Yesterday (23 July 2025), the Science Based Targets initiative (SBTi) released its Net-Zero Standard for Financial Institutions, offering a significant update on previous guidance for aligning portfolios with a 1.5°C pathway. This new standard marks a pivotal evolution, expanding the scope, ambition, and accountability of climate target-setting for banks, insurers, and investors. 

A notable area of advancement is the explicit requirement to address deforestation within financing and investment activities. Institutions must now assess, disclose, and eliminate exposure to deforestation risks, especially in high-impact sectors like agriculture, forestry, and land use. This step recognises nature loss as a material climate risk and integrates land use change into credible net-zero pathways. 

The standard also introduces long-term decarbonisation targets, in addition to near-term ones, ensuring financial institutions commit to full portfolio alignment by 2050. These targets cover lending, investment, and for the first time – capital markets activities. 

Critically, the standard reinforces the importance of data quality, mandating the use of recognised methodologies such as PCAF for financed emissions accounting. Institutions are expected to demonstrate improving data coverage and integrity over time, strengthening the credibility of disclosures and actions. 

Next steps and Timeline:

Institutions are encouraged to begin aligning their climate strategies with the new standard immediately. Validation of net-zero targets under the framework is expected to open in early 2026, with interim alignment steps, including enhanced data quality plans and deforestation risk assessments, ideally underway by the end of Q1 2026. 

This standard sets a new bar for credible climate leadership in finance, placing action on deforestation, long-term ambition, and robust data at its core

To understand more, contact our Senior Climate and Carbon Consultant, William Bourns here.