Corporate Net-Zero Standard and other sector-specific guidance to ensure consistency with leading climate science.
Financial institutions adopting the FINZ Standard are expected to set clear, science-based, and actionable net-zero targets, integrate these targets into risk and investment processes, and use their influence to drive real-world decarbonization across their portfolios. This involves transparent reporting, robust governance, and strategic portfolio management to meet the 2050 net-zero goal credibly and effectively.
Moreover, financial institutions are encouraged to increase financial activities dedicated to retrofitting existing buildings to make them zero-carbon ready. If the deforestation exposure is significant, financial institutions must publish an engagement plan to address deforestation in their portfolios by their next 5-year target cycle.
As of the article's publication, 135 financial institutions have committed to set net-zero targets against the new standard. The SBTi began work on the new standard in 2021 and has gone through two public consultations, and pilot testing by more than 30 financial institutions. The SBTi was founded in 2015 with the goal to establish science-based environmental target setting as a standard corporate practice. The new FINZ standard introduces a "No-deforestation assessment," requiring financial institutions to commit to assess and publish their deforestation exposure by 2030.
- The Science Based Targets initiative (SBTi) has introduced the Financial Institutions Net-Zero (FINZ) Standard, which encourages banks and investors to set net-zero targets for their operations, aligning them with the global effort to limit global warming by 2050 or earlier.
- One of the key requirements of the FINZ Standard is for financial institutions to publicly commit at the entity level to achieving net-zero greenhouse gas emissions by 2050 or earlier, demonstrating their commitment to environmental sustainability.
- The new FINZ standard also includes a "No-deforestation assessment," requiring financial institutions to commit to assess and publish their deforestation exposure by 2030 to support the fight against climate change and promote environmental-science-based initiatives.
- Financial institutions adopting the FINZ Standard are expected to prioritize environmental sustainability, finance and invest in energy-efficient projects, and support industry efforts to transition to a low-carbon economy, contributing financially to the net-zero targets and global climate-change mitigation efforts.
