The latest climate report [1] of America\u2019s biggest bank, JPMorgan Chase, includes for the first time its \u201cEnergy Supply Financing Ratio\u201d (ESFR), which compares its financing for fossil fuels and their alternatives. Encouragingly, the ratio covers the entire fossil fuel value chain and includes financing through capital market activities, such as bonds emissions. While the bank\u2019s transparency is noteworthy, the methodology is not perfect, notably in terms of the technologies included.<\/p>\n<\/div>
JPMorgan Chase is the third international bank to disclose an ESFR [2] (earlier this year, BNP Paribas published its own ratio and Santander publicly acknowledged its ratio calculated by Bloomberg New Energy Finance), but the bank takes the methodology significantly further than its peers. JPMorgan Chase\u2019s ESFR compares financing for two sets of sectors: \u201clow-carbon energy supply\u201d and \u201chigh-carbon energy supply\u201d – respectively US$30bn and US$23bn in 2023. The resulting ratio is 1.29:1, meaning that for every dollar allocated to \u201chigh-carbon energy supply,\u201d the bank has allocated US$1.29 to \u201clow-carbon energy supply.\u201d<\/p>\n<\/div>
As well as disclosing its ESFR, JPMorgan Chase also published its methodology [3] providing details of the sectors and activities included in these two sets, the financial products and services covered, as well as the proxies used for mixed financings.<\/p>\n
It is particularly positive to note that the \u201chigh-carbon energy supply\u201d set \u2014 a discreet way of labeling the fossil fuel portion of the ratio \u2014 covers the entire fossil fuel value chain:<\/p>\n
For oil & gas, the bank goes further than BNP Paribas, whose ratio only covers upstream and refining activities.<\/p>\n
On the \u201clow-carbon energy supply\u201d side, the bank takes a broad definition for \u201csupply\u201d and does not limit itself to electricity generation, including transmission and distribution grids, as well as storage. This is crucial, as the International Energy Agency (IEA) highlights [4] that grids are becoming a bottleneck for the energy transition, and investment in grids and storage capacity must rapidly increase to support the deployment of sustainable power [5].<\/p>\n
As for the financial products and services covered, JPMorgan not only includes loans but also facilitation services, such as bond issuances. Again, the bank goes further than BNP Paribas, whose ratio only covers credit exposure. This difference is not trivial: bonds and shares account for 40% of BNP Paribas\u2019 financing to fossil fuels since 2016, and 45% for JPMorgan Chase [6].<\/p>\n<\/div>
However, these positive elements should be viewed in light of the flaws that persist in the \u201clow-carbon energy supply\u201d activities.<\/p>\n
First, the \u201clow-carbon energy supply\u201d definition includes several false solutions, such as technologies reliant on fossil fuels (fossil-fired power generation with carbon capture and storage [7] and fossil-based hydrogen [8]) as well as bioenergy [9] and nuclear power, which are incompatible with a rapid and just energy transition.<\/p>\n
When it comes to downstream activities in the fossil fuel value chain, the bank only considers power generation from fossil fuels in the \u201chigh-carbon\u201d scope, unlike the IEA, which includes all investments in fossil fuels. Therefore, including electric vehicle (EV) chargers in the \u00ab\u00a0low-carbon\u00a0\u00bb category is questionable, especially since the counterpart for internal combustion engines (e.g., filling stations) is not included in the bank\u2019s \u00ab\u00a0high-carbon\u00a0\u00bb scope.<\/p>\n
Overall, it is regrettable that each activity\u2019s share of the US$53bn total financing for energy supply is not disclosed, especially given that a number of the \u201clow-carbon\u201d activities have no place in a truly sustainable definition.<\/p>\n
The \u201cnon-fossil\u201d part of an energy supply ratio should focus on sustainable power generation, storage, transportation, and distribution [10]. Demand-related sectors, like transport, and false solutions should not be considered. Finally, this ratio should also include manufacturing of relevant equipment & components for both \u201clow-carbon\u201d energy (e.g. solar cells and wind blades) and \u201chigh-carbon\u201d energy (e.g. generators and boilers) [11].<\/p>\n<\/div>
JPMorgan Chase\u2019s methodology for calculating its ratio represents progress, but it should not detract from the fact that transparency alone is not enough. The bank should now go further and demonstrate that its financing activities actually align with its climate commitments to limit global warming to 1.5\u00b0C. Reclaim Finance calls on JPMorgan Chase to commit to increasing its ESFR, from 1.29:1 in 2023 to a target of 6:1 by 2030.<\/strong><\/p>\n Such ambition should be shared by any bank willing to demonstrate a credible commitment to support the energy transition. And in particular, Citi and RBC, which have made a similar commitment to the NYC Comptroller to publish their own ratios [12]. In this fast changing context, BNP Paribas and Santander must urgently take action if they want to stay ahead of the game. BNP Paribas must strengthen the methodology for its ratio and Santander must set a target for 2030.<\/strong><\/p>\n<\/div><\/div><\/div>