The SBTi’s Financial Institutions Net-Zero Standard– and what it means for Canada’s pension funds
The Science-Based Targets initiative (SBTi), which is already being utilized by many of Canada’s largest pension funds, has clearly spelled out that net-zero alignment requires pension funds to end project financing for any fossil fuel expansion immediately, and cut off financing of any company involved in fossil fuel expansion by 2030 at the latest. Will Canadian pension funds apply the new SBTi Financial Institute Net-Zero Standard to themselves?
Last month, the Science-Based Targets initiative (SBTi) launched its Financial Institutions Net-Zero Standard (the Standard)– “a science-based, robust, and credible framework that enables financial institutions to align financial flows with pathways to limit global warming and achieve net-zero emissions by no later than 2050.” SBTi is a “corporate climate action organization that enables companies and financial institutions worldwide to play their part in combating the climate crisis.”
Created in consultation with and tested by financial institutions, the Standard is designed for institutions of all sizes and geographies to use across their lending, investing, insurance underwriting and capital market activities.
For Canadian pension funds that claim to be managing climate-related risks and developing climate strategies, the Standard provides a credible internationally-accepted framework for developing and achieving net-zero targets. Many Canadian pension funds are already using SBTi guidance to inform their climate strategies and using SBTi standards (such as those for buildings, cement, and power, etc.) to measure and assess the net-zero alignment of companies in their portfolios.
With yet another authoritative international body clearly spelling out what’s required for financial institutions to achieve net-zero by 2050, Canada’s largest pension funds have even more clarity on what’s required to protect pensions and invest in a safe climate: cutting off all financing for fossil fuel expansion.
What does the new Financial Institutions Net-Zero Standard say?
The SBTi Financial Institutions Net-Zero Standard (the Standard) recognizes the critical role that financial institutions have to play in the global economy’s transition to net-zero emissions– with the stability of the financial system increasingly at stake.
The Standard provides financial institutions, including pension funds, with a step-by-step framework for achieving net-zero by 2050: commitment to net-zero, base year assessment, development of policies and targets, assessment of progress, and communications and claims related to this process.
The Standard covers all financial activities and emissions scopes and categories, and enables financial institutions to utilize engagement and investment levers to drive real-world decarbonization. It says that financial institutions should have "long-term targets to align at least 95% of financing with net-zero benchmarks by 2050 at the latest."
Most of Canada’s largest pension funds have been assessing climate-related financial risks for years, and many of them have committed to net-zero emissions and developed climate strategies.
What does the Standard say about fossil fuels?
The Standard requires financial institutions to immediately end financing for companies that are expanding coal projects and “immediately or by no later than 2030” for those expanding oil and gas projects. To be compliant with the Standard, pension funds must publish a policy outlining this commitment.
Members of the expert group that advised SBTi on the Standard said they pushed for it to require an immediate end to financing for companies involved in oil and gas expansion, but SBTI’s CEO intervened to allow a “grace period” until 2030. The published Standard says financial institutions should “ideally” end finance to companies expanding oil and gas now, but landed on an “absolute cut off of 2030, designed to allow financial institutions to engage with oil and gas companies”.
“While a 2030 transition timeframe is provided, considering the urgency to accelerate the net-zero transformation, the policy should commit to earlier and, where feasible, immediate cessation of new applicable financial activities provided to companies involved in new oil and gas expansion activities.”
Despite the rollback from immediately to 2030, a senior policy analyst at Reclaim Finance and member of the SBTi expert group said that the Standard sends a “welcome, clear message that no financial services should be provided to companies developing coal, oil or gas”.
The Standard also says that financial institutions must have an engagement plan to address significant deforestation exposure and set long-term targets that “require counterparties to reach net-zero by 2050 and neutralize their residual emissions where relevant.”
According to SBTi, 135 financial institutions on six continents have already signed up to the new Standard.
Time for Canada’s pension funds to live up to their own SBTi expectations for portfolio companies
Canada’s largest pension funds are already using SBTi guidance to inform their climate strategies and using SBTi standards to measure and assess the net-zero alignment of companies in their portfolios. Some Canadian funds even helped found the SBTi.
See below for an overview of how Canada’s largest pension funds are using the SBTi framework and standards.
Considering their high regard for and extensive use of the SBTi, it logically follows that Canadian pension funds should begin applying the SBTi’s Financial Institutions Net-Zero Standard to themselves. While several funds have partial investment exclusions on some fossil fuels, none of those exclusion policies would currently meet the Standard.
This represents a yawning gap in pension funds’ climate strategies and a failure to meet the same climate-related expectations that pension funds have set for their own portfolio companies. As of today, not a single Canadian pension fund would meet the SBTi’s Financial Institutions Net-Zero Standard. That would require the funds to publicly acknowledge that they will stop financing fossil fuels by 2030– or ideally immediately.
Many Canadian pension funds are also owners of significant fossil fuel infrastructure whose profitability is dependent on the continued extraction and use of fossil fuels– for example fossil gas distribution and transmission pipeline networks. Net-zero by 2050 requires credible transition plans for these assets, including the likelihood that net-zero-aligned emissions pathways require this infrastructure to be retired early .
As the UN secretary general recently said, “fossil fuels are running out of road.” Similarly, Canada’s largest pension funds are running out of road with their ongoing investment and ownership of fossil fuel companies and assets.
It’s time for our pension funds to acknowledge a basic scientific reality: achieving net-zero by 2050 or sooner and protecting our retirement security requires them to stop financing fossil fuel expansion.
How are Canada’s pension funds already using the SBTi framework and standards?
For a summary of Canadian pension funds that have instituted partial exclusions on investment in fossil fuels, see https://www.shiftaction.ca/reportcard2024/exclusions.
Canada’s largest pension plans deem climate change to be a growing, systemic financial risk and claim to be committed to supporting the global transition to net-zero. Many of them are already using SBTi standards to measure and assess the net-zero alignment of companies in their portfolios, so it shouldn’t be hard for them to recognize the credibility and significance of the Financial Institutions Net-Zero Standard.
Here’s a summary of how Canada’s largest pension managers are already using SBTi’s corporate standards for net-zero alignment:
Alberta Investment Management Corporation (AIMCo)
No mention of SBTi.
British Columbia Investment Management Corporation (BCI)
BCI was an early supporter of SBTi, supporting the CDP campaign to promote its early adoption. (BCI: 2022 Climate Action Plan)
BCI said in 2023 that it “influenced the development… of CDP’s campaign to promote the SBTi” (BCI: Driving to Net Zero Through Our Influence, p.3-4) and started engaging companies on setting Science Based Targets (SBT) aligned with the SBTi, increasing the number of companies with targets significantly (BCI: 2022 ESG Annual Report, p.19).
BCI uses an internal methodology that leverages several datasets and benchmarking tools, including Climate Action 100+, Climate Engagement Canada, the Transition Pathways Initiative and SBTi, to derive its “net-zero maturity assessments” (BCI: 2024-2025 Corporate Annual Report, p.72).
La Caisse
La Caisse relies on SBTi and other internationally recognized frameworks to “apply uniform standards across different geographies and sectors” (La Caisse: Transition Financing Framework, p.10).
La Caisse’s internal methodology for assessing companies’ climate maturity and climate targets was “inspired by” the work of SBTi and similar initiatives. SBTi certification is one of the criteria used in La Caisse’s Transition Financing Framework to designate a company as “fully aligned” with the Paris Agreement (La Caisse: Transition Financing Framework, pp.15-16).
La Caisse reports the value of its SBTi-certified assets under management—$79 billion as of the end of 2024, plus another $15 billion in companies in the process of becoming SBTi-compliant (La Caisse: 2024 Sustainable Investing Report, p.41).
La Caisse formulated its position on carbon credits—that carbon credits must not be counted towards companies’ emission reduction targets—in accordance with SBTi principles (La Caisse: Transition Financing Framework, p.17).
La Caisse has listed SBTi criteria as being part of its process for selecting “transition envelope” companies with rigorous, Paris-aligned decarbonization plans (La Caisse: 2024 Sustainable Investing Report, p.114).
Canada Pension Plan Investment Board (CPPIB)
CPPIB considers companies in its portfolio to be “Transition Assets” if they meet several criteria, including that “both targets and continued progress are validated by a credible third party (such as SBTi)” (CPPIB: CPP Investments Annual Report 2024, p.71).
CPPIB developed and uses an Abatement Capacity Assessment Framework (ACAF) to identify and implement portfolio companies’ pathways to decarbonization, and notes that the ACAF “supplements the Science Based Targets Initiative’s (SBTi) Target Validation Protocol” (CPPIB: The Decarbonization Imperative, p.9).
Healthcare of Ontario Pension Plan (HOOPP)
HOOPP used the SBTi framework as an input to guide the creation of its climate change strategy, including its net-zero commitment. HOOPP continues to use the framework, for example to assess the credibility of companies’ transition plans (HOOPP: Climate Change Strategy, pp.2, 7-9, 13, and 2024 Annual Report, pp.45,106).
Investment Management Corporation of Ontario (IMCO)
IMCO’s “decarbonization roadmap” includes efforts to encourage portfolio companies to set SBTi-validated emission reduction targets across scopes 1, 2 and 3 (IMCO: 2023 Sustainability Report, p.39).
IMCO reported that Waste Connections, a North American waste services company on the Climate Engagement Canada (CEC) focus list, initiated a process for SBTi approval of its climate targets in 2023 following a CEC engagement process in which IMCO participated (IMCO: 2023 Sustainability Report, p.51).
IMCO reported discussing SBTi-alignment when engaging with DataBank, a Dallas-based data centre developer, regarding the company’s net zero emissions planning (IMCO: 2023 Sustainability Report, p.58).
Ontario Municipal Employees Retirement System (OMERS)
OMERS stated that the fund assesses the credibility of company net-zero transition plans based on a methodology that integrates frameworks from organizations such as the Transition Plan Taskforce, Institutional Investors Group on Climate Change and Glasgow Financial Alliance for Net Zero, but does not specifically mention SBTi (OMERS: 2024 Annual Report, p.105).
OMERS defines “net-zero pathways” as “scientifically proven, clearly defined actions aimed at steering industries, sectors, and the global economy to meet the 2050 net zero target in line with the Paris Agreement,” but does not specifically mention SBTi (OMERS: Climate Action Plan, p.36)..
OPSEU Pension Trust (OPTrust)
OPTrust recognizes SBTi as “a partnership that defines and promotes best practice in emissions reduction and net-zero targets” (OPTrust: 2022-23 TCFD Report, p.16).
OPTrust mentions SBTI as an “organization working to assist investors on their climate journeys” that it “finds particularly helpful” (OPTrust: Designing a Climate Metrics Framework for Investment Portfolios: A Toolkit for Asset Owners, p.14).
Ontario Teachers’ Pension Plan (OTPP)
OTPP says it expects companies to have credible net-zero transition plans that include a commitment to achieve net zero on or before 2050, near-term and science-based emissions reduction targets, and details on how they will achieve their targets (See OTPP: 2022 Annual Responsible Investing and Climate Strategy Report, p.25) and refers to portfolio companies “submitting their science-based targets” (see OTPP - 2023 Annual Report, p.39), but does not specifically mention the SBTi.
Public Service Pension Investment Board (PSP)
PSP notes that it seeks to evaluate the alignment of its investments with “sector-specific emissions reduction trajectories as outlined in the International Energy Agency’s (IEA) Net-Zero Scenario, guidance from the Science Based Targets initiative (SBTi), the Investor Leadership Network (ILN) sector decarbonization pathways, or other credible modelling sources in alignment with a 1.5°C climate scenario” (PSP Investments: Climate-Related Financial Disclosures - 2024 CFD Report, p.7).
University Pension Plan (UPP)
UPP joined the SBTi campaign in 2022, “asking high-climate-impact companies to commit to setting science-based climate targets” (UPP: 2023 Annual Report, p.42).
UPP says that in 2024, it “encouraged efforts (by its external managers) to submit emission reduction targets for Science Based Targets Initiative validation” (UPP: Progress on UPP’s Climate Action Plan in 2024).
UPP won’t invest in new funds, companies or assets unless they have a commitment to net-zero by 2050 or to develop an interim science-based target that aligns with a standard such as SBTi (UPP: Climate Transition Framework).