IEEFA criticises SBTi’s draft standards for financial sector 

September 1st, 2023

The Institute for Energy Economics and Financial Analysis (IEEFA) has recommended improvements for the Science Based Targets initiative’s (SBTi’s) draft standards for financial institutions.

IEEFA called on SBTi to strengthen the standards and develop practical tools and guidance, claiming this would improve its credibility and put more pressure on financial institutions to meet the standards and “clean up their act”.

The non-profit organisation called on SBTi to tighten policy coverage and ensure that 100% of financing exposure is covered for the fossil fuel sector as for electricity generation in the near-term after it opened its draft for consultation after the proposals were published in June.

It also highlighted that the policy coverage should ensure that portfolio exposure of facilitated emissions should also be considered and that all asset management activities are covered.

However, IEEFA praised the proposals for the development of a better temperature pathway alignment in the near term, and for emphasising the phasing out of fossil fuel financing, claiming that the initiative has “undoubtedly stepped up its game” with the proposals.

IEEFA’s observations on setting standards for financial institutions and fossil fuel financing was followed by its analysis on thermal coal miners’ fragile profits and financing risks.

It noted that the July 2023 coal market update from the International Energy Agency (IEA) had found profits were fragile and fresh opportunities to bankroll expansions were declining.

The IEEFA said traditional financing sources are drying up for miners as shareholder support falls and cash flows reduce as coal prices return to normal and production costs rise.

Excess cash generation will be challenging for companies following the record profits of 2022, it noted, and coal miners are reducing their focus on returning funds to shareholders in favour of reserving capital for expansion opportunities.