In order to achieve the Paris Agreement targets and reduce greenhouse gas emissions, it is necessary that all actors in the real economy reduce their emissions at a pace that corresponds to scientifically established targets. It is necessary to understand that carbon emissions from the activities of companies and industries occur within a broad economic and regulatory system, which generates complex incentives and disincentives to encourage the reduction of emissions in all sectors of the world economy. All actors in a value chain share influence over each other's direct emissions and therefore have a responsibility to reduce them. Financial institutions have a unique influence on other actors through their investment and lending services, which can be leveraged to align incentives and remove barriers to systemic decarbonization in line with the Paris Agreement.

The transition to a low-carbon economy is a challenge that requires bold commitments from financial institutions. This commitment establishes the objective of making financial flows consistent with the reduction of Greenhouse Gas (GHG) emissions and, in this context, financial institutions have a great responsibility in the transition to a decarbonized economy, as they finance some of the industries most carbon intensive in the world. However, in order to understand the environmental impact associated with financial institutions and establish emission reduction targets in line with the Paris Agreement, it is essential to quantify financed emissions.

With a view to facilitating the calculation of direct and indirect emissions from projects associated with the financial investment market, the Science Based Targets Initiative (SBTi) launched the guide SBTi Finance Sector and TCFD Reporting Guidance to foster credible climate strategies, which provides norms for banks, private equity, asset managers, landlords and mortgage real estate investment funds harmonize science-based goals with robust disclosures of climate-related opportunities and risks, in line with institutions' transition plans. SBTi is a global initiative that aims to encourage companies to set science-based targets for reducing greenhouse gas emissions and is supported by several organizations, including the United Nations Environment Program (UNEP), the World Wildlife Fund (WWF) and the Carbon Disclosure Project (CDP). The SBTi Finance Sector and TCFD Reporting Guidance is an important tool to help financial institutions quantify and reduce their greenhouse gas emissions.

Guidance from the SBTi Finance Sector and TCFD Reporting Guidance provides a pathway for financial institutions to align their emission reduction targets with the objectives of the Paris Agreement. This involves identifying opportunities to reduce emissions in their own operations and in the companies and projects they finance. In addition, the guide encourages financial institutions to disclose clear and accurate information about climate-related risks and opportunities in their financial reports, in accordance with the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD).

Adopting the SBTi Financial Institutions framework and disclosing information in accordance with the TCFD recommendations can bring benefits to financial institutions, including greater transparency and confidence from investors and customers, as well as a greater competitive advantage in the transition to a low carbon economy. Reducing greenhouse gas emissions also leads to a reduction in climate-related risks, such as exposure to extreme weather events and stricter regulations.

To illustrate the importance of engaging financial institutions in reducing greenhouse gas emissions, we have the work of the European Investment Bank (EIB), which has committed to becoming a climate bank since 2019. The EIB, the largest multilateral financial institution in the world, promised to invest 1 trillion euros in climate and sustainable actions by 2030 and to become a bank fully aligned with the objectives of the Paris Agreement.

To achieve these targets, the EIB has adopted a number of science-based strategies, such as quantifying financed emissions through the tool Emissions Performance Standard (EPS), which establish a maximum limit of greenhouse gas (GHG) emissions for projects financed by the bank. In addition, the EIB also adhered to the methodology of the Science Based Targets Initiative (SBTi) to establish emission reduction targets in line with the Paris Agreement.

These measures have already started to have an effect: in 2022, the EIB invested more than 36 billion euros in renewable energy, energy efficiency and sustainable transport projects, which resulted in the reduction of more than 10 million tons of GHG emissions. The bank also recently announced that it will no longer finance fossil fuel projects, except in exceptional circumstances, and is working to decarbonize its own operation.

Financial institutions can and must play a key role in the transition to a low-carbon economy, through science-based strategies and ambitious commitments. By quantifying financed emissions, setting emission reduction targets and removing barriers to systemic decarbonization, financial institutions promote the shift towards a more sustainable future, in line with the Paris Agreement.