The new net-zero standards are calibrated to the most ambitious target of the Paris Agreement
To retain or obtain the certification of the Science-Based Target initiative (SBTi), financial institutions will have to adopt more stringent criteria for their direct emissions (Scope 1) and indirect emissions generated by energy consumption (Scope 2). In fact, the net-zero standard promoted by the most accredited body worldwide changes to set transition paths compatible with climate objectives. With important news also on the fossil finance front.
How does SBTi’s net-zero business standard change?
SBTi has released new requirements for short-term corporate greenhouse gas emissions targets. The most important change concerns the level of ambition. Until now, to obtain certification, financial institutions and companies had to have plans aligned to maintain global warming “well below 2°C”, the highest target set by the Paris Agreement.
The new version of the standard will, however, require adaptation to the target of 1.5°C. This change concerns Scope 1 and 2 emissions. It also changes the time frame within which to achieve these targets: from 5-15 years you go to 5-10 years. As for the Scope 3 emissions, that is those generated upstream and downstream along the value chain, the criterion passes from the alignment with the 2°C to the one with objectives “well below the 2°C“.
These new requirements will enter into force on 30 November 2024. Those who already have the SBTi certification will have to update their plans within 5 years. Those who request it from now until the end of the year can choose whether to use the old or the new version as a reference.
From SBTi a crackdown on fossil finance
On the fossil fuel financing side, SBTi introduces a new set of criteria to obtain the certification of net-zero standards. However, leaving the choice between the new requirements and an updated and more stringent version than those previously in force for financial institutions. The new criteria are differentiated by type of fossil fuel (coal, oil and gas) and introduce requirements on four pillars, which correspond to the objectives of improving disclosure, disincentive new fossil finance, accompanying financial institutions (and fossil companies) in the transition path, and proceed along the gradual abandonment of fossils.
Specifically, financial institutions must commit, through a publicly issued policy, to immediately cease all new financial activities related to fossil projects and companies that fall within the SBTi mesh. For the phase out, the mandatory commitment is to cease all support for coal by 2030 in OECD countries and by 2040 globally.
Financial intermediaries will also have to set short-term targets for the reduction of their portfolio’s emissions in absolute terms and along the entire value chain, aligned at least with a linear reduction factor of 4.2% per year.
“Financial instruments are essential to provide capital and engage companies in the transition to a 1.5°C,” SBTi emphasises, recognising that the impact on emissions of divestment from fossil fuel related activities “is not always clear or consistent”. Therefore, the first and best option for stabilizing the climate system is “a financial investment that uses its influence and actively involves companies to align with the transition to 1.5°C”.
All changes to SBTi net-zero standards are available here.