Investors face a deadline for phasing out fossil fuel financing, as major oil companies withdraw their backing, according to the Sustainability Accounting Standards Board (SBTi).
In a significant move, the Science Based Targets Initiative (SBTi) has published new standards for organizations seeking endorsement, carrying substantial influence in the financial sector. The new standards call for a halt in financing fossil fuel expansion, particularly in the oil and gas industry, to align with a 1.5°C global warming limit [1].
The SBTi's mandatory fossil fuel transition policy has been welcomed by Jessye Waxman, policy adviser for the Sierra Club's Sustainable Finance campaign. Waxman emphasizes that financing fossil fuel expansion is incompatible with any serious net zero commitment [2].
The updated framework aims to expand asset class coverage, improve transparency of emissions inventories, and offer guidance on decarbonising the built environment. The new standards require financial institutions to immediately cease all financing for coal expansion and halt all new project financing for oil and gas expansion [3].
The implication for the financial sector is significant. Banks and lenders are now under clear pressure from credible science-based standards to end support for fossil fuel expansion, which is increasingly viewed as incompatible with a transition-ready investment portfolio. This threatens the traditional financing model for oil and gas operators, particularly independent exploration and production companies reliant on borrowing secured by reserves. Some major banks are already pulling back financing to align with climate commitments, creating liquidity challenges for these firms [2].
Meanwhile, clean energy investments are outpacing fossil fuel investments globally. In 2025 alone, $2.2 trillion was invested in clean energy compared to $1.1 trillion for fossil fuels, highlighting the financial sector’s shifting priorities and growing emphasis on sustainable energy solutions [4].
However, the SBTi has paused its work on oil and gas standards following the withdrawal of major oil companies from its expert advisory group due to the incompatibility of fossil fuel phase-out with their core business. Some of the world's largest oil majors, including Shell Plc, Aker BP ASA, and Enbridge Inc, have withdrawn from the group [5].
Despite these challenges, over 150 organizations, including Schroders, Amundi, Varma, AkademikerPension, PensionDanmark, Strathclyde Pension Fund, TfL Pension Fund, and Elo Mutual Pension Insurance Company, have sought SBTi approval for their net zero plans [6]. The SBTi's new standards address the question of how investors should respond to fossil fuel expansion, a pressing issue for investors in oil majors like Exxon, Chevron, BP, Shell, and Equinor [7].
Waxman states that the new standard clarifies what constitutes credible net zero plans for financial institutions. She suggests that while there are opportunities to further strengthen this standard, it is an important and necessary step forward for the financial sector [2]. A new battleground is emerging in the financial services industry, with banks, insurers, and institutional investors under increasing pressure to stop insuring, underwriting, and investing in new fossil fuel production.
Reclaim Finance warns that a 2030 deadline for phasing out general-purpose financing for oil and gas expansion delays urgent action. They suggest that resources from new oil and gas fields planned for approval between 2026 and 2030 would amount to 200 billion barrels, equivalent to 3.6 times global production in 2023 [8].
The International Energy Agency (IEA) has warned for the past four years that no new oil and gas capacity is needed to meet the decarbonisation targets set out in the Paris Agreement. The SBTi's rigorous new standards explicitly call for an end to financing fossil fuel expansion, directly challenging the business-as-usual approach of major oil companies and pressuring the financial sector to accelerate divestment from fossil fuel projects, with broad implications for capital allocation and climate risk management in global finance [1][2][3][4].
References:
- SBTi's New Standards for Financial Institutions
- Sierra Club's Response to SBTi's New Standards
- SBTi's New Standards for Fossil Fuel Transition
- Clean Energy Investments Outpace Fossil Fuels
- Major Oil Companies Withdraw from SBTi's Expert Advisory Group
- Organizations Seeking SBTi Approval for Net Zero Plans
- SBTi's New Standards and Oil Majors
- Reclaim Finance's Warning on Delayed Phase-Out of Oil and Gas Expansion Financing
The Science Based Targets Initiative's (SBTi) new standards for financial institutions require a halt in financing fossil fuel expansion, challenging the traditional financing model for oil and gas operators. These standards also seek to address the question of how investors should respond to fossil fuel expansion, with environmental science suggesting that financing fossil fuel expansion is incompatible with any serious net zero commitment.
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