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What corporate finance teams should know about SBTi’s new financial sector guidance

Updates for banks and other institutions setting science-based targets for emissions reductions take effect Nov. 30.

New rules illustration

Image via Shutterstock/Divain

The Science Based Targets initiative will requires banks and other financial institutions setting science-based targets for emissions reductions to phase out most coal-related activities by 2030 and publicly declare when they’ll stop financing companies and projects that don’t align with the Paris Agreement goal to hold global temperature increases under 1.5 degrees Celsius.

The update, effective Nov. 30, also sets a shorter timeframe for delivering on near-term emissions reduction targets: Companies must now meet them in five to 10 years.

The sectoral changes align with the current version of the SBTi Corporate Net Zero Standard, although that framework is being overhauled with a major revision set to take effect in 2025.

The financial sector update also: 

  • Requires targets be recalculated every five years to remain valid.
  • Mandates that targets cover at least 67 percent of a financial institutional portfolio.
  • Establishes new criteria setting targets to disclose, halt, transition and phaseout of activity in the fossil fuel sector. 

What this means for corporate finance teams

Large corporations can expect SBTi’s updated criteria for financial institutions to increase pressure from investors, lenders and insurers to set, disclose and deliver on credible emissions reduction targets. 

Meeting those expectations will require thorough and accurate tracking of corporate greenhouse gas emissions. That presents an opportunity for more collaboration and knowledge-sharing between finance and sustainability teams.

CFOs should engage their sustainability colleagues to align corporate climate transition plans, emissions and other sustainability strategies with those of the financial partners they use to access capital markets. The goal: to ensure sustainability is more seamlessly built into financial strategy.

[Learn how companies are implementing climate transition action plans at GreenFin 24 (June 17-19, NYC), the premier event for sustainable finance professionals.]

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