A leading evaluation body for corporate climate targets has told financial institutions they must stop lending to companies that are expanding fossil fuel production if they want to be judged as aligned with limiting global warming to 1.5C.<\/p>\n
This week, the Science Based Targets Initiative (SBTi) launched a net zero standard<\/a> for banks, asset managers and insurance companies, which requires them to end financing for firms that are expanding coal projects immediately and for those expanding oil and gas projects by 2030.<\/p>\n SBTi, a non-governmental organisation funded by<\/a> corporations and philanthropies, said that nearly 135 financial institutions on six continents have signed up to the new standard, which was four years in the making.<\/p>\n Approval by the SBTi boosts companies\u2019 reputations for behaving sustainably and can attract green-minded investors and customers.<\/p>\n Raising the bar for banks<\/p>\n Paul Schreiber is a senior policy analyst at Reclaim Finance and was a member of the expert group that advised SBTi on the standard. He said it sends a \u201cwelcome, clear message that no financial services should be provided to companies developing coal, oil or gas\u201d.<\/p>\n Connor Chung, another member of the expert group and an analyst at the Institute for Energy Economics and Financial Analysis, told Climate Home that the standard \u201craises the bar on net-zero discourse for the financial sector\u201d.<\/p>\n World\u2019s top court opens door to compensation from countries responsible for climate crisis<\/a><\/p>\n \u201cMany financial institutions claim to care about climate-related financial risks \u2013 yet continue to bet on the fossil fuel industry\u2019s future success,\u201d he said, adding that the standard helps \u201cmake clear that fossil fuel expansion is not compatible with transition-readiness\u201d.<\/p>\n Both Chung and Schreiber said they had wanted the standard to say that companies should stop lending for oil and gas expansion now, rather than in 2030 as the final version stipulates.<\/p>\n \u201cFive years of wiggle room\u201d<\/p>\n This grace period \u201cleaves five years of wiggle room\u201d, Chung said. \u201cIf financial institutions really want to demonstrate seriousness, they should treat the guidelines as floors, not ceilings,\u201d he added.<\/p>\n The Financial Times reported<\/a> that an earlier deadline to stop the lending had been included in a draft but was pushed back with the explicit backing of SBTi\u2019s new chief executive David Kennedy.<\/p>\n The published standard says that companies should \u201cideally\u201d end finance to companies expanding oil and gas now but \u201cwith an absolute cut off of 2030, designed to allow financial institutions to engage with oil and gas companies\u201d.<\/p>\n Global goal for clean cooking by 2030 out of Africa\u2019s reach, IEA says<\/a><\/p>\n The SBTi told the Financial Times it had been \u201cstringent\u201d in its processes by including input from the general public, financial institutions, non-profit organisations, academics and industry in trying to develop a \u201ccredible\u201d plan for the sector.<\/p>\n A source with knowledge of the drafting of the standards told Climate Home that less ambitious policies had also been discussed, including allowing lending to companies expanding fossil fuels, as long as this was not \u201cproject finance\u201d specifically for the expansion activities.<\/p>\n Immediate end to fossil fuel project finance<\/p>\n Project finance means providing money to big infrastructure projects \u2013 like a power plant or coal mine \u2013 with the lender expecting to be repaid from the revenue generated by the project.<\/p>\n The 2025 Banking on Climate Chaos report<\/a> estimated that about 6% of fossil fuel deals are funded this way, such as JSW Steel hoping to raise project finance for a steel plant and coal plant in India.<\/p>\n The net zero standard says that companies should immediately stop \u201cproject finance explicitly linked to fossil fuel expansion activities\u201d.<\/p>\n As EU acts to stop greenwash, funds drop climate claims from their names<\/a><\/p>\n As well as restricting fossil fuel finance, the standard encourages companies to increase the share of their portfolios allocated to activities considered \u201cclimate-aligned\u201d and to commit to assess and publish their exposure to deforestation.<\/p>\n It was drawn up with input from representatives of large financial institutions on the expert advisory group<\/a> \u2013 including ING, Bancolombia and UBS \u2013 and has already been tested by companies.<\/p>\n