Net-Zero Group Gives Banks Until 2030 to Cut Off Fossil Fuel Expansion

A new global standard from a leading corporate climate evaluator is directing banks and other financial institutions to cut off funding for fossil fuel expansion by 2030—though the final version softens an earlier draft that demanded an immediate halt.

“Financial institutions play an enabling role in the global net-zero transformation,” writes the Science Based Targets initiative (SBTi) in its new net-zero standard.

“Through investment, loan, and insurance practices, they have the power to influence the direction of the economy and accelerate progress toward a net-zero future.”

SBTi was founded in 2015 to help companies set net-zero targets. It is a collaboration between the Carbon Disclosure Project, the United Nations Global Compact, the World Resources Institute, the World Wide Fund for Nature, and the We Mean Business Coalition. SBTi is considered an influential, though voluntary body, and has been sought out by a wide range of companies like Apple and AstraZeneca to approve their climate change strategies.

The net-zero standard “covers in-scope financial activities—lending, asset owner investing, asset manager investing, insurance underwriting, and capital market activities—that financial institutions worldwide can use to influence real economy actors,” writes SBTi.

To comply, banks, asset managers, and insurance companies must publish a policy to address new fossil fuel expansion-related financial activities. This includes ending financing for firms that are expanding oil and gas projects immediately or by 2030, and immediately ending financing for firms expanding coal projects. Companies must also have an engagement plan to address significant deforestation exposure and set long-term targets that “require counterparties to reach net-zero by 2050 and neutralize their residual emissions where relevant.”

More than 135 financial institutions on six continents have signed up to the new standard, The Digital Banker reports.

Developing the standard took four years. In an earlier draft, SBTi had set the timeline for ending expanding oil and gas financing as immediate, along with coal. But the initiative added five years of wiggle room with “the explicit backing of SBTi’s new chief executive David Kennedy, reports the Financial Times.

In a brief, SBTi says financial institutions would ideally stop financing fossil fuel expansion immediately, but the 2030 cut off is “designed to allow financial institutions to engage with oil and gas companies.”

Connor Chung, a member of an expert group that advised SBTi on the standard and an analyst at the Institute for Energy Economics and Financial Analysis, told Climate Home News that financial institutions “should treat the guidelines as floors, not ceilings,” if they really want to demonstrate seriousness.

Cover photo:  DXR/wikimedia commons