Sustainable investment

Science-based targets for banks – towards harmonized guidelines in 2024?

20 February 2024

By Armand SATCHIAN, ESG Analyst, La Française AM

In November 2023, a report published by Reuters  announced that the commitments to set science-based targets of several European banks were removed from the Science-Based Target Initiative (SBTi)  website. According to the report, this was the result of decisions by the banks to withdraw their commitment following SBTi’s June 2023 publications . However, in the absence of an official communication from the stakeholders, the exact rationale behind the deletion of the banks’ names from the website remains unclear.

This development puts the emphasis on the challenges faced by the banking industry to agree on harmonized guidelines, including precise criteria, in order to align their activities with ambitious science-based targets. Year after year, the number of banks that commit to support a net zero economy is growing. For example, the Net Zero Banking Alliance (NZBA)  gathers 141 members as of January 2024 (vs. 29 members when it was launched almost three years ago ). Thus, such guidelines are becoming even more essential to support the banking industry’s transition from commitment to action (e.g., setting ambitious science-based targets with an appropriate coverage, develop appropriate exclusion policies)
Too many cooks spoiling the broth?

Several initiatives provide guidelines for climate target setting specifically for banks, such as the Institutional Investors Group on Climate Change (IIGCC) Net Zero Standard for Banks , the NZBA Guidelines for Climate Target Setting for Banks , SBTi Financial Institutions Net Zero Standard Draft, ACT Finance draft , etc. As an asset management firm, we acknowledge that the initiatives play distinct roles but their lack of alignment on key topics, such as the criteria defining the concept of science-based targets in line with a net zero pathway, is concerning. 

A concrete example of that misalignment is the status of fossil fuel criteria, which are explicitly mentioned in the SBTi Net Zero Draft Standard but not in the NZBA guidelines. The latter suffered criticisms from both external and internal stakeholders claiming that its approach to fossil fuel financing was too lenient, and members left the initiative or warned that they would leave without stricter rules on the topic . 

While a variety of initiatives to set and assess climate transition plans (and associated science-based targets) might be beneficial, the lack of harmonization on key requirements could favour more flexible initiatives, when the climate emergency requires just the opposite. A closer look at the top 60 fossil fuel financiers  reveals that as of January 2024, c. 70% are members of the NZBA, while less than 20% commit to the SBTi or have established SBTi validated targets,. 

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