Banks’ energy financial communications must be standardized

Chet Strange/Bloomberg

Banks say they are on board to board climate changeand an important way to measure this commitment is to look at the proportion of their financing of fossil fuels that of “clean” alternatives. But there’s a troubling move underway that could muddy the waters for exactly that how this ratio is determined.

Energy Supply Ratios, or ESRs, are considered a key indicator of banks’ climate strategy International Energy Agency and the Science-based goals initiative. Citi, JPMorgan Chase and Royal Bank of Canada have them recently committed to publish its ratios in 2025, with some investors pressing for that information.

The Institute of International Finance, or IIF, a sector association whose members include the main banks, dedicated to white paper on how the ESR should be disclosed. His message is, sadly, simple: banks should calculate and disclose this information as they see fit.

The document appears designed to ensure the numbers are as hard to decipher as possible, effectively encouraging as many different metrics and approaches as banks can imagine. The paper does its best to provide numerous examples of different methodologies, different possible scopes and different measures that can be used, as well as ways to adjust the numbers. The main message is clear: banks can publish whatever they want and under no circumstances should they adopt a standard or harmonized approach.

As the IIF says very clearly: “The purpose of this white paper is not to propose new industry standards or a recognized methodology for calculating a bank’s ESR, but to foster a common understanding of the key options of design for individual banks that may consider disclosing the metric.”

The message is that disclosures should not be comparable, but should reflect each bank’s individual geography and business model. The clear implication is that investors will not be able to read the numbers based on a standardized methodology. Each disclosure will have to be assessed on its own terms, assuming that the bank in question discloses the methodology it has used.

This is important for investors and other stakeholders, because banks’ ESR should provide crucial information about their performance. Are they on track to meet their net zero commitments? Are they credibly financing the energy transition?

The IEA’s 2050 net-zero emissions scenario sets out a road map that serves as a benchmark for many banks’ climate strategies. It shows the needs for global investment in “clean” energy to exceed investment in fossil fuels by a factor of 10 to 1, by 2030. For every dollar spent on fossil fuels, $10 must be allocated to the “clean” energy ($4 for the demand side, $6 for the energy supply).

While not all banks follow this road map, their ESRs can provide important information to investors, who have their own criteria for deciding how and where to invest. And for banks with a clear climate transition plan, the ESR can demonstrate how their strategy is being implemented.

But if each bank uses its own methodology, these ratios risk becoming a new greenwashing tool with no real value to anyone. We have already seen examples of loopholes. When French bank BNP Paribas revealed its ESR and 2030 target, it only included credit exposure (excluding fossil fuel stocks and bond issues) and only considered upstream and refining activities of oil and gas, leaving out a large part of the value chain (for example, LNG terminals or gas-fired power plants).

While the IIF’s involvement with climate metrics is welcome, its guidance on ESR begs more questions than answers. Are they serious in their claims of wanting to support bank ESR disclosures, or are they actually trying to make the disclosures as meaningless as possible? Are they encouraging banks to address their climate strategy or providing yet another tool that allows banks to make statements that offer little in reality?

Disclosures are important, but they must be meaningful. All too often, the banks are accused hiding the reality in a hall of mirrors. To avoid this, there needs to be a standardized methodology and a common approach. Investors need this information to make informed decisions. Banks must demonstrate that they are making the transition to a sustainable electricity system.

Of course, outreach alone cannot guarantee change. Banks should set targets to achieve a ratio of $6 allocated to sustainable energy supply for every $1 allocated to fossil fuels by 2030. We urgently need banks to demonstrate how seriously they are tackling the climate crisis, not more confusion and backsliding.