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Three of the largest North American banks have agreed to publicly disclose their financing ratio of low-carbon energy to fossil fuels, setting a new standard for the banking sector
After successful shareholder engagements, New York City Comptroller Brad Lander and trustees of the New York City Employees’ Retirement System, Teachers’ Retirement System, and Board of Education Retirement System (the Pension Systems) have reached agreements with JPMorgan Chase, Citi, and the Royal Bank of Canada that the banks will regularly disclose their ratio of clean energy supply financing to fossil fuel extraction financing (Energy Supply Ratio) and their underlying methodology. The agreements are a critical step to better assess the role banks play in the climate transition, and whether or not they are on track to meet their emissions reduction commitments.
“Despite their commitments to decarbonize, U.S. and Canadian banks have financed over $1 trillion of fossil fuel extraction since the Paris Accords. The transition from financing fossil fuels to low-carbon energy is going far too slowly – and thus far, it hasn’t even been possible for shareholders to track,” said Comptroller Brad Lander. “We appreciate JPMorgan, Citi, and RBC agreeing to provide greater transparency so that long-term investors can more effectively measure how well they are or aren’t living up to their commitments. As leading public investors, we expect that energy supply ratio disclosure will become a new standard for the banking sector. We call on Bank of America, Goldman Sachs, and Morgan Stanley to follow suit at a time when our planet and investment portfolios are at risk.”
“For the sake of our planet and our NYCERS members and beneficiaries, pacing and scaling clean energy investments cannot be delayed any longer. Greater transparency of capital flows will help NYCERS reach 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 made it clear that reaching net zero greenhouse gas emissions by 2050 is necessary to avoid most devastating consequences of climate change, which is in line with emissions reductions assessed in the Intergovernmental Panel on Climate Change (IPCC)’s Sixth Assessment Report. The International Energy Agency projects that this will require a tripling in global annual clean energy investment by 2030.
The Energy Supply Ratio highlights the real economy impacts of the banks’ energy supply financing and provides decision-useful information for investors in an area where disclosure is currently limited. The disclosures will allow investors to better measure a bank’s transition risks and opportunities, how well banks are living up to their net zero and sustainable finance commitments, and the pace and scale of the energy transition.
The Energy Supply Ratio integrates both halves of the equation to combat the climate crisis: phasing out fossil fuels and accelerating investments in climate solutions. While banks have robust sustainable financing commitments, a bank’s Energy Supply Ratio will provide investors with specific decision-useful disclosure where it is currently limited. These disclosures, which will complement banks’ current financed greenhouse gas emissions disclosures, will meaningfully strengthen their overall climate-related financial disclosures. They will therefore provide investors with a more complete picture of their role in the energy transition.
The Energy Supply Ratio metric is science-based. It recognizes that phasing out investments in fossil fuels is a crucial component necessary to combat the climate crisis and at the same time the pace at which low-carbon energy supply is scaled up will dictate the rate at which fossil fuels are phased down. According to research by Bloomberg New Energy Finance, the ratio of financing for clean energy supply, relative to fossil fuels, needs to reach a 4-to-1 ratio by 2030. At the end of 2022, the estimated energy-supply banking ratio for North American banks was 0.61-to-1, which was trailing the global ratio of 0.73-to-1.
The Pension Systems have 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.
The agreements build on the bold climate action outlined in each System’s net zero implementation plans.
“We applaud 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. “Securing greater transparency from banks on their energy financing is key to helping protect investors from climate-driven 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.”
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“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. “Responding to the Comptroller’s leadership, agreeing to this first step of disclosure is an admission 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.”