SBTi Unveils New Climate Standard for Finance Firms

In a landmark development for the finance industry, the Science Based Targets initiative (SBTi) has introduced the Financial Institutions Net-Zero Standard, marking the first time that banks, asset managers, insurers, and other financial entities can formally commit to science-based net-zero targets. This framework is a significant turning point, offering a structured and scientifically grounded approach for financial institutions to align their operations with the global goal of limiting warming to 1.5°C and achieving net-zero emissions by no later than 2050.

A Clear Roadmap for Climate-Aligned Finance

The Net-Zero Standard delivers comprehensive and actionable guidance that empowers financial institutions to transform their core functions, lending, investing, insuring, and capital allocation—toward supporting a low-carbon economy. With this framework, institutions now have a scientifically validated pathway to not only mitigate climate risks but also seize emerging opportunities in green finance. It offers a forward-looking toolset to align business models with evolving stakeholder expectations and regulatory trends, enhancing both resilience and competitiveness in a rapidly decarbonizing global economy.

Catalyzing Portfolio-Wide Transformation

One of the most impactful aspects of the Standard is its emphasis on portfolio alignment. Financial institutions are not just expected to clean up their own house; they are now empowered to serve as levers of transformation across entire value chains. By incentivizing alignment targets, the Standard encourages institutions to actively engage with high-emitting sectors, guide clients toward sustainable practices, and increase the volume of climate-aligned financial activity. This catalytic approach supports meaningful real-world emissions reductions, extending the influence of financial institutions far beyond their direct operations.

Integration with Global and Sectoral Frameworks

The Financial Institutions Net-Zero Standard is not a standalone effort; it has been carefully aligned with the broader SBTi Corporate Net-Zero Standard as well as existing sector-specific guidance. This ensures seamless integration into current risk management and investment frameworks, allowing institutions to embed climate goals into decision-making processes without reinventing internal structures. Such compatibility is crucial in promoting widespread adoption across a fragmented and highly specialized financial landscape.

Innovations Enhancing Applicability and Transparency

A number of key innovations distinguish this Standard from earlier frameworks. It significantly expands coverage across asset classes, making it relevant to a broader spectrum of financial institutions. Additionally, it elevates the quality and transparency of emissions reporting, a foundational step toward accountability. Recognizing the complexity of calculating financed emissions, the Standard also introduces flexibility: institutions can choose to align their portfolios by focusing on the net-zero commitments of their clients, rather than solely measuring and reducing financed emissions themselves. New guidance on decarbonizing the built environment further extends its relevance, especially for real estate and infrastructure-heavy portfolios.

Tackling Climate Challenges at the Core

The Standard does not shy away from hard problems. It directly addresses some of the most emissions-intensive and environmentally sensitive activities within finance. This includes stringent expectations for identifying and mitigating deforestation risks, requiring institutions to monitor and disclose deforestation exposure and implement targeted engagement strategies. A robust fossil fuel transition policy further reinforces the Standard’s credibility, setting concrete expectations for phasing out new financial and insurance services to the fossil fuel industry. These measures represent a shift from symbolic climate commitments to enforceable action.

A Collaborative and Tested Foundation

What lends further weight to the Standard is the extensive process behind its development. It reflects deep collaboration with the finance industry, shaped through two rounds of public consultation and pilot testing by over 30 global financial institutions. Expert feedback from academia, civil society, and industry specialists was instrumental in refining its approach. This collaborative foundation has already translated into strong market interest: nearly 135 financial institutions spanning six continents have pledged to adopt the Standard, signalling a global movement toward climate-conscious finance.

Positioning Finance at the Heart of the Net-Zero Transition

This new Standard elevates the role of financial institutions from passive enablers to active architects of a net-zero economy. By providing the tools, clarity, and scientific legitimacy required for credible climate action, it enables the financial sector to steer capital flows in ways that fundamentally reshape global emissions trajectories. As the world intensifies its efforts to combat climate change, this Standard represents a pivotal moment where finance moves decisively from intention to execution.

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