Financial institutions' targets must be based on real-world decarbonization

The document critiques the current state of financial sector decarbonization targets, arguing that reliance on 'financed emissions' metrics—specifically those using Enterprise Value Including Cash (EVIC)—allows banks to report emissions reductions based on stock market volatility rather than actual decarbonization. It highlights how banks like Deutsche Bank and Crédit Agricole met targets early due to soaring energy stock prices in 2022. The author warns against 'gaming' metrics through concepts like 'energy mix' targets or 'Expected Emission Reduction' (EER) and calls for a comprehensive dashboard of absolute targets, facilitated emissions tracking, and strict exclusion policies for fossil fuel expansion.

• The 'financed emissions' methodology developed by the Partnership for Carbon Accounting Financials (PCAF) is flawed because it relies on Enterprise Value Including Cash (EVIC), which is highly volatile. This means a bank's reported emissions can drop if a sector's share prices rise, even if actual emissions remain constant or increase.
• Due to the surge in oil and gas stock prices in 2022 following Russia's invasion of Ukraine, some banks met their 2030 oil and gas targets years ahead of schedule despite global emissions from the sector rising slightly. For example, Deutsche Bank reported a 29% reduction in 2022 against a 23% target, and Crédit Agricole cut 'emissions' by 40% against a 30% target.
• Financial institutions are attempting to reduce the pressure to cut ties with polluting clients by redefining targets. JPMorgan Chase shifted to an 'energy mix' target that blends clean energy finance with oil and gas financing, while GFANZ proposed an 'Expected Emission Reduction' (EER) concept based on counterfactual pathways rather than actual emission drops.
• To achieve 1.5°C alignment, the document recommends a 'dashboard' of targets including absolute emissions, facilitated emissions for capital markets and insurance, and non-emission targets such as fossil fuel production limits and a clean energy investment ratio of six dollars for every one dollar in fossil fuels, as specified by the IEA.

APA

Martin, L. (2023). Financial institutions' targets must be based on real-world decarbonization. Reclaim Finance. https://reclaimfinance.org/site/en/2023/12/22/financial-institutions-targets-must-be-based-on-real-world-decarbonization/

Chicago

Martin, Léo. Financial institutions' targets must be based on real-world decarbonization. Reclaim Finance, 2023. https://reclaimfinance.org/site/en/2023/12/22/financial-institutions-targets-must-be-based-on-real-world-decarbonization/.

Wikipedia

{{cite press release |last1=Martin |first1=Léo |title=Financial institutions' targets must be based on real-world decarbonization |publisher=Reclaim Finance |date=22 December 2023 |url=https://reclaimfinance.org/site/en/2023/12/22/financial-institutions-targets-must-be-based-on-real-world-decarbonization/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{martin2023financial, author = {Martin, Léo}, title = {{Financial institutions' targets must be based on real-world decarbonization}}, publisher = {Reclaim Finance}, year = {2023}, month = dec, url = {https://reclaimfinance.org/site/en/2023/12/22/financial-institutions-targets-must-be-based-on-real-world-decarbonization/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }