Financial organization SBTi presents Net Zero Standard for banking institutions and investors
The Science Based Targets initiative (SBTi) has released the finalised Financial Institutions Net-Zero (FINZ) Standard, setting a comprehensive framework for banks, asset owners, asset managers, insurers, and private equity firms to set and achieve net-zero-aligned targets by 2050 or earlier.
Under the new standard, financial institutions are required to make an entity-level commitment to achieve net-zero across all operations by 2050 or sooner. They must also identify "in-scope" financial activities contributing at least 5% of revenues, covering lending, investing, insurance underwriting, and capital markets activities. These activities are prioritised by sector, with fossil fuels highest, followed by transport, industrial, energy, real estate, and forest, land and agriculture (FLAG), then other sectors.
For each in-scope financial activity, institutions must establish a base-year GHG emissions inventory, measure the share of portfolio aligned with climate goals, and calculate exposures to clean energy versus fossil fuels. They must also set near-term science-based targets that align with 1.5°C climate pathways and commit to net-zero by 2050, including interim target cycles typically every five years.
The policy requires an immediate end to project financing for new fossil fuel projects and to end financing for oil and gas companies involved in fossil fuel expansion activities by 2030. Financial institutions must also publish a "fossil fuel transparency policy" mandating an immediate halt to project finance for new fossil fuel expansion, end general purpose finance to coal expansion immediately, and cease all fossil fuel expansion finance by 2030, transitioning energy portfolios fully to net zero by 2050.
In addition, financial institutions have to assess and publicly disclose deforestation-related risks by 2030. If significant exposure is found, they must establish an engagement plan to manage deforestation risks by the next target cycle (usually five years). They should also increase financial activities dedicated to retrofitting existing buildings to decarbonize and stop financing new developments that are not zero-carbon ready.
The FINZ Standard strongly emphasises transparent reporting of progress and target compliance aligned with the overall net-zero strategy. Financial institutions are required to publicly report annually on their GHG emissions, climate-alignment, sector metrics, clean energy to fossil fuel exposure ratios, and deforestation exposure.
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. Currently, 135 financial institutions have committed to set net-zero targets against the new standard.
The SBTi, founded in 2015, aims to establish science-based environmental target setting as a standard corporate practice. The new FINZ standard focuses on financial sector-specific activities such as lending, asset owner investing, asset manager investing, insurance underwriting, and capital markets activities.
By adopting the FINZ Standard, financial institutions can enable banks and investors to set net-zero-aligned targets for their lending, investing, insurance, and capital markets activities, contributing to a more sustainable future.
- To comply with the FINZ Standard, financial institutions must establish net-zero targets by 2050 or earlier for their financial activities, which include lending, investing, insurance underwriting, and capital markets activities, focusing on sectors like fossil fuels, transport, industrial, energy, real estate, and forest, land, and agriculture.
- In line with the SBTi's net-zero targets, financial institutions are obliged to end financing for new fossil fuel projects and oil and gas companies involved in fossil fuel expansion activities by 2030, while increasing financial activities dedicated to retrofitting buildings, decarbonizing existing ones, and stopping financing for new developments that are not zero-carbon ready, to support environmental sustainability.
