Morgan Stanley Lowers Emission Reduction Expectations

By Simon Jessop
LONDON (Reuters) – Morgan Stanley has adjusted its emissions reduction expectations for its corporate lending portfolio, attributing this change to the slow global transition to a greener economy, according to the bank's chief sustainability officer, Jessica Alsford.

Factors Impacting Progress

A few reasons have been highlighted for this slowdown, including:
– Declining electric vehicle sales
– Slow adoption of biofuels in aviation
– Funding and policy obstacles in the power sector

While some banks, such as Dutch firm ING, have reduced lending to clients in sectors like Oil and Gas, Morgan Stanley aims to proceed cautiously. In its report outlining new targets, it emphasized that without accelerated change, neither its clients nor the bank would meet net-zero targets.

New Lending Approach

Morgan Stanley's revised lending strategy will focus on aligning with the objective of capping global warming to between 1.5 to 1.7 degrees Celsius. This adjustment acknowledges the realities of current technologies and policies, deviating from the previous goal of a strict 1.5 degrees. Alsford stated, "The current technologies, the current policies are not fully aligned with 1.5 degrees."

The Paris Agreement seeks to limit the average temperature rise since industrial times to well below 2 degrees by 2050. Even with rising global temperatures, many companies are seeing increases in emissions. A recent U.N. report indicated that the world's average temperature could rise by 3.1 degrees by 2100.

Sector-specific Emissions Targets

Morgan Stanley plans to set emissions reduction targets for six sectors by 2030:
– Energy
– Power
– Autos
– Chemicals
– Mining
– Aviation

The bank has reset its baseline for these targets from 2019 to 2022, using more recent data. Alsford mentioned adopting a “physical intensity” methodology to track emissions per unit, aligning more closely with clients and peers.

Emission Reduction Goals by Sector:

• Energy sector: 12-20% reduction in operational emissions; 10-19% in end-use emissions.
• Power sector: 45-60% reduction, contingent on necessary policy support and funding.
• Autos: 29-45% reduction, with electric vehicle adoption lagging needs.
• Aviation: 13-24% reduction through sustainable aviation fuel usage; some airlines are underperforming targets.
• Chemicals: 18-28% reduction, relying on emerging technologies like green hydrogen.
• Mining: 23-31% reduction through enhanced renewable energy usage.