Morgan Stanley has scaled back its expectations for reducing emissions from its corporate lending portfolio, citing a slow global transition to a greener economy, as noted by the bank’s chief sustainability officer, Jessica Alsford. Factors hindering progress include sluggish electric vehicle sales, delayed adoption of aviation biofuels, and financial and policy challenges in the power sector, Alsford explained.
While other banks, such as ING, have already reduced lending in sectors like oil and gas, Morgan Stanley emphasised a cautious approach in its new report, noting the risk of moving too quickly. However, the bank warned that without faster progress, both it and its clients may struggle to meet net-zero targets.
Morgan Stanley’s updated climate strategy now aligns with limiting global warming to between 1.5 and 1.7 degrees Celsius, a shift from its earlier goal of a strict 1.5 degrees, marking the bank’s first major climate update in three years. “Current technologies and policies aren’t fully aligned with a 1.5-degree pathway,” Alsford said, adding that the 1.5 to 1.7 range acknowledges the challenges while still adhering to the Paris Agreement, which seeks to keep the increase below 2 degrees by 2050.
Despite unprecedented global temperatures, a recent UN report indicates that emissions are on track to raise temperatures by 3.1 degrees by 2100.
Alsford stated that Morgan Stanley would set 2030 emissions reduction targets for six key sectors: Energy, Power, Autos, Chemicals, Mining, and Aviation. Additionally, the baseline year for measuring progress has been updated to 2022 for greater data accuracy. The bank will also adopt a “physical intensity” approach, tracking emissions per production or generation unit, aligning with industry standards.
Under this new plan, Morgan Stanley will measure emissions for the Energy sector using two targets: one for operational emissions (Scope 1 and 2) and another for emissions from product use (Scope 3). The bank aims for a 12-20% reduction in operational emissions and a 10-19% decrease in end-use emissions by 2030, although it acknowledged that energy security pressures could impact outcomes.
Power sector emissions are targeted for a 45-60% reduction across the lending portfolio, contingent on sufficient funding and policy support to meet growing demand, including that driven by AI technologies. The target for Autos is a 29-45% reduction, though lagging electric vehicle adoption remains a concern.
In the Aviation sector, a 13-24% emissions reduction goal hinges on increased sustainable aviation fuel usage, while the Chemical sector aims for an 18-28% reduction, reliant on scaling up green hydrogen and carbon capture technologies. For the Mining sector, a 23-31% reduction is targeted, with a focus on expanding renewable energy usage.