Citi says 42% of energy clients unprepared for low-carbon future

Victor J. Blue/Bloomberg

(Bloomberg) --Citigroup said 42% of its clients in the energy sector don't have a "substantive plan" for aligning their emissions with a net zero pathway or are "unlikely to transition" at all.

The disclosure was made in the bank's latest climate report published Thursday and is based on initial results from its so-called net zero review template, which focuses on clients' preparedness for the low-carbon transition.

While 42% of energy clients have a "low" transition-plan alignment based on an assessment of their direct and indirect emissions, a further 29% have a "medium-low" score, meaning they have a high-level climate plan but it's unclear whether they'll be able to execute it, Citigroup said in its report.

With the movement to clean energy under way in most industries, banks are paying closer attention to their clients' plans. Most major banks, including Citigroup, also have committed to neutralize emissions from their lending portfolios, an objective that can only be achieved if companies decarbonize.

According to researchers at BloombergNEF, the ratio of spending on low-carbon infrastructure relative to fossil fuels needs to reach 4 to 1 by 2030. At the end of 2022, the so-called energy-supply ratio for banks, which includes debt and equity underwriting, was 0.73 to 1, slightly worse than the 0.75-to-1 ratio reported in 2021.

Citigroup's energy-supply banking ratio was 0.6, compared with JPMorgan Chase's 0.8 and Bank of America's 1.0.

Citigroup Chief Executive Officer Jane Fraser wrote in the just-released climate report that the bank is "working side-by-side with clients to help them achieve their goals, whilst remaining highly mindful of near-term energy needs and related economic impacts."

The bank reported a better transition alignment for its power-sector clients. The bank said 59% of customers in the industry have "strong" transition-plan alignment, indicating "comprehensive and ambitious" goals targeting Scope 1 emissions reductions and lower-carbon generation.

Citigroup said it sees client engagement as a critical step in the implementation of its net zero plan, and it's a priority for the firm to work with clients "across the energy value chain" to understand their climate strategies and emissions reduction plans.

Fraser said instead of speaking about an "energy transition," it might be more appropriate to speak about an "energy evolution."

"This shift will not be linear and will include a series of cumulative leaps and tipping points over the next few decades," Fraser said.