The New SBTi Net-Zero Standard for Finance: What You Need to Know

The Science Based Targets initiative (SBTi) has released its first dedicated Net-Zero Standard for Financial Institutions (July 2025), marking a major milestone in aligning global finance with climate science. Until now, banks, insurers, and investors could only set near-term climate targets under earlier frameworks. This left a gap as there was no clear, science-based definition of what “Net Zero” means for the finance sector, even as its influence on the real economy grew.

The new standard closes that gap. For the first time, financial institutions have a comprehensive blueprint for reaching Net Zero by 2050, with detailed guidance for both immediate action and long-term alignment. It is designed to bring consistency, credibility, and accountability to a sector that channels capital across every industry

What is the SBTi Net-Zero Standard for Financial Institutions?

In short, the SBTi’s Financial Institutions Net-Zero Standard is the first credible, science-based roadmap for how banks and investors can transition their portfolios in line with a 1.5°C pathway.

The framework enables financial institutions to set science-based net-zero targets across all major lines of business: lending, asset ownership and management, insurance underwriting, and capital markets activities. By covering these activities in a single global framework, the standard closes gaps left by earlier fragmented approaches and introduces consistent expectations across the sector.

The standard is globally applicable and designed to integrate into existing investment, risk, and climate strategies. Nearly 135 financial institutions have already signaled their commitment to adopting it, reflecting its broad relevance for both developed and emerging markets.

Why was a separate standard needed for financial institutions?

Financial institutions play a unique role. Unlike corporates, banks, asset managers, asset owners, and insurers are not major direct emitters. Their impact comes from how they allocate capital through lending, investing, and underwriting. This makes their pathway to Net Zero fundamentally different from a manufacturer or an energy company. Corporate-focused standards could not explain how financial institutions should use tools like client engagement, investment choices, or lending policies to drive decarbonization. A finance-specific framework was needed to reflect this unique role.

The sector faced a credibility gap. Many institutions had signed climate alliances or adopted near-term SBTi criteria, but these were limited. They did not set clear expectations for long-term targets, gave little attention to fossil fuel financing, and often allowed pledges that were vague or misaligned with science. The new framework shifts the sector from voluntary interpretation to science-based accountability.

There was urgent pressure and strong demand. Regulators and civil society have been urging financial institutions to manage risks like stranded assets, transition shocks, and climate-driven instability. At the same time, the industry itself was calling for clearer guidance. More than 30 institutions helped pilot the framework, showing strong demand for a credible and practical standard.

Who is this standard for?

The Financial Institutions Net-Zero Standard applies to a wide range of financial actors, covering lending, investing, insurance underwriting, and capital market activities. It is designed for institutions earning at least 5% of revenue from these activities. In practice it includes nearly every significant bank or investor worldwide, across both developed and emerging markets.

Banks. Commercial and retail banks, whose lending decisions shape emissions across the economy.

Asset managers and owners. Pension funds, sovereign wealth funds, private equity firms, and asset managers that direct capital through investments.

Insurers. Underwriting activities are included, reflecting the influence insurers have on high-emitting projects.

Capital market participants. Institutions engaged in securities and capital raising also fall under scope.

Beyond finance. The standard also shapes expectations for corporate clients, regulators, and sustainability teams, who may use it as a reference point for accountability and alignment.

What does the standard require financial institutions to do?

The framework sets out clear expectations for how financial institutions must align their portfolios with a 1.5°C pathway.

Set both near- and long-term targets.

Institutions must set short-term goals (over the next 5–10 years) and also a long-term goal to reach Net Zero by 2050. This makes them accountable both now and in the future.

Apply targets across all financial activities.

The rules cover lending, investing, insurance, and capital market activities, so that financed emissions are addressed in full, not just in selected areas.

Track portfolio alignment.

Progress is measured not only by cutting financed emissions, but also by how much of the portfolio is moving toward net-zero pathways and climate solutions.

Follow sector pathways.

Targets must be in line with science-based decarbonization roadmaps for sectors like power, buildings, oil and gas, and land use.

Strengthen data and disclosure.

Financial institutions are expected to measure financed emissions more accurately and report progress publicly. Public reporting on progress, sector exposures, and alignment metrics is required to maintain credibility.

Limit fossil fuel financing.

Clear policies are required to end financing for new coal projects immediately and to phase out oil and gas expansion financing by 2030.

Address deforestation and land use risks.

Portfolios exposed to deforestation (e.g. through soy, palm oil, beef, or timber) must be disclosed, with plans to eliminate this risk within the next target cycle.

Support low-carbon buildings.

New financing should go to zero-carbon-ready buildings, while retrofitting older buildings for energy efficiency should be a growing priority.

How does it work in practice?

The SBTi lays out a five-step “Net Zero journey” to help financial institutions apply the standard in practice.

1. Commit.  Publicly commit to Net Zero by 2050 or sooner, covering all material business lines. Secure board approval and sign SBTi’s commitment letter.
2. Assess.  Establish a baseline of financed emissions, identify high-emitting sectors, and measure portfolio alignment. Include exposure to fossil fuels and deforestation risks.
3. Set targets and policies.  Define near-term (5–10 year) and long-term (2050) targets, alongside policies on fossil fuel phase-out, deforestation, and climate-aligned real estate.
4. Implement and disclose.  Integrate targets into lending and investment decisions, engage clients, shift capital, and report annually on progress.
5. Review and renew.  Update targets at least every 5–10 years to reflect progress and evolving science. Re-validation is required to maintain SBTi approval.

Key Milestones

• 2025: Immediate stop to financing new fossil fuel projects (coal, oil, gas expansion).
• 2030: Deadline to disclose deforestation exposure and phase out financing of oil and gas expansion.
• 2050: At least 95% of financed activities must be aligned with Net Zero, with any remaining emissions neutralized.

By tying capital flows to science-based targets, the standard creates a mechanism where climate action becomes embedded in financial decision-making. And because finance touches every sector of the economy, the consequences will not stay confined to banks and investors. The next question is what this shift means for the companies that depend on them for capital.

What are the challenges?

The new standard is a milestone, but it is not without its barriers. Implementing it will demand new systems, better data, and significant resources from financial institutions. Measuring financed emissions across complex portfolios remains difficult, especially in areas like private equity or emerging markets where disclosure is weak. Smaller banks may struggle with the expertise and investment required, while large global banks are better placed to comply.

Critics also point out weaknesses in the framework itself. Coal financing is banned immediately, but oil and gas expansion is not phased out until 2030, which some see as a delay. Key asset classes like sovereign debt are not yet covered, creating blind spots. And because SBTi relies on voluntary participation, enforcement depends on reputational pressure, which becomes a limitation for credibility.

Another concern is the use of “portfolio alignment” targets. These can make numbers look better on paper without guaranteeing real emissions cuts, as institutions may simply shift investments rather than engaging with high-emitting clients.

These challenges don’t erase the progress represented by the standard, but they show how much work lies ahead to turn a framework into real-world impact.

What Does This Mean for Corporates Outside Finance?

For companies outside the finance sector, the new standard has very real consequences. Banks, investors, and insurers will increasingly evaluate the climate performance of the firms they finance. Transition plans, emissions disclosure, and credible decarbonization targets are quickly becoming requirements for accessing capital.

The challenges. Financial institutions will be under pressure to align their portfolios with net-zero pathways. This means they will actively engage with their borrowers and investees, especially in high-emitting sectors, to adopt credible climate strategies. Companies that fail to cut emissions or continue expanding fossil activities could face tougher financing conditions, or even lose access to capital. And as banks seek to increase the share of net-zero-aligned clients, corporates will feel stronger incentives to disclose emissions, set targets, and show progress.

The opportunities. On the other hand, businesses with credible transition plans and science-based targets are likely to be rewarded. They may gain access to better financing terms, enjoy stronger investor support, and position themselves as partners of choice in a market where capital is flowing toward climate solutions.

In practice, climate action is moving from a voluntary, reputational issue into the realm of financial necessity. Over the next few years, corporates should expect rising requests from lenders and investors for data, disclosure, and evidence of progress. Those that prepare early may strengthen their competitive position.

Conclusion

The release of the Financial Institutions Net-Zero Standard is a significant development, but it is not a solution in itself. The framework provides clearer rules for how finance should approach Net Zero, yet its impact will depend on how institutions apply them and how quickly gaps in data, coverage, and enforcement can be addressed.

For corporates, the message is also mixed. The standard raises the bar for disclosure and transition planning, making climate action increasingly tied to access to finance. At the same time, many questions remain about how consistently these requirements will be enforced across markets and sectors.

In that sense, the standard is best seen as a starting point. It sets a clearer direction for finance, but its real test will be whether it drives measurable decarbonization in the economy at large.