As many as 55 banks and financial firms including Standard Chartered and Amalgamated Bank have already committed to setting climate targets under the new system
Banks, investors and insurance companies can now draw on a scientifically vetted methodology to set climate targets aligned with the Paris Agreement, as the Science Based Targets initaitive (SBTi) today launches a validation system tailored to financial institutions.
55 such firms have already committed to setting goals under the mechanism, enabling them to ensure climate targets for their operations and portfolios align with the Paris Agreement's goal of keeping global warming to 1.5C or well below 2C. These include Bank J Safra from Switzerland, Standard Chartered from the UK and Amalgamated Bank from the USA, the SBTi said.
Almost one thousand companies from fifty other sectors, from coal to gas to pharmaceuticals, with a cumulative market cap of more than $15tr, have previously pledged to align their decarbonisation plans with the Paris Agreement by adopting the science-based targets. Today's launch means banks and other financial institutions will also be able to join the fray.
The new target validation service was developed by the SBTi, a collaboration between CDP, United Nations Global Compact, World Resources Institute (WRI), and the WWF. To qualify for validation by the SBTi, the Scope 1 and 2 portions of financial institutions' emissions (covering their operations and purchased energy) must be in line with an average annual linear reduction rate of 4.2 per cent for a 1.5C pathway, and 2.5 per cent for a well-below 2C, while their Scope 3 targets (covering their investments and lending portfolios) must meet specific criteria relevant to each asset class, SBTi exlained.
"Today's breakthrough means banks and other financial institutions can better understand and act on the link between their lending and investing activities and real-economy emissions," said Cynthia Cummis, SBTi steering committee member and director at the World Resources Institute. "The SBTi's framework highlights the power of financial institutions to redirect capital to companies contributing to the low-carbon transition, and away from those that contribute to climate change."
The launch comes against the backdrop of a growing awareness amongst financial institutions of the material risks posed by a changing climate, and the critical role that financial institutions can play in redirecting capital to green solutions and technologies. The IPCC has calculated that energy systems investments will have to increase on a scale of roughly $1.6trn to $3.8trn annually between now and mid-century to meet the goals of the Paris Agreement.
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