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SBTi ‘caves in to pressure’ from banks over net zero standards, says Reclaim Finance

Mobile offshore oil rig platforms
Reclaim Finance has criticised the weakening of a threshold used to define fossil fuel companies (Photo: Jason Alden/Bloomberg)

The Science-Based Targets initiative published pilot fossil fuel recommendations for financial companies in November

New guidelines on how financial companies should set environmental targets have been criticised by non-profit Reclaim Finance because they would allow for the financing of projects responsible for prolonging the lifespan of existing oil and gasfields.

The Science Based Targets initiative released a pilot version of its “near-term criteria and recommendations for financial institutions” in November, with a group of companies testing it before a final version is published. Insurers, banks and investors must meet the criteria within the guidance in order to have their targets validated by the SBTi. 

The guidance includes criteria for the setting of greenhouse gas emissions targets and objectives for fossil fuel financing. A consultation paper published earlier this year stated the SBTi’s expectation that companies would cease providing “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”.

The paper also demanded an end to “new financial flows to all unabated oil and gas value chain-associated activities at the project level”, as well as stopping “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”.

However, the pilot standard introduces a “long-lead time” concept to its conditions for oil and gas, which is capped at five years after the institution submits its target for validation to the SBTi. This requires financial institutions to cease financing for new “long-lead time upstream oil and gas projects and mid-stream infrastructure dedicated to new long-lead time upstream oil and gas projects”. 

Reclaim Finance said the measure will allow financial institutions to continue providing finance to projects within the five-year timeframe. Midstream projects, meanwhile, can continue to be backed by financial institutions, which will remain able to finance pipelines or terminals connected to a gas network, it said.

The non-profit alleges that changes to the standards took place in response to the exit of banks, including Standard Chartered and Société Générale, from the SBTi. The banks quit the initiative because they felt that the rules were too difficult to meet, according to a November Reuters report.

A Standard Chartered spokesperson said: “The latest proposal for financial institutions from the Science Based Targets initiative 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.”

A Société Générale spokesperson said: “In January 2023, Société Générale clarified with SBTi that it would focus on its Net Zero Banking Alliance commitment, whilst actively following the developments of the SBTi methodology.” The NZBA is a UN-convened alliance of banks that aims to support members in setting net zero targets.

“SBTi continues its work on target setting methodology for financial institutions and has recently called for financial institutions to test their updated guidance,” the Société Générale spokesperson added, confirming that “the bank will join this work”.

‘Avoid binding criteria’

“It is quite shocking to see the Science Based Targets initiative cave in to pressure from financial institutions,” said Reclaim Finance senior policy adviser Paul Schreiber in a statement. “By going back on their decision to get their decarbonisation targets validated by the initiative, banks recently signalled they would do anything to avoid binding criteria that would force them to restrict their support to fossil fuel companies.”

Schreiber — who is also a member of the SBTi’s technical advisory group — said that at Reclaim Finance, “we know that there was intense lobbying by banks”, though there was not any evidence of which individual lenders might have made the case for weaker rules, he added.

Reclaim Finance also hit out at the weakening of a threshold used to define fossil fuel companies. While the SBTi’s consultation document considered companies that derived at least 5 per cent of their turnover from fossil fuels to be fossil fuel businesses, this threshold has been relaxed.

For example, institutions can now pick from two definitions for coal companies: companies that generate greater than 10 per cent of their revenue from coal, or those that are listed on the Global Coal Exit List, a list of more than 1,400 companies created by non-profit Urgewald aimed at helping institutions divest from coal. 

Oil and gas companies, meanwhile, can be defined either as those listed on the Global Oil and Gas Exit List, or businesses with at least 30 per cent of revenue from oil and gas.

An SBTi spokesperson said that Reclaim Finance’s accusations are inaccurate as that the released criteria is stronger than previous versions, and that it was not influenced by banks’ pressure. The spokesperson added: “It’s also important to clarify that the criteria released for pilot testing relates only to our near-term guidance” and not its broader “financial institutions net-zero standard, which is also in development”.

This article was amended after publication to include SBTi’s comments.

A service from the Financial Times