What Corporate Finance Teams Should Know About SBTi’s New Financial Sector Guidance
The Science Based Targets initiative (SBTi) has introduced new guidelines that will significantly affect financial institutions.
What is SBTi?
The Science Based Targets Initiative (SBTI) is an organization that helps companies set goals to reduce their greenhouse gas emissions in line with what scientists say is necessary to prevent the worst impacts of climate change. These goals are designed to keep global warming below 1.5 degrees Celsius (just over 3 degrees Fahrenheit) to the limit scientists believe is safe for the planet.
There are several key points of the new guidelines.
Phasing out coal activities is near the top of the list. Financial institutions like banks and investment firms must stop supporting most coal related projects by 2030. Coal is a significant source of carbon emissions that contribute to global warming. The institutions need to set near term emissions reduction targets.
These institutions must set and achieve specific goals to reduce their emissions within 5 to 10 years. This ensures they are taking immediate action rather than postponing changes.
These emission reduction targets must include at least 67% of a financial institution’s investments. This ensures that a significant portion of their activities are environmentally responsible.
Financial institutions must also set targets to disclose, halt, transition, and eventually phase out their support for companies and projects that do not align with climate goals. They need to be transparent about when they will stop financing activities that harm the environment.
Why is This Important?
For financial institutions, following these guidelines means contributing to global efforts to combat climate change. Reducing support for activities that cause high emissions helps reduce greenhouse gases in the atmosphere.
This affects corporate finance teams.
Corporate finance teams will need to work closely with Sustainability Consultants. Finance teams must collaborate with their sustainability experts to track and report emissions accurately, helping ensure that the company meets its climate goals.
Finance teams must collaborate with their company’s sustainability experts to track and report emissions accurately. This helps ensure that the company meets its climate goals.
Investors and stakeholders will exert more pressure to meet these targets. Transparent and credible plans can attract more investment and support.
Since targets must be recalculated every five years, finance teams must continuously monitor and adjust their strategies to stay on track.
Some companies are already leading the way.
Patagonia is Known for its commitment to the environment. Patagonia ensures that even its banking partners follow sustainable practices.
Seventh Generation works with its financial partners to ensure that their money is used in ways that support sustainability goals.
Thanks to Green Biz for contributing to this story.