SBTi sets out fossil fuel financing deadline for investors as oil majors withdraw support
The Science-Based Targets initiative (SBTi) has released an update on its net zero standards for the finance industry, including new rules designed to regulate the extent to which investors can back fossil fuel expansion
The new standards, published on the initiative’s website yesterday, set out the key requirements organisations must meet to receive SBTi endorsement. These standards carry considerable weight in the financial sector, with more than 150 organisations – including asset managers such as Schroders and Amundi, and asset owners such as Varma, AkademikerPension, PensionDanmark, Strathclyde Pension Fund, TfL Pension Fund and Elo Mutual Pension Insurance Company – having sought SBTi approval for their net zero plans.
The updated framework expands asset class coverage, aims to improve transparency of emissions inventories, and offers guidance on decarbonising the built environment.
In addition, the standards attempt to tackle the complex question of how investors should respond to fossil fuel expansion. This is an urgent issue for any investor in oil majors, given that companies including Exxon, Chevron, BP, Shell and Equinor continue to invest in new fossil fuel production.
SBTi’s new mandatory fossil fuel transition policy requires financial institutions to immediately cease all financing for coal expansion and halt all new project financing for oil and gas expansion. However, it permits the phase-out of general-purpose financing for companies involved in oil and gas expansion by no later than 2030.
The move was welcomed by Jessye Waxman, policy adviser for the Sierra Club’s Sustainable Finance campaign: “SBTi’s finalised guidelines clarify what constitutes credible net zero plans for financial institutions. It is encouraging that this new standard makes clear, in no uncertain terms, that financing fossil fuel expansion is fundamentally incompatible with any serious net zero commitment. While there are opportunities to further strengthen this standard, it is an important and necessary step forward for the financial sector. It is imperative that global financial institutions adopt this standard and align their strategies accordingly.”
However, others warn that the 2030 deadline merely delays urgent action: “If they are to avoid a massive carbon lock-in, banks, investors and insurers just cannot wait until 2030 to cut financial services to fossil fuel developers. Reclaim Finance analysis finds that resources from new oil and gas fields planned for approval between 2026 and 2030 would amount to 200 billion barrels – the equivalent of 3.6 times global production in 2023,” warns the NGO Reclaim Finance.
The release of the new standards coincided with a Financial Times report that some of the world’s largest oil majors – including Shell Plc, Aker BP ASA and Enbridge Inc – have withdrawn from the expert advisory group at SBTi, given that fossil fuel phase-out are incompatible with their core business. SBTi has now paused its work on oil and gas standards, the Financial Times reports.
The International Energy Agency IEA has warned for the past four years that no new oil and gas capacity is needed if the world is to meet the decarbonisation targets set out in the Paris Agreement.
With oil majors retracting their support for the standard setting body, a new battleground is now emerging in the financial services industry, with banks, insurers and institutional investors under increasing pressure to stop insuring, underwriting and investing in new fossil fuel production.
