• Clean Energy
  • Paris Agreement
  • Emissions
  • Science-Based Targets
  • Decarbonization

Setting Science-Based Targets for Financial Institutions

Giel Linthorst
Oct 01, 2020

Guidehouse Insights wind farm

On October 1, 2020, the Science Based Targets initiative (SBTi) launched its first ever framework for the financial sector to set climate targets on their loans and investments, enabling SBTi to align its financial portfolios with the Paris Agreement. This important milestone was marked by Mark Carney’s speech.

Over the past 2 years, SBTi of CDP, the United Nations Global Compact, the World Resources Institute, and the World Wide Fund for Nature have been developing this framework with Guidehouse. Science-based targets are now available for four asset classes: residential mortgages, commercial real estate, electricity generation project finance, and corporate instruments (debt and equity). Guidehouse was involved from the start in codeveloping these methods and worked with over 40 financial institutions in testing the methods on lending and investment portfolios.

With SBTi Methods, Financial Institutions Can Align with the Paris Agreement

Guidehouse is a pioneer on target setting. In 2015, Guidehouse experts created the Sectoral Decarbonization Approach (SDA) for SBTi, which is now a prominent method within the SBTi framework because it can be applied to all four asset classes.

Various case studies in the SBTi framework show the value of applying the SDA in lending and investment portfolios. To apply the SDA, financial institutions need to measure their financed emissions.

For measuring the financed emissions of loans and investments, the Partnership for Carbon Accounting Financials (PCAF) secretariat, staffed by Guidehouse, has developed and published the Global Carbon Accounting Standard for the Financial Industry. In the standard, accounting rules measure financed emissions per asset class. A strong, clear connection between measuring financed emissions following PCAF rules and applying SBTi methods is crucial for financial institutions, as these methods will enable them to more effectively measure and steer their portfolios in line with the Paris Agreement.