When it comes to achieving industrial decarbonization, sectoral target-setting finance frameworks are essential for banks to move from setting targets to taking real action. Many large banks are now shifting their focus from merely setting targets to measuring and deploying transition finance, but the foundation laid through target-setting is crucial for reducing financed emissions and financing emissions reductions.
The Pegasus Guidelines, launched on April 4th, provide a methodology for banks to set individual targets based on their internal strategies, specifically focusing on sectors like aviation. These guidelines empower banks to assess and disclose the emissions intensity of their aviation lending portfolios against a 1.5°C pathway, helping them support their clients' decarbonization efforts effectively.
Sector-specific frameworks are designed to create a level playing field for industries like aviation, aluminum, steel, and shipping. For instance, the Pegasus Guidelines allow banks to differentiate between passenger and dedicated cargo traffic within their airline lending portfolios, considering their distinct emissions intensities and transition trajectories. The Sustainable Aluminum Finance Framework assesses primary and recycled aluminum production against their 1.5°C pathways, tailoring each client's benchmark accordingly to ensure a realistic pathway towards decarbonization.
In the steel sector, the Sustainable Steel Principles focus on transitioning primary steel production by differentiating between primary and secondary steelmaking. This sectoral approach helps steel producers adopt clean end-state technologies rather than merely redistributing emissions by increasing scrap usage.
Similarly, the Poseidon Principles for shipping pioneer a sector-specific approach to emissions measurement and target setting, considering the unique constraints and opportunities vessels face in decarbonizing. These sector-based frameworks not only help banks meet their climate commitments but also enable effective collaboration with clients to drive emissions reductions in critical sectors.
In conclusion, sectoral target-setting finance frameworks play a crucial role in industrial decarbonization by enabling banks to set informed climate targets, support their clients' transition efforts, and ultimately drive emissions reductions in sectors vital to our sustainable future.