Several major banks, including HSBC and Standard Chartered, have chosen to exit the process of seeking Science Based Targets initiative (SBTi) validation of their climate targets, ESG Today has confirmed, ahead of the anticipated launch by the organization of a new standard to assess financial institutions’ net zero goals, with criteria including strict limitations on fossil fuel financing.

Additional banks exiting the SBTi validation process include Societe Generale and ABN AMRO, according to media reports.

Founded in 2015, SBTi was formed as a collaboration between CDP, World Resources Institute (WRI), the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC), with the goal to establish science-based environmental target setting as a standard corporate practice. The organizations’ key functions include defining and promoting best practice in emissions reductions and net-zero targets in line with climate science, providing technical assistance to companies who set science-based targets, and providing companies with independent assessment and validation of their emissions reduction targets.

In 2022, SBTi launched a process to establish standards for setting and assessing financial institutions’ net zero goals, and in June 2023, the organization published an exposure draft of the new standard, which contain a series of fossil fuel financing restrictions, including ending new financial flows to any part of the coal value chain, or to new unabated oil projects, as well as to coal companies or to companies planning new unabated capacity additions across the oil value chain.

While a report from Reuters said that the banks’ decisions were based on “concerns it could hinder their ability to continue financing fossil fuels,” in statements provided by the companies, some banks indicated that the SBTi requirements would interfere with their ability to engage and service companies through their climate transitions, particularly those clients in less developed markets that are currently dependent on fossil fuel for their energy needs.

In a statement provided by Standard Chartered, for example, the bank said that its net zero approach “seeks to support a just transition that encourages the economic and social development of our dynamic market footprint.”

The bank added:

“This is particularly important as the majority of our 52 markets do not have national net zero commitments, or have targets that run beyond 2050. As such, our activity focuses on ambition and engagement that accelerates the transition in the sectors and markets where change is needed most, and where the impact of climate change is often most acute.

“The latest proposal for Financial Institutions from the Science Based Targets initiative (SBTi) lacks sector guidance that adequately considers the transition of our clients and markets. As such, we have chosen not to seek SBTi validation for our targets and have instead pursued alternative third-party assurance.”

Notably, each of the banks are signatories to the Net Zero Banking Alliance (NZBA), a UN-convened coalition of banks dedicated to advancing global net zero goals through their financing activities. Members of the NZBA commit to transitioning operational and attributable greenhouse gas (GHG) emissions from their lending and investment portfolios to align with net zero pathways by 2050, and to set 2030 financed emissions targets, initially focused on key emissions intensive sectors.

Societe Generale, for example, announced a target earlier this week to reduce exposure to the upstream oil and gas sector by 80% by 2030, and HSBC announced last year that it would no longer provide financing for new oil and gas projects or for new metallurgical coal mines. In a statement provided by HSBC, the bank said that it is “working to set financed emissions targets across our portfolio in line with NZBA guidance.”

In a statement provided by the SBTi, the organization said that it received hundreds of responses to its June 2023 exposure standard, leading it to release a pilot version of near term criteria and recommendations for financial institutions and incorporating “draft Fossil Fuel Finance Position Paper criteria, which offers additional options for FIs to complement those already available to them.” The statement also said that the finalized criteria “will also remove some common barriers to the adoption of science-based targets by FIs.”

The SBTi statement added:

“We cannot limit global warming to 1.5°C and mitigate the risks of climate breakdown without reducing our dependence on fossil fuels. FIs have a critical role to play in the decarbonization of the global economy. It is critical for FIs to leverage their influence on the companies they invest in and to align incentives to catalyze emission reductions in the real economy.”