Financial institutions representing a combined asset management portfolio of $130trn have signed up to an ambitious plan that envisages “reaching a state of net zero” by 2050 using a ‘science-based targets’ standard developed by the eponymous Science Based Target initiative (SBTi).

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The Net-Zero Foundations for Financial Institutions document, launched by the SBTi – a partnership between the environmental advocacy organisation CDP, the UN Global Compact, World Resources Institute and the World Wide Fund for Nature – at the COP26 climate conference in Glasgow, Scotland, is designed to spur financial institutions to use their “unique ability and influence to finance effective climate transition activities in the real economy”.

“Financial institutions have started to focus on net-zero as the guiding principle for their climate mitigation ambition. However, the lack of consistent principles, definitions, metrics, and evidence of effective strategies to meet net-zero targets limits the ability of financial institutions to support the reduction of emissions in the real economy that is needed to stabilize temperatures at 1.5°C above pre-industrial levels,” said the SBTi.

The SBTi highlighted that while the financial sector did not “exercise direct control over any major sources of [greenhouse gas] emissions reductions”, it did have a “unique influence over other actors in that [it] provides capital and services to companies with responsibility for reducing their GHG emissions” and so was “critical” to driving Paris Agreement-aligned systemic decarbonisation of the worldwide industrial base.

The body, which has cross-sectoral membership of 2,100, 22% of which are Global Fortune 500 companies, said while research has pointed to 77% of worldwide emissions and 80% of global gross domestic product being “covered by net-zero commitments”, corporations were using “a combination of different strategies to decarbonise their portfolios and invest in new climate solutions” but without a shared baseline against which to “compare goals and to evaluate whether the actions being taken are sufficient to achieve a global net-zero economy by 2050”.

The Net-Zero Foundations for Financial Institutions, standard, which is backed by organisations including the Bank of New York Mellon, Dutch Platform Carbon Accounting Financials, Caisse de Dépôt et Placement du Québec, Bloomberg Philanthropies and William & Flora Hewlett Foundation, said the SBTi, would “ensure consistency, [by establishing] a common understanding is needed to navigate today’s varied net-zero target setting landscape”.

So as to produce a “relevant, actionable, and robust” final document, the SBTi noted the review process will encompass financial institutions, NGOs, government officials, along with other stakeholders.

“The ensuing net-zero standard development process will generate actionable criteria, detailed guidance, and technical resources to support financial institutions with the formulation and implementation of science-based net-zero targets,” said the SBTi, which is funded by the Ikea Foundation, Amazon, the Bezos Earth Fund, We Means Business, the Rockefeller Brothers Fund and the UPS Foundation.

The Net-Zero Foundations for Financial Institutions standard is to be finalised early in 2023, said the SBTi, which noted it was currently evaluating “the extent to which fossil-fuel requirements should be made explicit as part of any science-based net-zero target” as part of a global decarbonisation framework.