Italy’s second largest bank, UniCredit, has announced targets for the financed emissions of its loans to the oil and gas, power and car sectors. The 2030 targets appear mostly aligned with the relevant sectoral pathways in the International Energy Agency’s 1.5°C roadmap, but improvements are needed such as setting separate CO2 and methane targets, and absolute emissions targets for the power sector. Furthermore, until they cover the bank’s underwriting activities, the targets will fail to capture a large part of their financing activities. Aligning with 1.5°C also requires an end to the financing of companies expanding oil and gas supply. 

UniCredit has announced its first set of targets under its commitment to the Net-Zero Banking Alliance (NZBA) (1). The targets apply to what the bank states are the most carbon-intensive sectors in its portfolio: oil and gas, power and automotive (2). UniCredit did not set a target for coal implying that this is unnecessary because its coal policy “anticipates the phase-out of coal financing by 2028” (although as Reclaim Finance has noted, there are important exceptions to this requirement) (3). The bank states that its targets are aligned with the International Energy Agency’s 2021 Net Zero Emissions scenario (NZE) (4).  

The targets cover only lending exposure, and thus ignore capital markets underwriting activities which represent a large part of the finance UniCredit provides to its high emitting clients. Reclaim Finance research shows that 43% of the bank’s total finance for major fossil fuel expansion companies between 2016 and 2022 was in the form of underwriting transactions.  

UniCredit has informed NGOs that it intends to include underwriting in future targets after the publication of a methodology for measuring emissions (5) associated with capital market transactions. This methodology is expected in the coming months and Reclaim Finance urges UniCredit to expeditiously set 1.5°-aligned underwriting targets. 

UniCredit’s oil and gas target is for a reduction of 29% in absolute CO2-equivalent Scope 3 emissions from extraction, refining and distribution between 2021 and 2030. This seems to compare favorably with the 23% reduction in absolute emissions from the oil and gas sector between 2020 and 2030 modeled in the NZE.  

However it is difficult to directly compare UniCredit’s targets with the NZE due to the inconsistent baselines and scopes and gases measured. UniCredit follows the guidelines of the NZBA in setting its targets in CO2-equivalent (CO2e), which in the oil and gas sector essentially means combining together the warming impacts of both CO2 and methane.  

The NZE reduction of 23% in oil and gas emissions by 2030, however, counts only CO2. Methane is treated separately in the NZE with a fall of over 75% by 2030 in emissions from fossil fuel supply. UniCredit should also set targets on CO2 and methane separately in addition to the combined CO2e metric. Due to its nature as a high-warming potential but short-lived gas, and that fact that fossil fuels generate over one-third of methane emissions from human activity, action on methane (6) is “one of the most effective steps the energy sector can take to mitigate climate change” (7). 

In the power sector, UniCredit’s target is to reduce Scope 1 emissions by 47% between 2021 and 2030. This target is based on emissions intensity — the CO2e emitted per kilowatt-hour (kWh) of generation. This compares unfavorably with the 68% reduction in CO2/kWh for Scope 1 power sector emissions between 2020 and 2030 given in the NZE. However this comparison is misleading as the IEA reduction is based on average global power emission intensity, whereas according to UniCredit almost all its power clients are in Europe where power sector carbon intensity is lower (8). 

The difference between CO2 and CO2e numbers is not likely significant for Scope 1 power sector emissions as these are dominated by CO2. However to be comprehensive, power sector emissions should include the upstream Scope 3 emissions from extraction and transport, of which a significant proportion would come from methane, both from coal mines and gas fields, pipelines and other infrastructure such as LNG processing and transport. UniCredit should therefore include Scope 3 power emissions in its targets and set separate targets for CO2 and methane in this sector. 

As well as giving a 68% reduction in the emissions intensity of power generation by 2030, the NZE also gives a 57% reduction in absolute emissions. UniCredit, however, has not set an absolute emissions target, and therefore fails to ensure that its actions will cause a real-world decline in emissions aligned with 1.5°C. Mathematically UniCredit could meet its intensity reduction target purely through increasing its lending to renewables and other low carbon energy sources, while not actually reducing its exposure to fossil fuels.  

While these targets are a step forward in UniCredit’s journey toward aligning with 1.5°C, clearly some improvements are needed. And aligning with the NZE also requires acting upon the IEA’s conclusion that there is no room in a 1.5°C budget for any new fossil fuel supply and LNG projects. UniCredit has put in place policies to mostly stop finance for new coal developers. But, it has not yet done so for oil and gas developers.  

Reclaim Finance research shows that UniCredit provided US$948 million for the companies with the largest plans to expand fossil fuel supply between its joining the NZBA in October 2021 and August 2022 (9).  The companies financed include Gazprom, Eni, Enel, Snam, as well as RWE, the German utility responsible for the demolition of the village of Lützerath to make way for the expansion of a huge open-pit coal mine. 

UniCredit’s new targets put it among the banks that are closest to aligning with 1.5°C. However it still needs to improve its targets to ensure they properly address methane emissions, and cut actual power sector emissions. It also must put in place policies to end its financing of the carbon budget-busting companies that are developing new oil and gas projects. 

Notes:

1. UniCredit sets Net Zero targets for carbon intensive sector, under NZBA commitment 
2. UniCredit is committing to releasing targets later on other carbon-intensive sectors such as steel and cement as required by the NZBA. 
3. Reclaim Finance gave a “best practice” rating to UniCredit’s September 2020 coal policy in our Coal Policy Tool, but removed this rating after the policy was weakened in January 2022 by inserting several significant exceptions, including for the provision of some financial services to coal companies after 2028. These exceptions are explained in the Coal Policy Tool.  
4. IEA report: Net Zero by 2050: A roadmap for the global energy sector 
5. The global GHG Accounting and Reporting Standard for the Financial Industry 
6. IEA report: Methane Emission from Oil and Gas Operation 
7. There is some uncertainty about whether UniCredit’s intends for its targets to address emissions from oil and gas production, the source of a large part of the industry’s methane releases. While UniCredit says they will only address the Scope 3 emissions from production (mostly the emissions when the oil and gas is burned), production emissions should be included under the upstream Scope 3 emissions of refining and distribution activities. 
8. UniCredit’s target for its power sector emissions intensity in 2030 (111 gCO2e/kWh) is lower than the NZE number for 2030 (138 gCO2/kWh). 
9. Reclaim Finance, Throwing Fuel on the Fire: GFANZ financing of fossil fuel expansion, Appendix 9, January 2023