In response to the climate crisis, banks are increasingly highlighting their \u201cclimate strategies.\u201d A new metric is gaining traction among regulators, investors, and the banks themselves as a way to measure banks\u2019 actions regarding the energy transition: the Energy Supply Financing Ratio (ESFR). In a single figure, it compares a bank\u2019s financing of fossil fuels to its financing of sustainable alternatives (renewable energy\u2014primarily solar and wind\u2014electricity grids, and batteries).<\/p>\n<\/div>
However, methodologies vary significantly from one institution to another, opening the door to misleading ratios regarding banks\u2019 actual support for the energy transition. This memo aims to provide keys to understanding the importance of the ESFR and identifying methodological flaws in order to decipher banks\u2019 announcements and assess their real impact.<\/p>\n<\/div>
Featured in several publications (World Energy Outlook<\/a>, Net Zero Roadmap<\/a><\/span>) by the International Energy Agency (IEA), this ratio is derived from the \u201cNet Zero Emissions by 2050<\/a><\/span>\u201d scenario (NZE), which is based on two simultaneous trends by 2030, compared to 2023:<\/p>\n Combined, these two trends result in a 6:1 ratio by 2030: for every dollar invested in fossil fuels, six dollars must be invested in \u201cclean\u201d [1] energy (essentially electricity) supply. The IEA itself states that \u201cthese economy-wide ratios provide an important guide for financial actors looking to assess their equity and lending portfolios against net zero targets<\/i><\/a><\/span>\u201d.<\/p>\n<\/div> The ESFR is useful because it condenses financing for the energy transition into a single figure that is comparable over time and (in theory) across banks. A ratio that remains stagnant and well below 6:1 reveals that, in reality, a bank continues to finance fossil fuels far more than the energy transition, regardless of its public rhetoric. It therefore allows us to move beyond mere statements (commitments, intentions, talking points) and examine verifiable figures\u2014provided we understand the methodology behind them.<\/p>\n According to research by Reclaim Finance<\/a><\/span>, between 2021 and 2024, the world\u2019s 65 largest banks allocated, on average, only 42 cents to sustainable electricity for every dollar allocated to fossil fuels\u2014a ratio of 0.42:1, which is far from the necessary trajectory. The table below summarizes the three indicators evaluated for each bank:<\/p>\n<\/div>\n\n
HOW IS THIS RATIO USEFUL?<\/b><\/h2><\/span>