SBTi Publishes Key Term Definitions for Financial Institutions Net-Zero Standard

The Science Based Targets initiative has released a glossary of key terms for the Financial Institutions Net-Zero Standard, providing clarity on concepts including clean energy exposure, fossil fuel exposure, climate alignment categories and the fossil fuel transition policy requirement. More than 130 financial institutions have already committed to set net-zero targets using the standard.

The Financial Institutions Net-Zero Standard requires institutions to calculate their clean energy exposure — defined as money invested, lent, or underwritten in solar, wind, hydropower, nuclear, geothermal, bioenergy from biowaste, and qualifying renewable hydrogen — and compare it to fossil fuel exposure as a ratio in the base year. The standard covers five categories of financial activity: lending, asset owner investing, asset manager investing, insurance underwriting, and capital market activities. Entities generating 5% or more of revenues from any of these activities are required to use the standard for net-zero target setting.

The standard classifies counterparties into three climate alignment categories: in transition (on a science-based pathway), climate solution (at least 90% of revenues aligned to eligible low-carbon taxonomy categories), and net-zero state. Fossil fuel exposure encompasses companies listed on the Global Coal Exit List or Global Oil and Gas Exit List, as well as any company or project deriving 10% or more of revenues from coal, oil or gas value chains. A mandatory fossil fuel transition policy requires institutions to cease providing new finance or insurance for new coal expansion, new upstream oil and gas projects, and new general-purpose finance for oil and gas expansion after 2030.

Two target-setting methods are available under the standard. The Sector Alignment Approach uses technology share metrics to measure progress toward a sector benchmark, requiring alignment with a specified 1.5°C-compatible technology share by the target year. The Portfolio Intensity Convergence method generates a portfolio-level emissions intensity reduction pathway from base year to net-zero by 2050, functioning similarly to the SBTi's Sectoral Decarbonisation Approach but removing the market share factor to require less input data. Indian financial institutions with exposure to coal, oil and gas sector lending should note the deforestation exposure assessment and disclosure requirement, due by 2030.

Key figure — 10% revenue threshold from fossil fuel activities triggers inclusion in fossil fuel exposure calculations