Big U.S. banks make grand statements about combating climate change, but as they bankroll fossil fuel giants, none of them are on track to meet the Paris climate accord's key goal.
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The Paris Agreement, an international treaty to combat climate change, aims to limit global warming to 1.5°C by 2030, and banks have pledged to be part of the change.
But according to the anlalysis, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley each use inconsistent parameters that don't capture the full scope of carbon emissions by the energy companies they finance and advise. The banks' methodologies are creating greenwashing-style loopholes to continue financing high-carbon activities, the analysis found.
JPMorgan, Citi, Wells Fargo and Bank of America were among the top banks that provided $742 billion to the fossil fuel industry in 2021, according to a
The Ceres report found that among all banks, Citi has the most ambitious emissions-reduction target, even as it bankrolls fossil fuel companies contributing to global warming. And Bank of America reports that its oil and gas portfolio aligns with the Paris accord's goal of keeping warming below 2°C by 2030.
Steven M. Rothstein, the managing director of the Ceres Accelerator for Sustainable Capital Markets, said the analysis can be an important tool for investors focused on environmental, social and governance issues to compare and evaluate banks' role in decarbonization.
"It's critical that the methodology behind these targets is transparent and comparable to inform both bank management and investors," he said in a statement.
A bank's climate impact is measured by the carbon footprint of the businesses it finances through products and services including loans, investments and derivatives. All of the largest American banks have
The report highlighted, however, how not all the banks' energy-financing activities are included in their 2030 climate targets.
Bank of America, Wells Fargo, JPMorgan Chase, and Morgan Stanley declined to comment on the findings. Goldman Sachs didn't reply to the Financial Planning's request.
A spokesperson for Citi said that the bank "has established 2030 emissions reduction targets for a number of sectors, including an absolute emissions reduction target for the energy sector which is benchmarked against the International Energy Agency's Net Zero Emissions by 2050 scenario, and 1.5C aligned. Citi is committed to supporting the transition to a low-carbon economy. We are working with our clients on their transitions and supporting clean energy solutions to help meet the world's future energy demand with clean low-carbon sources, while also continuing to meet today's global energy needs."
Henry Shilling, the director of research at Sustainable Research and Analysis, a sustainable investments research firm in New York, said one problem is that there's no standard methodology for banks to measure their portfolio emissions — meaning carbon emissions by energy companies they work with.
"The Net-Zero Banking Alliance that these financial institutions have signed on to provides a variety of different options and flexibilities that banks can bring to bear the commitments that they've made," he said. "The pushback by Republican states versus moderate and liberal leaning states, in part it has to do with the confusion, misunderstanding, and no standards in ESG."
Banks including JPMorgan, Goldman Sachs, Morgan Stanley and Wells Fargo were
The Ceres report said that while all six banks include in their targets the total amounts of lending they have committed to provide to fossil fuel companies, they disclose only vague details on asset-level finance, revolving credit facilities and syndicated loans, areas that would help investors identify gaps in coverage.
"Depending on a bank's transition strategy, limiting the scope of emissions reduction targets may allow companies not aligned with the low-carbon transition to continue to access financing," the Ceres report said.
Each bank adopts different parameters to measure their emissions, resulting in inconsistency and lack of transparency in their disclosures, according to the report. None of the six banks use what the analysis considers to be the best practice: To disclose emissions in both absolute terms and physical intensity terms, and to provide data needed for stakeholders, including shareholders and future investors, to "translate" targets set in one form into the other if needed.
The report also said banks shouldn't include client-purchased carbon credits in their 2030 emission targets. Wells Fargo is the only one among the six that refrained from the practice.
Shilling said the findings can create more skepticism among retail investors in ESG.
"They're interested in aligning their investments with their sustainability preferences," he said. "But it's a difficult challenge in sorting through a very confusing landscape and it does make it difficult for them to invest with any degree of confidence."
According to a Fitch Rating
"We believe banks that fall short of the evolving climate-related requirements will increasingly face adverse reputational, regulatory and – ultimately – financial consequences," the report said.
In May 2022, the SEC fined the fund-management arm of BNY Mellon $1.5 million for misstatements and omissions about ESG considerations in making its investment decisions, the report highlighted.
"The longer it takes to align, the more risk that cumulative emissions are above the global carbon budget and climate goals are missed," the Ceres report said. "A major step banks can take to strengthen their targets is to ensure the targets consider the broader energy system in which oil and gas companies operate, and help those companies to not only move away from fossil fuels but also to scale up clean energy solutions."
