Three of the biggest banks in North America have agreed to publicly share the ratio of their funding for low-carbon energy and fossil fuels, setting a new standard for the banking sector.
After successful discussions with shareholders, the New York City Comptroller Brad Lander and trustees of the Pension Systems have reached agreements with JPMorgan Chase, Citi, and the Royal Bank of Canada to regularly disclose their ratio of financing for clean energy supply and fossil fuel extraction (Energy Supply Ratio) and their underlying methodology. These agreements are a crucial step in evaluating the role banks play in the climate transition and whether they are meeting their emissions reduction commitments.
“Even though U.S. and Canadian banks have pledged to reduce carbon emissions, they have funded over $1 trillion of fossil fuel extraction since the Paris Accords. The move from financing fossil fuels to low-carbon energy is happening too slowly, making it difficult for shareholders to monitor.” said Comptroller Brad Lander. “We thank JPMorgan, Citi, and RBC for agreeing to provide more transparency so that long-term investors can better assess their compliance with commitments. As leading public investors, we expect that energy supply ratio disclosure will become a new standard for the banking sector. We urge Bank of America, Goldman Sachs, and Morgan Stanley to do the same at a time when our planet and investment portfolios are at risk.”
“For the sake of our planet and our NYCERS members and beneficiaries, accelerating clean energy investments cannot be delayed. Greater transparency of capital flows will help NYCERS achieve climate goals sooner and reduce climate and investment risk for our members and beneficiaries,” said Henry Garrido, NYCERS Trustee, Executive Director, District Council 37, AFSCME, AFL-CIO.
The International Energy Agency (IEA) has emphasized the importance of achieving net zero greenhouse gas emissions by 2050 to prevent the most severe consequences of climate change, in line with assessments in the Intergovernmental Panel on Climate Change (IPCC)'s Sixth Assessment Report. The International Energy Agency predicts that this will require a threefold increase in global annual clean energy investment by 2030.The Energy Supply Ratio demonstrates the real impacts of the banks' energy supply financing and offers valuable information for investors, where disclosure is currently limited. These disclosures will enable investors to better evaluate a bank's transition risks and opportunities, its compliance with net zero and sustainable finance commitments, and the pace and scale of the energy transition.
The Energy Supply Ratio encompasses both aspects of addressing the climate crisis: phasing out fossil fuels and increasing investments in climate solutions. While banks have strong commitments to sustainable financing, a bank's Energy Supply Ratio will offer investors specific and valuable disclosure where it is currently lacking. These disclosures, in addition to banks' current disclosures of financed greenhouse gas emissions, will significantly enhance their overall climate-related financial disclosures, giving investors a more complete understanding of their role in the energy transition.
The Energy Supply Ratio integrates both phases of combating the climate crisis: reducing fossil fuels and accelerating investments in climate solutions. While banks have strong sustainable financing commitments, a bank's Energy Supply Ratio will provide investors with specific valuable information where it is currently lacking. These disclosures, which will complement banks' current disclosures of financed greenhouse gas emissions, will greatly strengthen their overall climate-related financial disclosures, giving investors a more complete understanding of their role in the energy transition.
The Energy Supply Ratio metric is based on science. It acknowledges that stopping investments in fossil fuels is a crucial part of fighting the climate crisis. Also, the speed at which we increase low-carbon energy supply will determine how quickly we reduce the use of fossil fuels. According to Bloomberg New Energy Finance research, the funding for clean energy supply needs to be 4 times higher than fossil fuels by 2030. At the end of 2022, the estimated energy-supply banking ratio for North American banks was 0.61-to-1, which was lower than the global ratio of 0.73-to-1.
The Pension Systems have outstanding shareholder proposals. outstanding shareholder proposals with Bank of America, Goldman Sachs and Morgan Stanley and will continue engagement. They are also making the case for voting support for the proposals in a presentation to investors. presentation to investors.
The agreements build on the ambitious climate action outlined in each System's net zero implementation plans.
“We praise Comptroller Lander and New York City's pension funds for their leadership in driving climate progress in the banking sector.” said Ben Cushing, Sierra Club Fossil-Free Finance Campaign Director. “Getting more transparency from banks about their energy financing is crucial to help protect investors from climate-related financial risks. Now, all eyes are on the remaining Wall Street banks to also commit to disclosing this important baseline information, and then take the necessary steps to rapidly scale up clean energy financing and reduce fossil fuel financing to align with their climate goals.”
“Banks like Citi, RBC and Chase are fundamentally on the wrong side of history with continued over-financing of fossil fuels and lack of adequate support for renewables.” said Richard Brooks, Stand.earth Climate Finance Director. “In response to the Comptroller's leadership, agreeing to this first step of disclosure is an acknowledgment that fossil banks have a problem. The next step is the science- and justice-based rapid phase-out of oil, gas and coal funding, ramp-up for proven climate-safe solutions.”
