New York City Comptroller Brad Lander, on behalf of the New York City Employees’ Retirement System, Teachers’ Retirement System, and Board of Education Retirement System (the NYC Retirement Systems), submitted shareholder proposals to six major North American Banks — Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Royal Bank of Canada — requesting that they disclose annually their Clean Energy Supply Financing Ratio (the Clean Energy Ratio).

The Clean Energy Ratio is defined as a bank’s total financing through equity and debt underwriting and project finance, in low-carbon energy supply relative to that in fossil-fuel energy supply. The requested disclosure should describe the company’s methodology, including what it classifies as “low carbon” or “fossil fuel.”

All these banks, members of the Net-Zero Banking Alliance (NZBA), have committed to achieving net zero greenhouse gas emissions for their financing activities by 2050. These commitments are consistent with what the Intergovernmental Panel on Climate Change (IPCC) advises is required to limit global warming to 1.5°C and thereby avoid the most devastating consequences of climate change.

Consistent with their net-zero goals, each bank also has announced commitments to clean energy and/or sustainable finance. Annual disclosure of a Clean Energy Ratio would complement existing disclosures from the banks, provide context for their clean energy financing commitments and give investors a clearer picture of progress toward the banks’ own net-zero goals.

According to the International Energy Agency (IEA), reaching net zero by 2050 will require a rapid transition away from fossil fuels and a tripling in global annual clean energy investment by 2030. The speed at which the expansion of low-carbon energy supply occurs will determine the pace of the reduction in using fossil fuels. To achieve net zero emissions by 2050, the ratio must reach a minimum of 4:1 by 2030, according to Bloomberg New Energy Finance (BNEF), which synthesizes the seven most frequently referenced 1.5C-aligned pathways.

Clean-energy-to-fossil-fuel financing ratios have emerged as a key metric for assessing progress in financing the clean energy transition. The IEA tracks one, and NZBA encourages but does not require its members to disclose a “transition finance ratio.”

Investors believe that banks that align their activities with their own climate goals are better prepared to manage the risks associated with the global energy transition and can capitalize on profitable opportunities in clean energy to position themselves as leaders in a rapidly changing market. Since 2022, banks have reportedly earned more in lending and underwriting fees from clean energy projects than from oil, gas and coal companies.

In addition to disclosure of the Clean Energy Ratio, the NYC Retirement Systems’ proposals recommend that each bank set timebound Ratio targets aligned with its net-zero commitments, consult BNEF’s Financing the Transition: Energy Supply Investment and Bank Financing Activity when setting Ratio targets; defining “low carbon” and “fossil fuel” financing; work to establish standardized industrywide methodologies; and include lending in its ratio if methodologically sound.

Michael Garland
Assistant Comptroller, Corporate Governance and Responsible Investment Office of New York City Comptroller