Citi Says 42% of Energy Clients Not Clear on Net Zero Plans

(Bloomberg) -- Citigroup Inc. said more than a third of its clients in the energy sector don’t have a clear plan on how they’ll reach net zero.

The disclosure was made in the company’s latest climate report published Thursday and is based on initial results from its so-called net zero review template, which is designed to help the bank assess the emissions of its carbon-intensive clients and their plans for reducing them.

Citigroup said 42% of energy clients assessed have a “low” transition-plan alignment based on a review of their direct and indirect emissions, indicating the lack of a “substantive” plan for aligning emissions with a net zero pathway. 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.

The results reflect the possibility that some companies are unlikely to transition at all. And, the results were impacted by the level of disclosures for Scope 3 emissions, which are produced by companies’ suppliers and customers, the bank said. Overall, energy companies performed more favorably when only their direct emissions were assessed. 

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

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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 & Co.’s 0.8 and Bank of America Corp.’s 1.0.

READ MORE: Wall Street Makes Zero Progress in Energy Finance Transition

Citigroup Chief Executive Officer Jane Fraser wrote in the 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.

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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.

Val Smith, Citigroup’s chief sustainability officer, said in an interview that “if you want to help to lead in opportunities in financing the transition, you want to have the best information about your clients’ strategies and you’ll want to have more data.”

The bank’s net zero assessments have been really useful in helping “to position us to not just understand where the risk is, but where the financing opportunities are,” she said.

In the report, 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.

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