- Morgan Stanley lowers its emissions reduction expectations, citing slow progress in electric vehicle sales and biofuel adoption, while setting new targets for six sectors by 2030.
- The bank’s updated strategy aims to align with global warming limits of 1.5 to 1.7 degrees Celsius, reflecting the challenges in meeting net-zero targets amid ongoing funding and policy hurdles.
Morgan Stanley has lowered its emissions reduction expectations for its corporate lending portfolio. The bank’s Chief Sustainability Officer, Jessica Alsford, cited a sluggish shift to a greener economy as the primary reason. In a Reuters interview, she noted several challenges, including slow electric vehicle sales, limited adoption of biofuels in aviation, and persistent funding and policy hurdles in the power sector.
While some banks, like Dutch firm ING, have cut lending to specific clients in the oil and gas sector, Morgan Stanley takes a more cautious approach. The bank’s latest report warns that its clients and the institution may struggle to meet net-zero-aligned targets without a quicker transition.
Morgan Stanley outlined a new lending strategy in its first significant climate update in three years. This strategy aims to align with global warming limits of 1.5 to 1.7 degrees Celsius, softening its previous commitment to a strict 1.5-degree target. “The current technologies and policies do not fully align with 1.5 degrees,” Alsford stated. This revised range acknowledges the global economy’s significant challenges while aligning with the Paris Agreement’s goals.
The Paris Agreement seeks to cap the global temperature rise below 2 degrees Celsius by 2050. Despite record-high temperatures globally, many companies continue to see rising emissions. A recent UN report indicated that the world’s average temperature will increase by 3.1 degrees Celsius by 2100.
Under the new strategy, Morgan Stanley will establish emissions reduction targets for six key sectors by 2030: Energy, Power, Autos, Chemicals, Mining, and Aviation. The bank has updated its baseline for these targets from 2019 to 2022 to reflect more accurate data.
Morgan Stanley will also adopt a “physical intensity” methodology for tracking emissions. This approach measures emissions per production unit or generation, aligning its practices with its peers and clients. In the Energy sector, the bank targets a 12-20% reduction in operational emissions (Scope 1 and 2) and a 10-19% reduction in end-use emissions (Scope 3) by 2030. However, energy security concerns may affect these results.
For the Power sector, Morgan Stanley projects a 45-60% reduction in emissions across its lending portfolio. Achieving this goal will depend on necessary funding and policy support to meet rising demands from technologies like artificial intelligence.
The bank aims for a 29-45% reduction in the automotive sector. However, it warns that the current pace of electric vehicle adoption falls short of meeting global targets. The Aviation sector has a targeted reduction of 13-24%, primarily driven by increased usage of sustainable fuel. The International Energy Agency (IEA) suggests that sustainable fuels should account for 10% of aviation fuel by 2030, but many airlines only target 5-7.5%.
Morgan Stanley emphasizes the challenges in ensuring supply meets demand at cost parity. This step remains critical for airlines to achieve their interim emission reduction targets. For the Chemical sector, the bank targets an 18-28% reduction, but success depends on scaling up emerging technologies such as green hydrogen and carbon capture and storage.
In the Mining sector, Morgan Stanley aims to reduce portfolio emissions by 23-31% through increased use of renewable energy. Overall, the bank’s updated strategy reflects the urgency for a more sustainable economy while acknowledging the remaining barriers.