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Making science-based targets work for financial institutions

Keeping global warming to well below 2 degrees – that is the target set forth in the Paris Agreement. But how can a financial institution determine whether it is on track to meet that target? A question addressed at an SSFC facilitated meeting of bankers and researchers.
“It is not an easy task for a financial institution to set targets that we know are in line with the Paris Agreement,” says Fredrik Nilsson from Swedbank. He is one of around 15 representatives from Swedish banks, pension funds and the state’s development finance institution, Swedfund, who attended a SSFC facilitated meeting on 7 March. A meeting at which Magnus Emfel and Nate Aden, both representing the Science Based Targets Initiative for Financial Institutions (SBT-FI), put forth the idea of establishing a Swedish reference group for the SBT-FI project.

It’s the indirect emissions in the value chain that create the problem in accounting for emissions by financial institutions. These “scope 3” emissions are the most difficult to measure. They are also the ones that make up the biggest chunk of the greenhouse gas emissions of a financial institution: While direct “scope 1” emissions and indirect “scope 2” emissions resulting from purchasing energy are small in the case of financial institutions, it’s the emissions that occur upstream and downstream that make up the biggest chunk of a financial institution’s emissions.

DEVELOPING METHODS FOR FINANCIAL INSTITUTIONS

“Awareness about climate change is growing, but when it comes to financial institutions, it has been difficult to even ask, much less answer the question of whether the portfolio is on track to meeting the target and being in line with a well-below 2 degree pathway,” explains Magnus Emfel, sustainable finance expert at WWF Sweden.

Therefore, the Science Based Targets Initiative is currently in the middle of an inclusive, multi-stakeholder process to develop target-setting methods and implementation guidance for financial institutions to set science-based targets for their investing and lending activities.

Swedbank’s Fredrik Nilsson says a common method would be something to look forward to: “Today, there are no proven methodologies that we can rely on in accounting for our emissions. But we need to accept some methodology to get started on this.”

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ASSET CLASSES TO SERVE AS BASIS FOR TARGET-SETTING MODE

That is where the SBT-Fi project comes in. “The methods for financial institutions we are developing are asset-class based working with five asset classes,” explains Nate Aden, research fellow at the Worlds Resources Institute (WRI). Mortgages, real estate, listed equity, corporate debt, and project financing make up the asset classes that will serve as a basis for the methods. Following a “road test”, the SBT-Fi will develop target validation criteria for financial institutions in setting science based targets, which will then be followed by a public consultation process. The final methods and criteria are scheduled to be launched in early 2020.

As participants leave the meeting room, continuing to talk about how scientific targets could be made to work in their daily business, SSFC programme director Aaron Maltais is pleased with having facilitated this exchange.

”It is far from straight forward what should count as science based targets for financial actors,” says Maltais, ”and it is great to see that this initiative is designed as a collaboration between researchers and practitioners to work through obstacles to setting meaningful targets.”

ASSET CLASSES TO SERVE AS BASIS FOR TARGET-SETTING MODE

That is where the SBT-Fi project comes in. “The methods for financial institutions we are developing are asset-class based working with five asset classes,” explains Nate Aden, research fellow at the Worlds Resources Institute (WRI). Mortgages, real estate, listed equity, corporate debt, and project financing make up the asset classes that will serve as a basis for the methods. Following a “road test”, the SBT-Fi will develop target validation criteria for financial institutions in setting science based targets, which will then be followed by a public consultation process. The final methods and criteria are scheduled to be launched in early 2020.

As participants leave the meeting room, continuing to talk about how scientific targets could be made to work in their daily business, SSFC programme director Aaron Maltais is pleased with having facilitated this exchange.

”It is far from straight forward what should count as science based targets for financial actors,” says Maltais, ”and it is great to see that this initiative is designed as a collaboration between researchers and practitioners to work through obstacles to setting meaningful targets.”

LEARN MORE

  • Website of the Science Based Targets Initiative