Science Based Target Setting for Financial Institutions

This discussion follows Chatham House rules
SBTi-FINANCE DRAFT
TARGET VALIDATION CRITERIA
STAKEHOLDER CONSULTATION WORKSHOP
8:30 AM - 1:45 PM
INSIGHT INVESTMENT, LONDON, FEBRUARY 11, 2020

We would like to thank
BNY Mellon and Insight
Investment for sponsoring
and making space available
for this event!

Time Agenda
8:30 - 9:00 Coffee and Registration
9:00 - 10:30
9:00 - 9:10
9:10 - 9:20
9:20 - 9:30
9:30 - 9:40
9:40 -10:30
Plenary Session
Overview of SBTi and workshop agenda
Presentation from Vivid Economics
Presentation from BNP Paribas
Presentation from Allianz
Update on SBTi-Finance framework development
process and overview of draft target validation criteria
*This section will be opened for remote participation and
will be recorded; the recording will be distributed
10:30 - 10:45 Break
10:45 -12:45 Breakout group discussions
12:45 - 1:45 Lunch and Networking
Agenda
for today

Today’s
Speakers
Nate Aden
Senior Fellow
World Resources Institute
Cynthia Cummis
Director of Private Sector Mitigation
Chendan Yan
Associate
Sébastien Soleille
Global Head of Energy
Transition and Environment
BNP Paribas
Alex Kazaglis
Principal
Vivid Economics
Guest speakers:
Julian Stehle
Executive Assistant
Allianz SE

This discussion follows Chatham House rulesThis discussion follows Chatham House rules
Today’s discussion
The purpose of this workshop is to get input
on the key criteria most germane to FIs,
issues and questions relevant to these
criteria, and the potential solutions currently
proposed to address these issues.
Five key criteria issues for today’s discussion:
1. Portfolio coverage method specifications
2. Method applicability and hierarchy
3. Scope 3 boundary requirement
4. Fossil fuel financing
5. Implementation strategy reporting and
frequency
SBTi’s target validation
criteria for companies,
which has evolved to the
latest 4th version since
May 2015.

A snapshot of the
draft criteria for
financial institutions
For EAG consultation
Note: all highlighted criteria are
included in the word document
for consultation with EAG.
SBTi Criteria & Recommendations SBTi Criteria & Recommendations
C1 – Scopes C13 – Renewable energy
C2 – Significance thresholds
C14 – Requirement to set target(s) on investment
and lending activities
C3 – Greenhouse gases
C15 – Emissions screening and target coverage
requirements on investment and lending activities
C4 – Bioenergy accounting C16 – Targets on scope 3 categories 1-14
C5 – Base and target years C17 – Timeframe
C6 – Progress to date
C18 – Level of ambition for targets on investment
C7 – Level of ambition C18.1 – Portfolio coverage targets
C8 – Absolute vs intensity C18.2 – Fossil fuel financing
C9 – Method validity C19 - Requirements from sector-specific guidance
C10 – Offsets
C20 - Implementation strategy reporting and
frequency
C11 – Avoided emissions C21 – Target recalculations
C12 – Approaches (Scope 2) C22 – Target validity

Science Based Targets initiative
The Science Based Targets initiative mobilizes companies to
set science-based targets and boost their competitive
advantage in the transition to the low-carbon economy.

• SBTs are consistent with the long-term goal
of reaching net-zero emissions in 2nd half of
century
• Timeframe drives short-term action and
enables accountability (5-15 years)
What are science-based targets?
“GHG emissions reduction targets that are consistent with the level of decarbonization that, according to climate science,
is required to keep global temperature increase within 1.5 to 2ºC compared to pre-industrial temperature levels.”

SBTi’s 3-pillar strategy
SDA method
Engaging
amplifiers
Target setting
manual
Methods
and tools
Validating
targets
Call to Action
platform
Reduce the barriers to the adoption
of science-based targets
Institutionalize the adoption of
science-based emission reduction
targets
Create a critical mass
STRATEGIES
ACTIVITIES
Companies have
formally joined the
SBTi Call to Action
330
Companies
have approved
targets
Companies joining
the Call to Action
every week
~11800

SBTi criteria
The SBTi uses 5 core criteria to assess company
targets
1. Boundary
Covers company-wide scope 1 and scope 2 emissions
and all GHGs as required in the GHG Protocol
Corporate Standard.
2. Timeframe
Commitment period must cover a minimum of 5
years and a maximum of 15 years from the date the
target is submitted for an official quality check.
3. Level of ambition
At a minimum, the target will be consistent with the
level of decarbonization required to keep global
temperature increase to well-below 2°C compared to
pre-industrial temperatures, though we encourage
companies to pursue greater efforts towards a 1.5°
trajectory.
Intensity targets are only eligible when they lead to
absolute emission reductions in line with climate
science or when they are modelled using an
approved sector pathway or method (e.g. the
Sectoral Decarbonization Approach).

4. Scope 3
Companies must complete a scope 3 screening for all
relevant scope 3 categories in order to determine their
significance per the GHG Protocol Corporate Value Chain
(Scope 3) Accounting and Reporting Standard.
An ambitious and measurable scope 3 target with a clear
time-frame is required when scope 3 emissions cover a
significant portion (greater than 40% of total scope 1, 2
and 3 emissions) of a company’s overall emissions.
The target boundary must include the majority of value
chain emissions as defined by the GHG Protocol
Corporate Value Chain (Scope 3) Accounting and
Reporting Standard
5. Reporting
Disclose GHG emissions inventory on an annual basis.
Source: GHG Protocol Scope 3 Standard
http://www.ghgprotocol.org/standards/scope-3-standard
SBTi criteria

Science-based targets
for financial institutions
In 2018, the SBTi launched a project to
help financial institutions align their
lending and investment portfolios with the
ambition of the Paris Agreement.
The project audience includes universal
banks, pension funds, insurance
companies and public financial
institutions.

Science Based Targets initiative for Financial Institutions - Core Team
Project partners and roles
Technical Partner

Source: https://carbonaccountingfinancials.com/newsitem/pcaf-publishes-a-guidance-to-navigate-through-the-cluster-of-climate-initiatives
SBTi-Finance
is part of a
broader
ecosystem

Tipping point
theory of change
By requiring economic actors to set
targets not only for their direct
emissions, but for all emissions across
their value chain over which they have
influence (i.e. scope 2 and 3), the SBTi
seeks to align all relevant economic
actors across a value chain behind a
common goal and therefore create
incentives and eliminate barriers for
broader Paris-aligned systemic
transformation.

Portfolio transition framework

Scope of SBTi-Finance project
Included Outside of Current Scope
Scope 1 and 2 science-based target methods,
criteria, and guidance
Impact assessment (pending data and evidence
availability)
Scope 3 target methods, criteria, and guidance
(‘how much’)
Additionality (quantification or attribution
without sufficient evidence)
Disclosure of implementation strategy Ex-post tracking
Flexibility on actions to achieve targets Implementation requirements (‘how’)
Engagement strategies (via Portfolio Coverage) Leakage remediation
Evaluation of strategies’ cost effectiveness

A global group of 54 financial institutions
have committed to setting SBTs
• ABN Amro Bank N.V.
• Actiam NV
• Allianz Investment
Management SE
• Amalgamated Bank
• ASN Bank
• Australian Ethical
Investment
• AXA Group
• BanColombia SA
• Bank Australia
• Bank J. Safra Sarasin
AG
• BBVA
• BNP Paribas
• Capitas Finance Limited
• Chambers Federation
• Commercial
International Bank
Egypt (SAE) CIB
• Credit Agricole
• DGB FINANCIAL GROUP
• Fubon Financial
Holdings
• FullCycle
• Grupo Financiero
Banorte SAB de CV
• Growthpoint Properties
• Hannon Armstrong
• Hitachi Capital
Corporation
• HSBC Holdings plc
• ING Group
• KLP
• La Banque Postale
• London Stock
Exchange
• Mahindra &
Mahindra
Financial Services
Limited
• MetLife, Inc.
• MP Pension
• MS&AD Insurance
Group Holdings,
Inc.
• Moody’s
Corporation
• Novo Banco, SA
• OXI-ZEN Solutions
SA
• Pension Danmark
• Principal Financial
Group, Inc.
• Raiffeisen Bank
International AG
• Societe Generale
• Sompo Holdings,
Inc.
• Standard
Chartered Bank
• Storebrand ASA
• Swedbank AS
• Swiss Re
• T.GARANT
BANKASI A.
• Teachers Mutual
Bank
• Tokio Marine
Holdings, Inc.
• Tribe Impact
Capital LLP
• TSKB
• Vakifbank
• Westpac Banking
Corporation
• YES Bank
• Yuanta Financial
Holding Co Ltd
• Zurich Insurance
Group Ltd

Apr 2019: Launch of
methods road-testing
process.
Apr-Oct 2019:
Gathered and shared
feedback on draft
methods through road-
testing process
Dec – Feb 2020:
Develop draft criteria
and conduct
consultations at
EAG/SAG workshops
Mar to Jun 2020:
Finalizing guidance,
criteria, methods, and
target-setting tool
Jul 2020:
Launch V1 of
framework
During 2019, SBTi-Finance collected a set of draft methods which use an asset-class-based
approach to link FIs’ investment and lending portfolios with climate stabilization pathways.
From April to September 2019, we conducted a multi-stakeholder consultation process to
gather and distribute feedback on the methods’ practicality and credibility.
We are currently developing the SBTi-Finance criteria for assessment of financial
institutions’ scope 1, 2, and 3 emissions reduction targets. The target-setting methods,
guidance, and the target validation criteria comprise the SBTi framework for financial
institutions.
We are here
SBTi-FI
Project
update

Climate Change: Preparing for an Inevitable Policy Response
Alex Kazaglis
Principal, Vivid Economics

Consortium partners
▪ The views expressed in this report are the sole responsibility of the Vivid Economics and Energy Transition
Advisers and do not necessarily reflect those of the sponsors or other consortium members. The authors are solely
responsible for any errors.
▪ This project was commissioned by the PRI with support from:
21

Financial markets are underprepared for climate-related policy risks
22
PRI, Vivid Economics and ETA are building
a high conviction policy-based forecast
of the financial impact of this Inevitable
Policy Response (IPR), including a
Forecast Policy Scenario:
• How will it affect the economy?
• Which sectors are most at risk?
• Which asset classes will be impacted?
A forceful policy response to climate
change is not priced into today’s
markets.
Yet it is inevitable that governments will
be forced to act more decisively than
they have so far, leaving investor
portfolios exposed to significant risk.
The longer the delay, the more disorderly,
disruptive and abrupt the policy will
inevitably be.

Growing awareness and momentum on climate issues makes a near-term, forceful
policy response more likely
23
Extreme weather events Impacts on security Cheaper renewable energy
Civil society action
The catastrophic effects of
climate change are already
visible around the
world. We need collective
leadership and action
across countries, and we
need to be ambitious.
“Climate change
risks outweigh
opportunities for
P&C (re)insurers”
“Climate change could
make
insurance too expensive
for most people”
“Hurricane
Dorian Was
Worthy of a
Category 6
Rating”
Influence Shifting
New climate research
Uninsurable World
Activist shareholders make
history in anti-lobby resolution at
Origin AGM
Regulators warning on stability

Investors acknowledge that there will be a policy response, and that it will be delayed
and disruptive, but do not appear to have priced in the risk
24
Source: UN PRI September 2018 Source: BNY Mellon Investment Management and CREATE-Research

Key policies we forecast are detailed in the Policy Forecasts:
25
• Increase in coverage and
stringency of performance
standards
• Utility obligation programs,
• Financial and behavioral
incentives
• Early sales ban for first
mover countries by 2035
• Other countries follow suit
as automotive industry
reaches tipping point
• Early coal phase-out for first
mover countries by 2030
• Steady retirement of coal-fired
power generation after 2030
in lagging countries
• Significant ramp-up of
renewable energy globally
• Policy support for nuclear
capacity increase in a small
set of countries, nuclear
managed out elsewhere
• US$40-80/tCO2 prices by 2030
for first movers
• Global convergence
accelerated by BCAs to
≥$100/tCO2 by 2050
• Technical support to increase
agricultural productivity
• Increasing public investment in
irrigation and AgTech
• Incremental behavioural incentives
away from beef
• Limited CCS support in power
• Policy incentives primarily for
industrial and bioenergy CCS
• Public support for demonstration, and
then deployment of hydrogen clusters
• Strong policy support for
re/afforestation
• Stronger enforcement of zero
deforestation
• Controlled expansion of
bioenergy crops
Coal phase-outs ICE sales ban Carbon pricing CCS and industry decarbonisation
Zero carbon power Energy efficiency Land use-based GHG removal Agriculture
Enabling a green economy ‘Just Transition’ lens to ensure social and political feasibility

The IPR: Forecast Policy Scenario (FPS) facilitates discussion around a business
planning case to fully value climate-related policy risk
26
0
5
10
15
20
25
30
35
40
2020 2025 2030 2035 2040 2045 2050
Global energy-related GtCO2 emissions
2023-2025
Paris Ratchet
Baseline (IEA STEPS & NDCs)
c.2.7 – 3.5°C
Policy impacts flowing into
economies and financial
markets
IPR: Forecast
Policy Scenario
(FPS)
1.5°C pathway
(low overshoot
P1)
IEA SDS
Temperature overshoot
IEA SDS

Achieving the 1.5°C target will require accelerated and substantial effort across
multiple emerging solutions to go further than FPS.
27
Faster investor and
policy action today
ACT NOW
to move more
smoothly and cost-
effectively to 1.5°C
Circular economy
Today 2030 –2050 Post 2050
Last resort measures
The agricultural revolution
Bioeconomy
Hydrogen economy
Consumer preferences, such as dietary shifts
Negative emissions technologies
AI revolution / future tech
Second Ratchet by 2035

Highlights of Forecast Policy Results

Headline takeaways for investors
29
Deep and rapid
changes in the
energy system
• Oil to peak in 2026-28
• Thermal coal virtually
non-existent by 2040
• Renewables generating
approximately half of all
electricity in 2030
Transport electrified
inside 20 years
• ICE sales bans,
supported by falling cost
of EVs, drive rapid
deployment of ultra-low
emissions vehicles
• Making up over two-thirds
of passenger vehicles by
2040
Major changes in
land use
• Deforestation virtually
eliminated by 2030, with
pressures on supply
chains
• Large opportunities to
invest in nature-based
solutions
Rapid reductions in carbon emissions, but not enough to hit 1.5°C
• >60% fall in global CO2 emissions by 2050
• New innovative policy and industrial solutions, not yet proven or achieved at scale, are needed to achieve 1.5°C

Coal demand is at its peak and will decline rapidly by 2025, while renewable
generation grows quickly and supersedes fossil fuels by 2030
30
Renewables replace virtually all fossil fuels in
electricity generation by 2050
• Coal is phased out by 2050 while gas retains a
minor role.
• Slow development of CCS is a barrier to use of
biomass as a negative emissions technology as are
land use constraints
• Solar and wind alone will generate approximately
2/3 of all electricity in 2050
• IPR FPS has 74% renewable generation in 2040,
more than in the IEA SDS, IEA NPS, and BNEF NEO
• Nuclear doesn’t grow to replace fossil fuels or
renewables given cost and societal issues

Oil demand peaks 2026-28 and falls rapidly as transport uses alternative fuels
31
Oil demand peaks between 2026-28 driven by improving ICE efficiency and early uptake of electric vehicles
• Oil in transport decreases by around 70%, while total oil demand decreases around 40% 2025-2050
• Road transport oil demand peaks in 2025, while oil demand in aviation and shipping and as a feedstock for
petrochemicals remains significant through to 2050

Deforestation falls rapidly, afforestation and reforestation efforts ramp up, inducing
substantial investment in yield-enhancing technologies
32
Deforestation practically eliminated by 2030, as
domestic climate policy targets implemented, and
international payments increasingly introduced
• Rapid re/afforestation to meet feasible NDC land
use targets in coming decade
• Re/afforestation is driven by emerging payment
systems – national and international – and
increasing prices in carbon markets
• World meets the Bonn Challenge of 350 Mha of
land restoration, but with large delay
Re/afforestation market produces US$2.8 trillion in
revenues through to 2050.
Global estimates for yield enhancing investments total
more than $20 trillion from 2015 to 2050
Note: ‘Total Forest Land’ is defined here as dense, high-carbon stock forest land only

Key Equity Market Findings: Disruption at the Sector and Company level
Many companies likely to succeed in the green
upside are not listed in the common indices
Passive investors are therefore unlikely to be as
exposed to the upside as the downside of the Inevitable
Policy Response.
Overall, risk to financial markets is significant, but
appears manageable with the iShares MSCI ACWI
ETF fall by a noncyclical 3.1% or $1.6trn
This includes downside demand and cost exposure of
$2.1trn (or a 4% fall in share values) offset by about
$0.5trn from green demand creation.
If repricing occurs in 2025, when the policy forecasts
start to affect cash flows of companies, the impact
further rises to -4.5%.
Increased volatility is also likely with a more event-
driven price adjustment so the impact could be more
significant
Non-OECD domiciled companies are more
negatively affected on average – although in some
regions (like China) this may reflect the lack of listed
vehicles.
Nevertheless, at a country domicile level there is
significant dispersion of results – for example, in the
United States
The most disruption is seen at sector and company
level, with some big winners and losers
Some primary sectors will be pure losers or winners
– mean company valuations in energy sector fall by 33%
Within other sectors there is large variation across
companies, for example, 80% of impacts in the Utilities
sector lie between -62% to 41% of current valuation
33

• Notes: Error bars indicate the 10th and 90th percentiles of impact within each sector. Sectors: RBICS level 1.
• Source: Vivid Economics Net Zero Toolkit
Sectoral: Within-sector variation can be significant, particularly for the four most impacted
sectors in the index: Energy, Consumer Cyclicals, Non-Energy Materials and Utilities
The four most
impacted sectors
also exhibit the
greatest range in
impacts
34

Sectoral: Zooming in on the sectors with the most negative impacts on average and special
interest sectors, it is clear that subsectors can experience considerably different impacts
35
Equity impacts of the Inevitable Policy Response
• * The special interest sectors are contained Consumer Non-Cyclicals. Agriculture is a Level 3 subsector, Food production a Level 4
subsector. Sector shares are not available as results for the ‘Agriculture’ sector are based on oversampling of companies – there are very few
agriculture companies in the index.
• ** Utilities sector broken down to RBICS level 3 to provide further detail. *** Upstream energy includes coal mining and oil and gas exploration
Agriculture
Food
Production
WaterUtilities
EnergyUtilities
Manufactured
Products
Chemical,
Plasticand
Rubber
Materials
Miningand
Mineral
Products
Consumer
Goods
Consumer
Retail
Miscellaneous
Retail
Consumer
Vehiclesand
Parts
Downstream
andMidstream
Energy
IntegratedOil
andGas
Explorationand
Production
Upstream
Energy
RBICSLevel2sectors*
Utilities** Non-Energy Materials Consumer Cyclicals Energy
Manufacturing
sector impacts
are positive
due to
production of
renewables
equipment
Negative
impacts in the
automobile
subsector affect
significantly
affect sector-
level results
Share of sector N/A N/A 5% 95% 12% 41% 47% 28% 26% 7% 39% 15% 57% 28%
***
Special interest
sectors*

Supply chain: Additional risks associated with land-use sectors could impact companies whose
activities can be linked to deforestation across the supply chain
• Notes: Case studies from the Chain Reaction Research and Ceres provided information on maximum threshold for consumer pressure,
market access and legal risks as a share of current valuation.
These impacts
would compound
the exposure to
market level impacts
36

Actions for investors
● The analysis highlights the importance of forward-looking climate risk assessment and the limitations of portfolio carbon foot printing in
capturing the nuance of impacts across and particularly within sectors.
● Draw on IPR in investor implementation of the TCFD recommendations on forward-looking risk assessment and climate scenario analysis
alongside Paris aligned scenarios
● Asset owner actions:
◊ Prepare for FPS as a likely central business case
◊ Review equity asset allocation and define mitigation strategies for both passive and active investments.
◊ At the same time, continue to advocate and engage for earlier and more ambitious climate action to minimize the disruption from a
disorderly transition and from physical impacts resulting from global mean temperatures exceeding 1.5°C
◊ Incorporate IPR into manager selection, appointment and monitoring
◊ Engage service providers on IPR, including in appropriate indices and proxy voting recommendations
◊ Consider climate as a factor potentially creating alpha.
● Passive investors: draw on IPR in stewardship and consider benchmarks informed by IPR
● All investors: draw on IPR to engage exposed sectors to transition
● Further implications for investor action are set out in the section below
37

Thank you!
Please see PRI website for further details:
https://www.unpri.org/climate-change/what-is-the-inevitable-policy-response/4787.article
38

• The information contained in this report is meant for the purposes
of information only and is not intended to be investment, legal, tax
or other advice, nor is it intended to be relied upon in making an
investment or other decision. This report is provided with the
understanding that the authors and publishers are not providing
advice on legal, economic, investment or other professional issues
and services. Unless expressly stated otherwise, the opinions,
recommendations, findings, interpretations and conclusions
expressed in this report are those of the various contributors to the
report and do not necessarily represent the views of PRI Association
or the signatories to the Principles for Responsible Investment. The
inclusion of company examples does not in any way constitute an
endorsement of these organisations by PRI Association or the
signatories to the Principles for Responsible Investment. While we
have endeavoured to ensure that the information contained in this
report has been obtained from reliable and up-to-date sources, the
changing nature of statistics, laws, rules and regulations may result
in delays, omissions or inaccuracies in information contained in this
report. PRI Association is not responsible for any errors or
omissions, or for any decision made or action taken based on
information contained in this report or for any loss or damage
arising from or caused by such decision or action. All information in
this report is provided “as-is”, with no guarantee of completeness,
accuracy, timeliness or of the results obtained from the use of this
information, and without warranty of any kind, expressed or
implied.
• Vivid Economics and Energy Transition Advisors are not investment
advisers and makes no representation regarding the advisability of
investing in any particular company, investment fund or other
vehicle. The information contained in this research report does not
constitute an offer to sell securities or the solicitation of an offer to
buy, or recommendation for investment in, any securities within the
United States or any other jurisdiction. This research report
provides general information only. The information is not intended
as financial advice, and decisions to invest should not be made in
reliance on any of the statements set forth in this document. Vivid
Economics and Energy Transition Advisors shall not be liable for any
claims or losses of any nature in connection with information
contained in this document, including but not limited to, lost profits
or punitive or consequential damages. The information and
opinions in this report constitute a judgement as at the date
indicated and are subject to change without notice. The information
may therefore not be accurate or current. The information and
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from sources believed to be reliable in good faith, but no
representation or warranty, express or implied, is made by Vivid
Economics or Energy Transition Advisors as to their accuracy,
completeness or correctness and Vivid Economics and Energy
Transition Advisors do also not warrant that the information is up to
date.
Disclaimer
39

This presentation is being provided to you by PRI Association (“the PRI”) and its subsidiaries for information purposes only. The presentation is incomplete without reference to, and should be viewed solely in conjunction with, the
oral briefing provided by the PRI. No reliance may be placed on its accuracy or completeness. Neither the presentation, nor any of its contents, may be reproduced, or used for any other purpose, without the prior written consent
of the PRI. PRI Association is incorporated in England & Wales, registered number 7207947 and registered at 25 Camperdown Street, London E1 8DZ.
40

BNP PARIBAS:
WHY DID WE
DECIDE TO
COMMIT TO SBTI?
Sébastien Soleille
Global Head of Energy
Transition and Environment
BNP Paribas

© Copyright Allianz SE
Allianz
Julian Stehle
February 11th
SUSTAINABILITY, IN
PARTICULAR
ENVIRONMENTAL
PROTECTION, AS
STRUCTURAL CHANGE

© Copyright Allianz SE 43
Business case Target-setting Broader issues
©AllianzSE2020
“The challenge for this year’s climate
conference in Glasgow, COP 26, is clear: all
countries must show more ambition on
adaptation, mitigation and finance.”
António Guterres,
UN Secretary-General,
February 2020
“I would say we’re in a climate crisis”
“A question for every company, every
financial institution, every asset manager,
pension fund or insurer: what’s your plan?”
Mark Carney,
UN Special Envoy for Climate Action and Finance,
December 2019

OVERVIEW OF PILOT PORTFOLIO* EMISSIONS
Portfolio_Asset class
Carbon emissons per EUR
mn invested
(tCO2e/ EURm)
Weighted average
carbon intensity
(tCO2e/ EURm)
Equity 157 194
Corporate bond 159 229
Sovereign bond 401 457
Infra & renewables 140 85
Carbon intensity (kg CO2e/ m²)
Real estate 61
*Allianz France is the Group pilot on climate reporting, the above data covers around 71% of Allianz France portfolio as per end of 2018, amounting to 61 bn.
𝐏𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐜𝐚𝐫𝐛𝐨𝐧 𝐟𝐨𝐨𝐭𝐩𝐫𝐢𝐧𝐭 𝐩𝐞𝐫 € 𝐢𝐧𝐯𝐞𝐬𝐭𝐞𝐝
=
σi=1
n €investmenti
issuer′s enterprise valuei
∗ issuer′
s emissionsi
Portfolio market value
𝐏𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐰𝐞𝐢𝐠𝐡𝐭𝐞𝐝 𝐚𝐯𝐞𝐫𝐚𝐠𝐞 𝐜𝐚𝐫𝐛𝐨𝐧 𝐢𝐧𝐭𝐞𝐧𝐬𝐢𝐭𝐲
= ෍
i=1
n
Portfolio weighti ∗
issuer′
s emissionsi
issuer′s salesi

TWO DIMENSION TARGET-SETTING: THE WAY TO REAL
WORLD IMPACT
EngagementPortfolio steering
o Portfolio absolute emission and carbon
intensity reduction per asset class
o Sectoral alignment with low carbon
scenarios
o Portfolio green share (green investment:
energy efficiency, renewables, green
bonds,etc) | potential link with EU
taxonomy
o Engagement with companies, direct or
via collaborative engagement
o Engagement with asset managers
o Engagement with policy makers

FOSSIL FUEL FINANCING: ENGAGE WITH COMPLEXITY
47
• Coal creates the highest
co2 emissions in relation
to its energy content →
stranded assets →
no economic upside
• Moving away from fossil
fuels is a necessary step
in the transition to a low-
carbon economy, but it has
massive global financial
implications if done too
quickly - or too slowly.
• Exclusion of coal based
business models
• For oil & gas, issuer level
analysis based
engagement or
divestment
Rationale BenefitsApproach
• Mitigation of portfolio risk
of stranded assets
• Reduction of portfolio
emissions enabling a
faster transition as well
as alignment with 1.5°C
scenario
Exclusion as a measure of last resort, engagement to make real world impact

REPORTING AND TRANSPARENCY
48

UN-CONVENED
NGO-SUPPORTED
ASSET OWNER-LED
Asset Owners
committed to carbon neutral
portfolios
until 2050
4949

SBTI
CRITERIA
DISCUSSION
WE WILL REVIEW KEY CRITERIA MOST GERMANE TO
FIS, ISSUES AND QUESTIONS RELEVANT TO THESE
CRITERIA, AND POTENTIAL SOLUTIONS CURRENTLY
PROPOSED TO ADDRESS THESE ISSUES.

Last summer SBTi road tested 3 types of methods
Emission-based methods
• Sector Decarbonization Approach
(SDA)
Capacity-based method
• Paris Agreement Capital
Transition Assessment (PACTA)
Portfolio coverage method
• SBT portfolio coverage

…that apply to four asset classes
Asset Class Method Description
Real Estate Sector Decarbonization
Approach (SDA)
Emissions-based physical intensity targets are set for non-
residential buildings’ intensity and total GHG emissions.
Mortgages SDA Emissions-based physical intensity targets are set for residential
buildings’ intensity and total GHG emissions.
Electricity Generation
Project Finance
SDA Emissions-based physical intensity targets are set for electricity
generation projects’ intensity and total GHG emissions.
Corporate
Instruments (equity,
bonds, loans)
SDA Emissions-based physical intensity targets are set at sector level
within the portfolio for sector where sectoral decarbonization
approaches are available.
Paris Agreement Capital
Transition Assessment (PACTA)
Sectors are assessed at individual business activity level for select
activities.
SBT Portfolio Coverage Financial institutions engage a minimum of 30% of their investees
(in monetary or GHG emissions terms) to have their own science-
based targets.

Sector coverage
is limited for
current physical
intensity and
capacity-based
methods.
Sectoral Decarbonization Approach
Power generation kgCO2e/kWh
Cement kgCO2e/ton
Fossil fuel Oil and gas sector ongoing development by SBTi
Pulp and Paper kgCO2e/ton
Transport passenger, freight, auto manufacturing(kgCO2e/vkm
Iron and steel kgCO2e/ton
Buildings kgCO2e/m2
Aluminum kgCO2e/ton
(Ongoing development by SBTi)
Chemical Ongoing development by SBTi

1. SBT portfolio coverage
method specifications
Image source: Iconfinder.com
C14 – Requirement to set target(s) on investment and
lending activities
C18 – Level of ambition for targets on investment and
lending activities
C10 – Offsets C20 - Implementation strategy reporting and frequency

For reference: sectoral analysis of high impact companies
Source: SBTi progress report 2019
Notes: In line with the SBTi’s Theory of Change
explained in the introduction of this report this
analysis tracks in which sectors a critical mass (i.e.
20%) of companies from the SBTi’s sample of high
impact companies has set targets. The sample of
~1,800 high impact companies of particular interest
for the SBTi was developed based on an analysis of
companies with the greatest potential impact on
climate mitigation judged by emissions and market
capitalization. Please note that there may be
companies with commitments or approved targets in
some sectors that are not reflected here since they are
not part of the high-impact sample.

C18.1 Portfolio coverage targets – Q1
Boundary: FIs may set SBT Portfolio
Coverage targets covering a minimum 30%
of their investees by GHG emissions, assets
under management or market
capitalization.
Timeframe: targets must be fulfilled within
a maximum of 5 years from the date the FI’s
target is submitted to the SBTi for an official
validation.
Level of ambition: The FIs investees shall
have science-based emission reduction
targets on their scope 1 and 2 emissions.
Should FIs be required to set these targets within
a specific boundary? I.E., coverage within specific
sectors or asset classes.
❑ Option 1: no requirement from SBTi for target
boundaries. FIs should choose and specify the target
boundaries as long as targets on investment and lending
activities collectively exceed the materiality threshold (to
be determined)
❑ Option 2: targets should be set on a sector-level
❑ Option 3: targets should be set on an asset-class level

C18.1 Portfolio coverage targets – Q2
Should this method include limits on divestment/portfolio
shifting to achieve the target? Should this limit vary with the
target boundary requirement (e.g. by asset class or sector)
and how can it be applied?
❑ Option 1: yes, a threshold (e.g. 10% of AUM) should be set
on the maximum dollar amount that FIs can shift away from
non-SBT companies. FIs should strive to engage companies to
set SBTs first.
➢ If yes, should this limit vary with the target boundary
requirement (e.g. by asset class or sector) and how can
it be monitored and reported?
❑ Option 2: no, SBTi should not limit portfolio shifting or
divestment. FIs should decide what strategies they use.
Boundary: FIs may set SBT Portfolio
Coverage targets covering a minimum 30%
of their investees by GHG emissions, assets
under management or market
capitalization.
Timeframe: targets must be fulfilled within
a maximum of 5 years from the date the FI’s
target is submitted to the SBTi for an official
validation.
Level of ambition: The FIs investees shall
have science-based emission reduction
targets on their scope 1 and 2 emissions.

 A corporate GHG emission reduction
target defines a potential GHG
pathway of a company, and hence the
targets can used to rate the
temperature alignment of a company’s
proposed ambition;
 The SBTi have determined the GHG
pathways that are aligned to three
specific temperature pathways: 2°C,
well-below 2°C, 1.5°C;
 A new tool is proposed to assess and
rate corporate ambition against a
wider range of temperature outcomes.
e.g. Company A’s GHG emission
reduction target of X% reduction in
absolute emissions by 2025 implies
their ambition is aligned to a Y°C
world.
Rating corporate ambition against
long-term temperature outcomes
58
Scope of
SBTi
assessment
Scope of
proposed
temperature
rating

2. Method applicability
and hierarchy

Q1: Method applicability
Should SBTi allow the absolute contraction or GEVA method on a sector/asset class level when other methods
cannot be practically applied (e.g. SDA/PACTA does not cover this sector/asset class, SBT portfolio coverage in
certain sectors is too low)? See example alternative methods below, which are used by real economy companies
to set SBTs.
o Absolute Emissions Contraction is a method for setting absolute targets that uses contraction of absolute emissions.
Through this approach, all companies reduce their absolute emissions at the same rate, irrespective of initial emissions
performance. Consequently, an absolute emissions reduction target is defined in terms of an overall reduction in the amount
of GHGs emitted to the atmosphere by the target year, relative to the base year (e.g., reduce annual CO2e emissions 35% by
2025, from 2018 levels).
o Greenhouse Gas Emissions per Value Added (GEVA) is a method for setting economic intensity targets using the contraction
of economic intensity. Targets set using the GEVA method are formulated by an intensity reduction of tCO2e/$ value added.
Under the GEVA method, companies are required to reduce their GEVA by 7% per year (compounded).
➢If yes, should we only allow these methods to be applied on a 1) sector level 2) asset class
level?

Q2: Method hierarchy
Should SBTi establish a method hierarchy or should methods be treated equally?
❑ Option 1: Yes, these methods should be treated equally and FIs should be able to decide
where each method is most applicable. SBTi could recommend a method hierarchy but should
not require it.
❑Option 2: SBTi should require that FIs set targets on asset classes based on a method
hierarchy.

3. Scope 3 boundary
requirement

C14: Requirement to set target(s) on
investment and lending activities
We expect FIs to set targets on
emissions from investment and
lending activities regardless of
the share of these emissions
compared to the total S1+2+3
emissions.
C14 – Requirement to set target(s) on investment
lending activities

C15: Emissions screening and target coverage
How should SBTi design the emissions screening and/or target coverage
requirement of financial institutions’ investment and lending activities* to
ensure practicality and help drive mitigation in FIs’ most impactful activities?
We prepared three options for your consideration.

* Categories other than real
estate and retail mortgages
belong to corporate lending
Illustration with an example portfolio with
known emissions per asset class and sector
❑ Option 1: FIs shall conduct a
portfolio-level emissions
screening to estimate the
emissions hotspots and apply a
target boundary requirement
(i.e. 67%) of emissions that
need to be covered by the
targets.
Portfolio
coverage
Portfolio
emissions
coverage
of targets:
67%
depending on the
target boundary
Source: WRI, for illustrative purpose only

Portfolio
emissions
coverage
by targets:
91%
❑Option 2: Require emissions
screening of top-emitting
sectors (this also includes
sectors with high scope 3
emissions) and targets on 100%
of these top-emitting sectors
Top-emitting sectors:
Reference: carbon emissions by sectors and energy
sources, IEA data and statistics
Power generation
Oil and gas
Fossil energy (coal)
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
Service buildings
Food and agriculture
Portfolio coverage

Portfolio
emissions
coverage
by targets:
91%x 67%
=60%
❑Option 3: similar to option 2, but
after emissions 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
Top-emitting sectors:
Reference: carbon emissions by sectors and energy
sources, IEA data and statistics
Power generation
Oil and gas
Fossil energy (coal)
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
Service buildings
Food and agriculture
Portfolio coverage

C16: Targets on scope 3 categories 1-14
For Category 1-14 (e.g. purchased goods and services,
employee commuting, which are usually minimal for
financial institutions), should we require or only
recommend emissions screening and/or target
setting? Would it be credible for an FI to not have
targets on these categories?
❑ Option 1: Recommend but does not require that FIs
measure and set targets on categories other than
category 15
❑Option 2: Require that FIs measure, report and set
targets on all or a percentage of these categories by
emissions.
Scope 3 Category
1. Purchased goods and services
2. Capital goods
3. Fuel and energy-related activities (not
included in scope 1 and 2)
4. Upstream transportation and distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets
9. Downstream transportation and distribution
10. Processing of sold products
11. Use of sold products
12. End-of-life treatment of sold products
13. Downstream leased assets
14. Franchises
15. Investments
Source: GHGP Scope 3 Standard
Categories
1-14

4. Fossil fuel financing
Image source: Depositphotos
C14 – Requirement to set target(s) on investment and
lending activities
lending activities

C18.2: Fossil fuel financing
In the absence of available* methods for the fossil fuel sector at the release of the guidance,
should SBTi require that FIs establish fossil fuel expansion investment exclusion policies as an
alternative?
❑ Option 1: Yes, SBTi should require that FIs establish fossil fuel expansion investment exclusion
policies
❑ Option 2: No, FIs should decide if/when they establish such policies and how stringent they
should be to use them as a strategy to achieve SBTs
*SBTi is currently developing a method for the oil and gas sector to be finalized in 2020.

C18.1: Fossil fuel financing
If yes, what should be the SBTi minimum
requirement for such policies?
Environmental organization Rainforest Action
Network (RAN) has been publishing an annual fossil
fuel finance report card for the last ten years. The
2019 report card tracks 33 global banks' lending and
underwriting to fossil fuel industry. A scorecard on
fossil fuel expansion and phase out was established
and can potentially be used as a reference for SBTi’s
minimum requirement.
Note: according to RAN’s definition, “financing” refers
to direct project finance and lending or underwriting
to companies expanding fossil fuels(oil, gas, and coal).
Only grades A to B- are included here.
A: fossil fuel exclusion - prohibits all financing for all fossil fuel
projects and companies.
A-: exclusion of all fossil fuel projects and phase-out of all fossil
fuel financing - prohibits all financing for all fossil fuel projects
and all companies expanding fossil fuels, and commits to - phase
out the remainder of fossil fuel financing on a timeline compliant
with limiting climate change to 1.5°c.
B: exclusion of fossil fuel projects and all expansion companies -
prohibits all financing for all fossil fuel projects and all companies
expanding fossil fuels.
B+: exclusion of fossil fuel projects and some expansion
companies - prohibits all financing for all fossil fuel projects, as
well as for all companies expanding coal and some companies
expanding oil and gas.
B-: exclusion of fossil fuel projects and some coal expansion
companies - prohibits all financing for all fossil fuel projects, as
well as for some companies expanding coal.

5. Implementation strategy
reporting
C14 – Requirement to set target(s) on investment and lending
activities
C15 – Emissions screening and target coverage requirements
on investment and lending activities
C18 – Level of ambition for targets on investment and lending
activities
C10 – Offsets
C20 - Implementation strategy reporting and
frequency

C20 - Implementation strategy reporting
To maintain credibility and ensure impacts, some have suggested that FIs should present their
strategies to achieve emissions reductions in the real economy. Would FIs’ SBTs be credible if
their strategies to achieve emissions reduction in the real economy are not reviewed and
presented at the time of validation by SBTi?
❑ Option 1: SBTi requires implementation strategies to be submitted with targets for
validation, as well as annual disclosure of institution-wide GHG emissions inventory and
progress against published targets on an annual basis.
❑ Option 2: After targets approval, SBTi requires annual disclosure of institution-wide GHG
emissions, progress against targets, and actions that reduce emissions in the real economy to a
public reporting body (e.g., CDP, PRI, PRB, or other) following a template provided by SBTi.
❑Option 3: SBTi requires annual disclosure of institution-wide GHG emissions inventory and
progress against published targets on an annual basis.

Apr 2019: Launch of
methods road-testing
process.
Apr-Oct 2019:
Gathered and shared
feedback on draft
methods through road-
testing process
Dec – Feb 2020:
Develop draft criteria
and conduct
consultations at
EAG/SAG workshops
Mar to Jun 2020:
Finalizing guidance,
criteria, methods, and
target-setting tool
Jul 2020:
Launch V1 of
framework
• Criteria feedback summary webinar March 18
• Guidance draft May
• Framework launch webinar July
• ClimateWeek NYC launch event
Project next steps

Opportunities for participation
• Join the SBTi-Finance Stakeholder
Advisory Group
• Provide feedback on the draft SBTi-
Finance criteria
• Attend the SBTi-Finance criteria
feedback summary webinar on
March 18th
• Commit your financial institution to
setting an SBT
• Submit SBT for review after July

Thank you
and please
stay in touch!
SBTI-Finance Team

Science Based Target Setting for Financial Institutions

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