Italy\u2019s 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\u2019s 1.5\u00b0C 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\u2019s underwriting activities, the targets will fail to capture a large part of their financing activities. Aligning with 1.5\u00b0C also requires an end to the financing of companies expanding oil and gas supply.<\/span><\/b>\u00a0<\/span><\/p>\n<\/div><\/div><\/div> 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 \u201canticipates the phase-out of coal financing by 2028\u201d (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\u2019s 2021 Net Zero Emissions scenario (NZE) (4).\u00a0<\/span>\u00a0<\/span><\/p>\n 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\u2019s total finance for major fossil fuel expansion companies between 2016 and 2022 was in the form of underwriting transactions.\u00a0<\/span>\u00a0<\/span><\/p>\n 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\u00b0-aligned underwriting targets.<\/span>\u00a0<\/span><\/p>\n<\/div> UniCredit\u2019s 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.\u00a0<\/span>\u00a0<\/span><\/p>\n However it is difficult to directly compare UniCredit\u2019s 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.\u00a0<\/span>\u00a0<\/span><\/p>\n 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 \u201cone of the most effective steps the energy sector can take to mitigate climate change\u201d (7).<\/span>\u00a0<\/span><\/p>\n<\/div> In the power sector, UniCredit\u2019s target is to reduce Scope 1 emissions by 47% between 2021 and 2030. This target is based on emissions intensity \u2014 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).<\/span>\u00a0<\/span><\/p>\n 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.<\/span>\u00a0<\/span><\/p>\n 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\u00b0C. 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.\u00a0<\/span>\u00a0<\/span><\/p>\n<\/div> While these targets are a step forward in UniCredit\u2019s journey toward aligning with 1.5\u00b0C, clearly some improvements are needed. And aligning with the NZE also requires acting upon the IEA\u2019s conclusion that there is no room in a 1.5\u00b0C budget for any new fossil fuel supply\u00a0and LNG\u00a0projects.<\/span>\u00a0UniCredit has put in place policies to mostly stop finance for new coal developers<\/span>. But<\/span>,<\/span> it has not yet done so for oil and gas developers. <\/span>\u00a0<\/span><\/p>\n 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). \u00a0The companies financed include Gazprom, Eni, Enel, Snam, as well as RWE, the German utility responsible for the <\/span>demolition of the village of L\u00fctzerath<\/a><\/span> to make way for the expansion of a huge open-pit coal mine.<\/span>\u00a0<\/span><\/p>\n<\/div> UniCredit\u2019s new targets put it among the banks that are closest to aligning with 1.5\u00b0C. 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.<\/span><\/b>\u00a0<\/span><\/p>\n<\/div>Don\u2019t hide the methane<\/h1><\/span>
No absolute emissions target<\/h1><\/span>
The need to stop supporting oil and gas developers<\/h1><\/span>