- Investor Watch -
Science-based targets framework launched for financial sector
Published October 14, 2020
The Science Based Targets initiative has launched a new framework to enable the financial sector to set science-based targets and ensure their activities are aligned with climate science and the Paris Agreement.
The new framework, which was developed by the SBTi in collaboration with CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF), is already employed by 55 financial institutions.
“The finance sector now can, and must, build the bridge to a net-zero emissions economy and enable system-wide improvements based on climate science. The SBTi’s framework highlights the power of financial institutions to redirect capital to companies contributing to the low-carbon transition, and away from those that contribute to climate change,” said Cynthia Cummis, SBTi Steering Committee member and Director at World Resources Institute, one of the SBTi partners.
SBTi’s framework addresses the fact that financial institutions don’t have direct control over GHG emissions reductions, but rather they finance and support other actors. The framework is especially tailored to help these institutions set science-based targets and address climate change.
Emphasis is placed on target setting on investment and lending activities, which have the largest impact in this sector on climate change. To enable this, the SBTi has created three methods for an asset class-specific approach:
- Sectoral Decarbonization Approach (SDA): Emissions-based physical intensity targets are set for real estate and mortgage–related investments and loans, as well as for the power generation, cement, pulp and paper, transport, iron and steel, and buildings sectors within corporate instruments.
- SBTi Portfolio Coverage Approach: Engagement targets are set by financial institutions to have a portion of their investees set their own SBTi-approved science-based targets such that the financial institution is on a linear path to 100 percent portfolio coverage by 2040.
- The Temperature Rating Approach: Financial institutions can use this approach to determine the current temperature rating of their portfolios and take actions to align their portfolios to ambitious long-term temperature goals by engaging with portfolio companies to set ambitious targets.
From 1 October, financial institutions are invited to submit targets for validation, with the first 20 submissions assessed at no cost and with the learnings from the target assessments to inform updates to the framework in April 2021. Additionally, the methods the SBTi has emphasized that the three methods that have been put forth are always welcome for review and may be updated if and as needed.
For a more thorough look at all that encompasses this new framework, you can check out the guidance document produced by the SBTi.
