Inside the SBTi’s Financial Institutions Net Zero Standard

For the first time, financial institutions now have a clear, science-based pathway to set net zero targets aligned with global climate goals. 

The Science Based Targets initiative (SBTi) has released its Financial Institutions Net-Zero Standard with hopes to align finance sector activities with a 1.5°C future. 

The new financial standard enables banks, insurers and asset managers to drive real-world decarbonisation by supporting and influencing high-emitting sectors.

Financial climate action

The new net zero standard from SBTi provides actionable guidance tailored to the unique operations of financial institutions. 

It covers a wide range of financial activities like: 

• Lending
• Investment
• Insurance
• Capital markets

Its release fills a gap in global climate efforts, giving financial players guidance to back their climate commitments with science-based targets.

By adopting the Standard, financial institutions can improve climate risk management, respond to investor and regulatory pressures and capitalise on sustainable finance opportunities. 

“Financial Institutions have the ability to play a transformative role in the transition to net zero,” says Alberto Carrillo Pineda, Chief Technical Officer at the SBTi.

“Their influence on the global economy and ability to engage with their portfolios is unparalleled to accelerate the net zero transition. 

“With its broad applicability and flexibility, this robust, science-based Standard will help financial institutions drive the net zero transformation all over the world.”

Key innovations and requirements

The SBTi Financial Institutions Net Zero Standard introduces a series of updates designed to support climate ambition and accountability in the finance sector. 

One of the most significant advancements is the expansion of asset class coverage. 

This ensures the standard is applicable across a wide range of financial services, including banking, investment management, insurance and private equity, allowing institutions to align their entire portfolios with net zero targets.

The Standard also improves expectations around emissions inventories by requiring financial institutions to enhance the quality, transparency and completeness of their reported emissions data. 

This increased rigour aims to help institutions better understand the carbon footprint of their portfolios and inform more effective decarbonisation strategies.

Importantly, the Standard introduces flexibility in how institutions can achieve alignment. 

Rather than focusing solely on pathways for financed emissions, institutions have the option to centre their targets on the net zero alignment of their clients or investors.

This approach recognises the power of financial influence, enabling institutions to support decarbonisation through active engagement and capital reallocation.

In addition, sector-specific guidance is provided to help financial institutions decarbonise the built environment. 

As buildings and construction are responsible for significant emissions globally, this inclusion ensures high-impact sectors are not overlooked.

To address systemic environmental challenges, the Standard sets out requirements related to deforestation. 

Financial institutions must now assess, monitor and disclose deforestation risks within their portfolios, and develop engagement plans to mitigate these risks where they are deemed material. 

The Standard also introduces a fossil fuel transition policy, outlining specific steps and timelines for ending new financial and insurance support for fossil fuel projects. 

“By setting targets against the Standard, financial institutions can strengthen resilience, meet stakeholder expectations, manage climate risks and position themselves as leaders in the global transition to a net zero economy,” the organisation said on LinkedIn.

Built from collaboration

The Standard was developed through two rounds of public consultation, supported by more than 30 pilot institutions and an expert advisory group from academia, civil society and industry. 

It builds on SBTi’s earlier Near-term Criteria and is already generating strong interest with 135 financial institutions across six continents committed to using the Standard to set targets.

To date, more than 8,440 organisations have validated science-based targets and more than 11,090 have targets or commitments to set them.