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First opportunity for financial institutions to align portfolios with climate science

Posted on 01 October 2020

1 October 2020 (London) - The Science Based Targets initiative (SBTi), of which WWF is a partner, today debuts a long-awaited climate-science aligned framework and validation service for financial institutions. 

No such target framework was available for banks or other financial institutions - until now.

Nearly 1,000 companies in 50 sectors, with a cumulative market capitalization of USD$15.4 trillion, have already committed to science-based greenhouse gas reduction targets through the SBTi. Among them are 55 financial corporations that will now work with the SBTi to validate their targets against current climate science. 

There is a growing awareness amongst financial institutions of the material risks posed by a changing climate, and the role to be played in redirecting capital to green solutions and technologies to achieve net-zero emissions by 2050. The IPCC predicts that energy systems investments must increase on a scale of roughly US$1.6 trillion to US$3.8 trillion annually between now and 2050 if the world is to achieve the Paris Agreement goal of keeping global warming to 1.5°C.

The new target validation service was developed by the SBTi, a partnership between CDP, the UN Global Impact, World Resources Institute (WRI) and World Wide Fund for Nature (WWF). It emphasizes the vital role of engagement with underlying assets to encourage companies to reduce their emissions and ignite climate action. 

The framework makes use of a new expert-reviewed and open-source target assessment methodology developed by WWF and CDP, which allows for corporate commitments to be translated into long-term temperature outcomes.

“The finance sector has a critical role to play in achieving a net-zero future by 2050,” said Margaret Kuhlow, Global Finance Practice Leader at WWF, one of the SBTi partners. “This framework provides financial institutions with much-needed clarity about whether their portfolios are truly in line with the level of climate action our planet urgently needs. It also allows them to capitalize on the many economic opportunities available and minimize their exposure to climate risks.”

“To achieve net-zero by no later than 2050, we need investors and insurers to take responsibility for the role that financial markets must play in driving the transition,” said Alexander Farsan, global lead for Science Based Targets at WWF. “We urge them to use this framework to align their investment and lending portfolios with emissions trajectories that will limit global warming to 1.5°C.”

Cynthia Cummis, Director at World Resources Institute, one of the SBTi partners, said “Today’s breakthrough means banks and other financial institutions can better understand and act on the link between their lending and investing activities and real-economy emissions. 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.”

The SBTi invites financial institutions to submit targets for validation. The first submissions from 20 financial institutions will be assessed free of charge during a pilot phase of the target validation service. Learnings from these target assessments will inform updates to the framework in April 2021.

To qualify for validation by the SBTi, the Scope 1 and 2 portions of financial institutions’ emissions (covering their operations and purchased energy) must be in line with an average annual linear reduction rate of 4.2% for a 1.5°C pathway and 2.5% for a well-below 2°C, and their Scope 3 targets (covering their investments and lending portfolios) must meet specific criteria relevant to each asset class. 

For more information, please contact: Mandy Jean Woods,
Banks, investors and insurance companies can align their lending and investment activities with climate science and the Paris Agreement.
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