Setting targets for corporate loans: electricity generation when all loans are for renewable electricity projects

Hi, I would like to understand the approach that a bank would need to take regarding setting targets for the electricity generation projects it finances, specifically when all these loans are for projects generating renewable electricity solely. Do they need to set a target at all? Is it good enough that they produce evidence showing that there are no emissions associated with the projects they finance? (note this is for a relatively small number of loans <80).
Thanks,
Caoilinn

In this case, a maintenance target can be set to effectively maintain fiancing for only renewable electricity. Hence instead of reducing the intensity by x% CO2 per MWh, the target would commit the FI to continue financing 100% renewable energy

Thanks Eoin - that is much appreciated. I see that this type of maintenance target is acceptable for Bank’s operational Scope 2 targets as per FI-C14 of the criteria, and so if I’m picking you up correctly this maintenance target can be applied to the Scope 3 financial product - electricity generation products too. I can’t see this guidance in the SBTi criteria and Financial sector guidance documents but it seems to be a robust approach to me.

Thanks,
Caoilinn

Hi Caoilinn, exactly the same approach can be applied to both scope 2 and scope 3 electricity project finance. This isnt specifically mentioned in our guidance as of yet, but we expect to integrate this into the next version.

brilliant thanks Eoin!

Hi Eoin,

Sorry, but can I just confirm that this is still the case?

Thanks

Hi Luke - yes, please see the likes of La Banque Postal’s approved target: “La Banque Postale commits to continue financing only renewable electricity through 2030.”

We allow these maintenance type targets for electricity project financing asset class or other corporate instruments in the power sector where the emissions intensity is based on all renewable power

1 Like

That’s great Eoin. Will this be added to the guidance document?

Yes, we will include this in the section update to the guidance, but for now it can be used following the precedents of already published targets such as La Banque Postal

Thanks very much Eoin.

In a situation where there are two legal entities and one has 100% renewable and the other has a mix, could the targets be formulated as such?

Target 1 - Legal Entity 1 commits to maintain 100% renewable by xxx
Target 2 - Group (including Legal Entity 1 & 2) commits to reduce emissions by xxx by xxx

Or would Legal Entity 1 not be able to be included in the 2nd target because it already has a stand alone target?

Hopefully that makes sense!

Hi Katie,
In this example it would be ok for legal entity 1 to be included in the 2nd target as we expect all group level targets to be able to include subsidiary level targets.

Thank you!

Can I also confirm what the SBTi classifies as ‘renewable’ electricity? Do you include nuclear in this definition?

Currently we dont have a standard definition of “renewable” electricity. Instead this is more linked to the carbon intensity of the power source and hence nuclear would be acceptable then since it is a very low carbon intensity electricity source

1 Like

Jut to piggyback on this helpful thread - what happens if an FI has a very low base year due to a renewable heavy loan book, but is due to increase loans to e.g. gas-fired power over the next decade? The FI intensity would be very low to begin with, would rise but stay below the pathways, before declining again in the future. The problem is that SBTi guidance states that intensity should be on a continuous downward trajectory, but this seems to penalise FIs who are already near zero but who may need to finance bridge fuels such as gas in the short term (especially given the Ukraine situation).

The question is, would SBTi validate a target which is higher than base year but still below the 1.5 degree pathways? Or would the FI need to abandon its short term financing plans to ensure validation?

1 Like

Thanks Eoin. Do you have any position on biomass (lower carbon but not as low as others such as nuclear, solar, wind and so on)?

Hi Katie, we dont have any specific criteria on biomass as part of financing activities. For any power generation related finance you would have to use a suitable emissions factor for the biomass in question which will be used to develop a physical intensity based target. For other types of financing of companies involved in biomass/bioenergy (non-power), these would be covered with PC/TR targets at the entity level

1 Like