Finacial Sector Netzero

The financial sector is increasingly recognizing its role in achieving global net-zero emissions goals. Many institutions are setting ambitious targets and adopting frameworks to align their lending and investment portfolios with a net-zero future by 2050 .  

Here are some key initiatives and goals in the financial sector:

 Science-Based Targets initiative (SBTi): The SBTi is developing a global standard for financial institutions to set science-based net-zero targets . This standard aims to provide clarity on key concepts and criteria for achieving net-zero emissions across portfolios by 2050.  

SBTi Net-Zero Standard for Financial Institutions

The Science Based Targets initiative (SBTi) is developing a Financial Institutions Net-Zero (FINZ) standard to provide a framework for financial institutions to set science-based net-zero targets. This standard aims to enable financial institutions to set emission reduction targets consistent with achieving net-zero emissions across their investment and lending portfolios by 2050.  

Key requirements of the SBTi net-zero standard for financial institutions include:

• Setting near-term and long-term targets: Financial institutions must set both near-term targets to halve emissions before 2030 and long-term targets to cut over 90% of emissions before 2050.  

• Covering all material emissions: Targets must encompass all significant emission sources across the institution's value chain, including financed emissions.  

• Prioritizing high-emitting sectors: Special attention should be given to emission-intensive sectors, particularly fossil fuels, due to their significant role in the energy transition.  

• Aligning with 1.5°C pathway: Targets must be aligned with a no/low overshoot 1.5°C pathway, as defined by credible science-based climate scenarios.  

• Transparent disclosure and reporting: Institutions need to disclose their financial exposure to fossil fuel-related activities and report on their progress toward net-zero goals.  

Net-Zero Banking Alliance (NZBA): Led by banks and convened by the UN, the NZBA comprises leading banks committed to aligning their lending and investment activities with net-zero emissions by 2050. They provide a framework, guidance, and peer learning opportunities to support members in setting and achieving these targets.  NZBA is the climate accelerator for UNEP FI’s Principles for Responsible Banking (PRB) and the sector-specific alliance for banks under the Glasgow Financial Alliance for Net Zero (GFANZ). 

NZBA Guidance on Reporting

The Net-Zero Banking Alliance (NZBA) provides guidance on reporting financed emissions to support its members in achieving their net-zero commitments. Key requirements of the NZBA reporting guidance include:  

• Emissions coverage: Reporting should cover a significant majority of the bank's Scope 3 emissions, including those from carbon-intensive sectors such as agriculture, aluminum, cement, coal, commercial and residential real estate, iron and steel, oil and gas, power generation, and transport.  

• Setting 2030 and 2050 targets: Banks are required to set 2030 (or sooner) and 2050 net-zero targets aligned with no/low-overshoot 1.5°C transition pathways.  

• Prioritizing key sectors: Initial targets should prioritize sectors with the largest contribution to financed emissions.  

• Baseline and annual reporting: Banks need to establish an emissions baseline and annually measure and report their financed emissions, including those from capital market activities.  

• Transparency and disclosure: Reporting should be transparent and aligned with relevant international and national greenhouse gas (GHG) emissions reporting protocols and guidelines.  

 NZAOA Target-Setting Protocol (TSP)

The NZAOA Target-Setting Protocol (TSP) is a methodology developed by the UN-convened Net-Zero Asset Owner Alliance (NZAOA) to guide its members in setting intermediate climate targets for their investment portfolios. The TSP aims to ensure that these targets align with the Alliance's commitment to achieving net-zero greenhouse gas emissions by 2050.  

Key features of the TSP include:

• Portfolio coverage: It covers Scope 1, 2, and 3 emissions, including financed emissions, requiring investors to set decarbonization targets across their entire investment portfolio.  

• Interim and intermediate targets: Investors must set interim targets for 2025 upon joining and then establish intermediate targets every five years, leading to net-zero emissions by 2050.  

• Sector-specific targets: The TSP provides guidance on setting sector-specific targets, recognizing the unique decarbonization pathways of different industries.  

• Alignment with the Paris Agreement: The targets set under the TSP must align with the goals of the Paris Agreement, limiting global warming to 1.5°C.  

• Annual revisions: The TSP undergoes annual revisions to incorporate the latest scientific knowledge and best practices in climate target setting.  

The NZAOA has collaborated with other initiatives, such as the PRI, to ensure harmonization and consistency in reporting requirements. The TSP has undergone several revisions to improve its methodologies and address emerging challenges in achieving net-zero investment portfolios.

The NetZero path for Banks depends on a robust plan that includes the sectoral pathways of the Portfolio companies and their commitment towards Netzero. This is achieved by setting industry-specific targets based on the sectoral pathways while extending transition finance. A series of Sectoral guidelines have been published by NZBA and GFANZ

Experts at Sustina Eco advisors who are well versed in  NZBA,GFANZ, and NZAOA recommendations can guide you towards achieving the Netzero Goals.