Brief:
In a thorough exploration of 2030 energy sector ambitions, exclusionary strategies, and climate-related disclosures from six major U.S. banks, a recent report by the Sierra Club reveals a noteworthy divergence in their practices. While all banks aspire to achieve net-zero emissions by 2050, some stand out by offering more detailed disclosures and policies.
The analysis, anchored in publicly accessible data from institutions such as Bank of America, Citibank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo as of September 2024, juxtaposes their frameworks against paramount standards and recommendations in the banking sector, as noted by Ben Cushing, director of the environmental nonprofit Fossil-Free Finance campaign.
While the report highlights a growing "daylight" or distinction among the banks regarding certain climate disclosures, it deems their overall strides toward a net-zero future as "relatively equal," cautioning that they remain off-course in achieving their ambitious targets. “The current landscape of their operationalizing and implementation strategies for net-zero commitments is far from adequate,” Cushing remarked in an interview on Tuesday.
Insight:
This analysis serves as a critical update on the trajectory of these financial giants since Sierra Club’s inaugural “Leaders or Laggards” report in 2022. All six banks are affiliated with the Net-Zero Banking Alliance (NZBA) and have established 2030 emissions reduction benchmarks for high-emission sectors like energy and power generation since the prior report.
Cushing elaborated that the methodologies were derived from recommendations and standards set forth by various civil society and industry organizations, including the NZBA and Reclaim Finance. The findings are striking: “In general, the targets and exclusion policies of the major U.S. banks fall significantly short of international best practices,” prompting calls for heightened ambition in their 2030 targets, bolstered exclusion policies, and enhanced transparency in climate disclosures to genuinely pursue their 2050 net-zero commitments.
Despite identifying a few positive developments, the researchers found all six prominent U.S. banks to be trailing behind the global best practices established by their international counterparts. However, on the playing field, Citi has emerged as a frontrunner, making strides beyond its competitors in setting targets and framing exclusion policies, as well as fostering climate transparency.
Among U.S. banks, Citi and Wells Fargo have distinct commitments to diminish absolute financed emissions within the oil and gas sphere, aligning with recommendations made by the Science Based Targets initiative, a significant shift from mere carbon intensity reductions. Citi has further taken the lead by pledging to halt project-level financing for oil and gas endeavors in the Amazon and Arctic regions, demonstrating a notable policy update following advocacy from Indigenous rights groups.
In the arena of coal financing, there exists a broader consensus. Banks like Citi, Goldman Sachs, JPMorgan, Morgan Stanley, and Wells Fargo share policies prohibiting project-level funding for new thermal coal mining, while Citi and others adopt even stricter exclusion practices concerning corporate-level financing. Bank of America, on the other hand, requires enhanced due diligence on companies that derive over 25% of their revenue from coal mining operations.
As for climate disclosures, Citi and JPMorgan are the exclusive banks to publicly commit to disclosing the ratio of fossil fuel financing to clean energy investments, responding to shareholder pressure, while Citi has taken the unprecedented step of evaluating its clients’ transition strategies, revealing that a staggering 71% lack viable plans for a sustainable transition.
Cushing warns that while Citi is outperforming its peers in certain areas, significant gaps remain between current practices and the standards required to fulfill their commitments and align with global expectations.
The report notes that the benchmark for best practices has been extensively influenced by European institutions. Notably, French banks like BNP Paribas and Société Générale have set ambitious targets to curtail their lending for oil and gas exploration and production, indicating a robust European commitment to environmental sustainability.
Overall, as Cushing aptly concludes, “The role of major banks is critical for ensuring a sustainable and prosperous future. Urgent action is necessary, including bolstering U.S. banks’ climate targets, policies, and disclosures, and ultimately terminating their financing of fossil fuel expansion.”
This report dovetails with findings from Climate X, which highlighted that many global banks remain inadequately prepared for the risks associated with climate change, with U.S. institutions exhibiting the lowest levels of readiness for climate adaptation compared to their peers worldwide.