Citi, the fourth-largest U.S. bank, disclosed in a climate report released on Thursday that nearly half of the energy companies it lends to are deficient in strategies to reduce greenhouse gas emissions. As part of heightened scrutiny on climate risks and transition planning, banks are evaluating their loan portfolios to assess businesses’ preparedness for a shift towards a lower-carbon economy in alignment with regulatory expectations for enhanced disclosure. Citi categorized energy companies in its loan portfolio based on their emission reduction plans across three scopes, with findings indicating a notable absence of substantive transition plans in 42% of cases.
Moreover, inadequate disclosure of Scope 3 emissions, which encompass emissions from supply chains and customers, was observed, despite these emissions constituting a significant portion of companies’ carbon footprints. Only 8% of Citi’s energy clients were identified as having a comprehensive and ambitious transition plan targeting reductions across Scopes 1-3 emissions, with an additional 37% demonstrating such plans when Scope 3 emissions were excluded.
The analysis, initiated in 2021, reflects the evolving landscape of climate-related data collection and analysis, with Chief Sustainability Officer Valerie Smith emphasizing ongoing efforts to enhance the timeliness and depth of insights. Citi, like many peers in the financial sector, has committed to achieving a “net zero” target by 2050, aiming to ensure that the businesses it finances do not exceed greenhouse gas emissions that can be offset by technology or natural systems such as forests.