The Science Based Targets initiative (SBTi), a corporate climate action organisation backed by the UN, has released its first net-zero standard for financial institutions, calling for an end to financing fossil fuel expansion.
The new framework, released on July 22, sets out science-based guidance for banks, insurers and asset managers aiming to align with net-zero emissions by 2050. It will come into effect in January 2027, following an 18-month transition period during which institutions can use either the new standard or the SBTi’s previous ‘financial institutions near-term criteria’ for target validation.
Adoption of the standard is voluntary, and the SBTi has no enforcement authority. However, its frameworks are widely used by institutions seeking third-party validation of their climate commitments.
Among the requirements for SBTi validation under the new standard is that financial institutions adopt a public policy addressing fossil fuel expansion-related activities. This includes an “immediate cessation of project finance explicitly linked to fossil fuel expansion activities”, an instant end to general purpose finance of companies expanding coal operations, and a phase-out by 2030 of general purpose finance for oil and gas companies expanding upstream production. Institutions must also publish a strategy for transitioning their energy-related portfolio to net zero by 2050.
Some major trade banks have already moved in this direction. Both HSBC and ING announced in 2022 that they would no longer provide project finance for new oil and gas fields.
More broadly, over 650 banks, representing 40% of global private financial assets, have committed to reaching net zero by 2050, according to non-profit the World Resources Institute, a founding member of SBTi.
Coal financing is a thornier issue, however. SBTi’s standard extends its financing restrictions to new coal mines, including not only thermal coal, used in power generation, but also some metallurgical coal, which is essential in steel production.
NGO BankTrack says in a post responding to SBTi’s publication that only 11 banks currently have policies restricting financing for metallurgical coal, despite a 2021 International Energy Agency paper noting that reaching net zero by 2050 requires an end to new coal mines or mine extensions.
The wording from SBTi distinguishes between what financial institutions “shall” and “should” include in their transition plans. Under the mandatory “shall” criteria, finance providers must exclude funding for exploration, extraction, development or expansion of mines for all thermal coal grades as well as for unabated coal-fired power plants. Meanwhile, the “should” guidance encourages extending exclusions to include a wider range of coal-related products, including mine development for metallurgical coal, coal lobbying activities and mining services providers.
While the accreditation will “likely exclude banks from financing the development of new mines with ambiguous coal grades”, BankTrack says SBTi’s wording on the topic is vague and creates a “grey area” that is a “major cause for concern”.
Data from German fossil fuel finance tracker Urgewald, released earlier this month, suggests that financing for coal increased by US$7bn in 2024 following a decrease between 2022 and 2023.
“Financial institutions just cannot wait until 2030 to do this if we are to avoid a massive carbon lock-in that would destroy any hope of climate mitigation,” says Paul Schreiber, senior policy analyst at Reclaim Finance and a member of the SBTi expert advisory group. “In practical terms, this means they must start to phase out financing for oil and gas expansion now.”
The SBTi’s updated guidance follows a tumultuous period in net-zero policy, with most major North American banks pulling out of the Net-Zero Banking Alliance (NZBA), citing concerns over its direction, while remaining members voted in April to water down some of the alliance’s core commitments.
Earlier this month, HSBC became the first major UK bank to leave the alliance, saying in a statement to GTR: “We recognise the role the NZBA has played in developing guiding frameworks to help banks establish their initial target-setting approach. With this foundation in place, we have decided to withdraw from the NZBA as we work towards updating and implementing our own net-zero transition plan.
“We remain resolutely focused on supporting our customers to finance their transition objectives and on making progress towards our net zero by 2050 ambition.”
According to the SBTi’s official target dashboard, there are now over 11,000 organisations with science-based targets or commitments, including more than 8,000 with validated targets.
The initiative is a collaboration between international bodies, including the United Nations, the World Wide Fund for Nature and the Carbon Disclosure Project.
