SBT-Finance Target Validation Draft Criteria and Tool Development for Stakeholder Consultation

This survey presents the key questions related to the draft SBTi-Finance criteria for assessment of financial institutions’ scope 1, 2, and 3 emissions reduction targets and reporting of implementation plans. Together with the target-setting methods, and guidance document, the criteria comprise the SBTi framework for financial institutions. The survey also includes questions on tool(s) that SBTi-Finance may develop to facilitate target setting. To address these questions, we have proposed multiple options for feedback and welcome your comments and/or additional suggestions.

Before starting to answer questions, please review this background document for important background information. This public consultation period will be open until April 30th (the original deadline has been extended). All individual responses will remain confidential and only aggregate results will be made public. For queries relating to this survey, please contact Chendan.Yan@wri.org.

Question Title

* 1. Contact information

First Name

Last Name

Organization Name

Position/Title

Contact email

Country

Question Title

* 2. Organization type

Commercial bank

Asset manager

Insurance company

Pension fund

Sovereign bank

Public financial institution

Consulting firm

Nonprofit organization

Academic research institution

Rating agency

Other (please specify)

Question Title

* 3. Is your financial institution currently setting portfolio climate targets?

Yes, we have already set these targets

No, but we plan to set these targets within 2 years

No, but we are interested in setting these targets in the future

No, so far we have not considered setting these targets

N/A, this question is not applicable to us.

Other (please specify)

Question Title

* 4. How should SBTi design the emissions screening and/or target coverage requirement for financial institutions’ investment and lending activities to ensure practicality and help drive emissions reduction in FIs’ most impactful activities?

Require screening of 100% emissions from the 5 asset classes where methods are available (real estate, mortgages, project finance for power generation, corporate debt, and equities). Then require that 95% of these emissions are covered by targets.

FIs shall conduct a portfolio-level emissions screening to estimate the emissions hotspots and apply a target boundary requirement (i.e. 67%) for emissions that need to be covered by the targets.

Require targets on 100% of holdings in top emitting sectors as defined by SBTi

Top-emitting sectors:
- Power generation
- Fossil fuels (coal, oil and gas)
- Transport (passenger and freight transport, including use phase emissions of vehicles manufactured by auto manufacturers; shipping and aviation)
- Industry: iron and steel, cement, aluminum, pulp and paper, chemicals and petrochemicals
- Residential and service buildings(e.g. mortgage and real estate)
- Food and agriculture

Reference: carbon emissions by sectors and energy sources, IEA data and statistics

Similar as option 3, but after screening of top emitting sectors, apply a materiality threshold (e.g. 67%) for percentage of emissions/AUM/other units that need to be covered by targets set using available methods.

Require screening of 100% emissions from the top emitting sectors (which will be defined by SBTi). Then require that 95% of these emissions are covered by targets. Require screening for holdings in remaining sectors and that a lower percentage (e.g. 67%) of these emissions are covered by targets.

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

Question Title

* 5. As with companies’ scope 3 emissions, financial institutions have multiple options for achieving SBTs for their investment and lending portfolio targets. Some stakeholders have identified leakage (here defined as the lack of systemic emissions reductions from a single financial institution’s mitigation actions due to peer institutions’ corresponding actions or investments) as a concern for financial institution climate targets. Is it necessary for SBTi-Finance criteria to prevent or minimize leakage?

Yes, it is necessary for the criteria to prevent and/or minimize leakage

No, it is not necessary for the criteria to prevent or minimize leakage

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

Question Title

* 6. SBT portfolio coverage targets are to be applied within asset classes (e.g., corporate equity and debt). To reduce leakage or portfolio shifting, should SBTi also require FIs’ SBT portfolio coverage targets to be applied to specified sectors (i.e., the same sector in base and target year)?

No requirement for target boundaries to be on a sector level within asset classes. FIs are free to choose the target boundaries as long as targets on investment and lending activities collectively exceed a specific materiality threshold

Targets are set on a sector level within certain asset classes (e.g., Investment Firm A commits that 40% of its equity portfolio by market capitalization within the steel sector will have science-based targets by 2025.)

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

Question Title

* 7. Is divestment an appropriate strategy for financial institutions’ to meet their SBTs?

Yes, it is an appropriate strategy

No, it is not an appropriate strategy

I'd like to propose alternative option(s) and/or provide comments

Why do you think divestment is or is not a good strategy? Please provide comments here.

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* 8. Related to the previous question, is it incumbent on SBTi-Finance to focus on direct (engagement) rather than indirect impact strategies including such as divestment and portfolio shifting?

Yes, it is incumbent on SBTi-Finance

No, it is not incumbent on SBTi-Finance

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

SBTi is currently developing a method for the oil and gas sector to be finalized in 2020. In the absence of currently available methods for the fossil fuel sector, what alternative interim requirements should SBTi put in place?

Below are 4 alternative interim requirements for consideration. For each, respond whether it is a good interim option. As these options are not mutually exclusive, you may select multiple options to serve as interim options.

“Fossil fuel companies” mentioned below are defined as extractors, producers, refiners, retailers, marketers, and power generators using oil, gas, and coal. This requirement currently does not apply to distributors.

Question Title

* 9. SBTi requires that FIs establish fossil fuel (oil, gas, and coal) exclusion/phase out policies as a safeguard

Yes, as an interim option, SBTi should require that FIs establish fossil fuel phase-out policies prohibiting all financial services for oil, gas, and coal projects and companies in line with the climate targets of the Paris agreement.

Yes, as an interim option, SBTi should require that FIs establish coal mining and coal use exclusion and phase out policies. This means at least and immediately prohibiting direct project finance and lending or underwriting to companies involved in new coal capacity development projects, as a step-up to adopting as quickly as possible a coal policy that stops all financial services to new coal projects as well as advocates for a phase-out of all coal projects in line with the climate targets of the Paris agreement.

No, this is not a good interim option. FIs should decide if/when they establish such policies and how stringent they should be, until SBTi releases the new method for oil and gas

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

Question Title

* 10. SBTi requires that financial institutions disclose the portion of their investments (private equity, public equity, corporate bonds), direct project financing and lending or underwriting to fossil fuel (oil, gas, and coal) projects and companies for annual reporting, post target setting.

Yes, this is a good interim option.

No, this is not a good interim option.

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

Question Title

* 11. FIs use the temperature alignment method for fossil fuel companies and set targets to align them to well below 2 degree/1.5 alignment within 5 years, e.g. 2025. Fossil fuel companies scope 3 emissions are included in the boundary of their targets.

Yes, this is a good interim option.

No, this is not a good interim option.

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

Question Title

* 12. FIs use the SBT portfolio coverage method and engage fossil fuel companies in their corporate debt and equity portfolios to have approved SBTs within 5 years. Oil and gas companies should use the SBTi oil and gas method when it becomes available and scope 3 emissions will be included in the target boundary.

Yes, this is a good interim option.

No, this is not a good interim option.

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

Question Title

* 13. To maintain credibility and best ensure targets lead to impacts in the real economy, how should FIs’ strategies to meet their SBTs be reviewed and publicly reported? (Please choose one of the three options below.)

SBTi requires target implementation strategies be submitted with proposed targets as part of the validation. FIs would also be required to annually disclose their scope 1 and 2 GHG emissions inventory and report on actions/strategies taken during the year to meet SBTi-FI portfolio targets and status of progress against these targets. (The SBTi-Finance Guidance will include examples of how to report on progress against targets.)

After target approval (not including implementation plan review), SBTi requires annual disclosure of scope 1 and 2 GHG emissions, reporting on actions/strategies taken during the year to meet SBTi-FI portfolio targets, and disclosure of progress against these targets to a reporting body (e.g., CDP, PRI, PRB, or other) following a template provided by SBTi.

At the time of target submission, the institution submits a summary proposal of how it intends to meet its portfolio targets, which will be disclosed with its target announcement but not used as a basis for validation. After target approval, SBTi requires annual disclosure of Scope 1 and 2 GHG emissions, disclosure on actions/strategies taken during the year to meet SBTi-FI portfolio targets and disclosure of progress against these targets to a reporting body (e.g., CDP, PRI, PRB, or other) following a template provided by SBTi.

I'd like to propose alternative option(s) and/or provide comments

Other (please specify)

To support company target setting, the SBT initiative developed SDA and absolute contraction target setting tools.

SBTi-Finance is planning to develop tool(s) to help financial institutions to set emissions reduction targets for all methods we plan to include in the framework. This includes SDA, portfolio coverage and an extension of this approach: portfolio temperature alignment , of which description we included in the background document. We seek your input to make these solutions as user-friendly and easy as possible to integrate into financial institutions’ workflow and infrastructure.

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* 14. Would a portfolio temperature alignment method and/or tool be useful for financial institutions’ target development processes?

Yes, it would be useful

No, it would not be useful

Other

Other (please specify)

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* 15. If SBTi developed a prototype temperature alignment tool, would you expect to integrate it into your financial institution’s portfolio/climate management system?

Yes

Other

Other (please specify)

Question Title

* 16. Is your financial institution already using a temperature scoring service, method or tool?

Yes

Other

Other (please specify)

Thanks so much for your input!

SBTi-Finance Team