The latest climate report of America’s biggest bank, JPMorgan Chase, includes for the first time its “Energy Supply Financing Ratio” (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’s transparency is noteworthy, the methodology is not perfect, notably in terms of the technologies included.

JPMorgan Chase is the third international bank to disclose an ESFR (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’s ESFR compares financing for two sets of sectors: “low-carbon energy supply” and “high-carbon energy supply” – respectively US$30bn and US$23bn in 2023. The resulting ratio is 1.29:1, meaning that for every dollar allocated to “high-carbon energy supply,” the bank has allocated US$1.29 to “low-carbon energy supply.”

A transparent methodology moving in the right direction

As well as disclosing its ESFR, JPMorgan Chase also published its methodology 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.

It is particularly positive to note that the “high-carbon energy supply” set — a discreet way of labeling the fossil fuel portion of the ratio — covers the entire fossil fuel value chain:

• For coal: mining, transportation, and electricity production are included.
• For oil & gas: upstream, midstream, refining, and electricity generation are covered.

For oil & gas, the bank goes further than BNP Paribas, whose ratio only covers upstream and refining activities.

On the “low-carbon energy supply” side, the bank takes a broad definition for “supply” 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 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 .

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’ financing to fossil fuels since 2016, and 45% for JPMorgan Chase .

But significant blind spots remain

However, these positive elements should be viewed in light of the flaws that persist in the “low-carbon energy supply” activities.

First, the “low-carbon energy supply” definition includes several false solutions, such as technologies reliant on fossil fuels (fossil-fired power generation with carbon capture and storage and fossil-based hydrogen ) as well as bioenergy and nuclear power, which are incompatible with a rapid and just energy transition.

When it comes to downstream activities in the fossil fuel value chain, the bank only considers power generation from fossil fuels in the “high-carbon” scope, unlike the IEA, which includes all investments in fossil fuels. Therefore, including electric vehicle (EV) chargers in the “low-carbon” category is questionable, especially since the counterpart for internal combustion engines (e.g., filling stations) is not included in the bank’s “high-carbon” scope.

Overall, it is regrettable that each activity’s share of the US$53bn total financing for energy supply is not disclosed, especially given that a number of the “low-carbon” activities have no place in a truly sustainable definition.

The “non-fossil” part of an energy supply ratio should focus on sustainable power generation, storage, transportation, and distribution . 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 “low-carbon” energy (e.g. solar cells and wind blades) and “high-carbon” energy (e.g. generators and boilers) .

JPMorgan Chase’s 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°C. 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.

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 . 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.

Notes:

1. JPMorgan Chase, Climate Report 2024, November 2024
2. Find out more on our analyses in the Sustainable Power Policy Tracker
3. JPMorgan Chase, ESFR Methodology, November 2024
4. IEA, Electricity Grids and Secure Energy Transitions, October 2023
5. IEA, World Energy Outlook, October 2024
6. RAN et al., Banking on Climate Chaos, May 2024
7. See Reclaim Finance’s factsheet on CCUS in power
8. See Reclaim Finance’s factsheet on hydrogen
9. See Reclaim Finance’s factsheet on bioenergy
10. See Reclaim Finance’s definition of sustainable power supply
11. JPMorgan Chase explains equipment & components manufacturing is absent from its methodology due to the lack of data.
12. NYC Comptroller, Press release, April 2024

This article was originally published on Reclaim Finance's website here.