Science Based Target initiative dumps science with massive fossil finance loopholes

Paris, 7 December 2023 – In a shocking twist, the Science Based Target initiative (SBTi) has weakened its pilot standard for setting “net-zero” targets in the financial sector to enable banks, investors, and insurers to continue to support fossil fuel development. The criteria set by the organization in the pilot version of its net-zero standard for financial institutions could leave 96% of the financing for oil and gas and up to half of the companies developing new coal projects untouched. Reclaim Finance says keeping such criteria would mean giving up on any “science-based” ambition and urges the SBTi to ensure no financial institutions can be validated while supporting coal, oil and gas development.

Since April 2022, the Science-based target initiative (SBTi) has been working on developing “the world’s first Standard for science-based net-zero targets” in the financial sector. This standard is intended to “enable financial institutions to set net-zero targets that are consistent with achieving a net-zero world by 2050”.

Early on in this development process, the SBTi recognized the need to limit financial services provided to fossil fuel companies and projects to validate net-zero targets from banks, investors, and insurers (1). Then, the SBTi proposed draft criteria that notably banned support for new fossil fuel projects and the companies that develop them in a paper submitted for consultation in June 2023 (2). But, following pressure from major banks like Standard Chartered and Société Générale (3), the last version of these criteria (4) has been drastically weakened.

It is quite shocking to see the Science-based target initiative cave in to pressure from financial institutions. By going back on their decision to get their decarbonization targets validated by the initiative, banks recently signaled they would do anything to avoid binding criteria that would force them to restrict their support to fossil fuel companies. But the fact that powerful financial institutions are unfaithful to their own climate commitments should not have driven the SBTi to give up on the mountain of scientific evidence (5) that underpins the need to immediately end fossil fuel development. Without a swift review, the standard can no longer claim to be “science-based”.

Paul Schreiber, Senior Policy Advisor at Reclaim Finance and member of the Technical Advisory Group (TAG) of the SBTi and of the Technical Expert Group (TEG) working on the framework for financial institutions

The most recent version of the oil and gas criteria applies to financial services directly granted to projects, therefore allowing financial institutions to keep supporting oil and gas expansion through corporate finance (6). Data from the Banking On Climate Chaos report (7) shows project-specific finance only accounts for on average 4% of total finance to fossil fuels annually.

In the same text, fossil fuel companies are no longer defined as companies deriving at least 5% of their revenue from fossil fuels. Financial institutions can choose between two definitions for coal companies (8). They are either defined as companies listed on the Global Coal Exit List (GCEL) that covers most of the sector, or as companies that derive more than 10% of their revenue from coal, which leaves out a significant part of the industry. Of the 577 coal companies that develop new projects listed on the GCEL 2023, up to 284 (49%) could remain out of the SBTi criteria (9).

Small changes have dramatic consequences. By removing its requirement to end financial services to oil and gas developers and by raising the revenue threshold used to define coal companies, the SBTi lets so-called “net-zero” financial institutions continue to provide 96% the financing to oil and gas and support up to half of all coal developers. If the SBTi does not walk back on these changes, its validation will be nothing more than another greenwashing stamp that protects climate-wrecking business as usual by the financial sector.

Reclaim Finance urges the SBTi to review its fossil fuel criteria to ensure both project and corporate financial services for companies developing oil and gas are covered and all coal developers are excluded from any support (10).

Contacts:

Helen Burley, international media, helen@reclaimfinance.org, +44 7703 731923.
Paul Shreiber, Campagner at Reclaim Finance, paul@reclaimfinance.org, +33 6 89 02 07 88

Notes:

The SBTi Net-Zero Foundations Paper published in April 2022 laid out a “disclosure”, “transition” and “phase-out” approach to fossil fuel financing. The « transition » side of this approach notably entailed to: (i) “Engage with fossil fuel companies to adopt net-zero targets and action plans”; (ii) “End financing of any and all new fossil fuel exploration and production”; (iii) “Divest if companies are unable or unwilling to transition in line with net-zero pathways”.
The SBTi Fossil Fuel Finance Position Paper submitted for consultation in June 2023 stated that financial institutions shall implement the immediate cessation of:
1. “New financial flows to the coal value chain for both companies and projects, with the exception of new financing for permanent decommissioning of production activities and capacity.”
2. “New financial flows to all unabated oil and gas value chain-associated activities at the project level; plus, new financial flows provided to companies that are involved in expanding production and/or adding capacity to any applicable oil and gas value chain associated activities.”
In November 2023, Standard Chartered, HSBC, Société Générale and ABN AMRO abandoned their commitment to get their decarbonization targets validated by the SBTi. The banks highlighted their membership to the Net-Zero Banking Alliance (NZBA), painting it as an alternative to SBTi validation. However, the SBTi and the NZBA are widely different initiatives, with the SBTi being the only one to set mandatory requirements:
1. NZBA is an alliance of banks that commit to reach carbon neutrality. Beyond this commitment, the alliance has set some general guidance on target setting and demands banks progressively adopt targets. However, the recommendations contained in the guidance are not mandatory. Following the NZBA’s guidance merely means adopting some targets, with no guarantees on quality and relevance. Furthermore, this guidance does not tackle the issue of fossil fuel financing.
2. SBTi is a target validation mechanism. Namely, the decarbonization targets submitted by companies are reviewed considering mandatory criteria that deal with their ambition and completeness.
The last version of the fossil fuel criteria for financial institutions is published in a pilot version of Near-Term Criteria and Recommendations for Financial Institutions that will be used to test the standard with financial institutions (see page 20 to 25).
A vast body of scientific research now shows the need to immediately end fossil fuel development. The recently published UN Production Gap Report 2023 provides a clear vision of the rationale behind this essential demand.
The SBTi also introduced the notion of “long-lead time” projects for oil and gas. For upstream oil and gas, it enables financial institutions to continue to provide financial services to projects that would extend current fields and to shale oil and gas projects. For midstream projects, financial institutions can still support pipelines or terminals linked to a gas network or those not directly linked to a field. The SBTi notes that “long-lead time” projects cannot be supported more than five years after the date of target submission.
The Banking On Climate Chaos report is published annually by a consortium of NGOs and tracks the financing of coal, oil and gas by major banks since the Paris Agreement. The report is the leading source worldwide on the issue, notably cited by the IPCC.
For oil and gas, oil and gas companies are now defined as those listed on the Global Oil and Gas Exit List (GOGEL) or that derive more than 30% of their revenue from the oil and gas value chain. Here, the value chain includes upstream, midstream and downstream activities. Concretely, major oil and gas companies are therefore still above the 30% revenue threshold defined.
Reclaim Finance’s analysis of the 577 coal developers listed on the GCEL 2023 shows that 49% of them could remain out of the scope of the proposed coal development exclusion:
1. 26 developers are only developing coal infrastructures – but no mines or power plants – and therefore are not covered by the SBTi criterium.
2. 77 developers are coal mine/plant developers under the 10% revenue threshold and therefore are not covered.
3. For 181 developers, we do not have precise data on their revenues. Without such data they will likely also remain out of scope if financial institutions choose to use the revenue threshold to define coal companies.
To ensure all coal developers are excluded from financial services, the SBTi should force financial institutions to end all financial services to developers listed on the GCEL (no matter their share of revenue coming from coal activities). Additionally, it could significantly reduce the revenue threshold, for example to 1% as in the French Greenfin label.