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Jun 27, 2025
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Have you ever wondered how institutions truly measure their sustainability commitments? As climate awareness grows, financial institutions face increasing pressure to disclose exactly how green their investments are. Enter "green financing ratios," an emerging metric shedding transparency on banks’ environmental promises.
Understanding Green Financing Ratios
Green financing ratios provide a quantitative measure of how much of an institution's financing activities are dedicated to green or sustainable projects compared to those supporting fossil fuels. This metric is crucial for investors seeking to integrate Environmental, Social, and Governance (ESG) factors into their portfolios. By tracking these ratios, financial institutions can ensure that their investments support the transition to a low-carbon economy.
Why Are Banks Disclosing These Ratios Now?
Pressure is mounting from shareholders, regulators, and the public. In 2023, JPMorgan Chase became the first major U.S. bank to publish its green financing ratio, following a high-profile shareholder proposal led by New York City Comptroller Brad Lander. Soon after, Citigroup and the Royal Bank of Canada agreed to do the same.
“We developed a data-driven and investment-focused methodology for calculating this ratio, to provide a forward-looking view on how our energy financing supports real economy investments in energy supply,” said JPMorgan CEO Jamie Dimon.
J.P. Morgan's Energy Supply Financing Ratio (ESFR) is designed to track the proportion of financing allocated to low-carbon versus high-carbon projects.
Image Source: JP Morgan
How Is the Ratio Calculated?
Banks typically include:
Green financing: Loans, bonds, and investments in zero- and low-carbon power generation (like wind, solar, and hydro), energy storage, carbon capture, and electricity networks.
High-carbon financing: Funding for oil and gas extraction, refining, coal mining, and fossil fuel power generation.
For example, JPMorgan’s 2023 ratio was $1.29 in green energy solutions for every $1 spent on high-carbon supply. This is a notable improvement, but still far from the pace needed to align with global climate goals.
What’s the Benchmark?
Research from BloombergNEF suggests that banks need to reach a 4-to-1 ratio of low-carbon to fossil fuel investments by 2030 to meet the Paris Agreement’s targets. As of late 2022, the global average was just 0.73-to-1—meaning more money was still flowing to fossil fuels than to green projects.
Green Financing Ratio Progress
Year | Global Average Ratio (Low-Carbon : Fossil Fuels) |
|---|---|
2022 | 0.73 : 1 |
2023 | 0.74 : 1 |
JPMorgan | 1.29 : 1 (2023) |
Paris Target (2030) | 4 : 1 |
Source: BloombergNEF, JPMorgan disclosures
Why Does This Matter to Investors and the Public?
Transparency: Investors can now see if banks are truly pivoting toward clean energy or just making promises.
Accountability: Regular disclosure helps track progress and spot greenwashing.
Climate Impact: The International Monetary Fund estimates that reaching net-zero will require $5 trillion in annual investments in low-carbon solutions by 2030.
Are All Banks On Board?
Not yet. While JPMorgan, Citigroup, and RBC have agreed to disclose their ratios, Bank of America, Goldman Sachs, and Morgan Stanley have lagged behind, with shareholder proposals at these banks failing to gain majority support. However, there’s growing pressure for industry-wide adoption.
What’s Next?
Expect more banks to disclose their green financing ratios, especially as European regulators and global investors demand greater transparency. The ratio is poised to become a standard metric for tracking the financial sector’s role in the energy transition.
About Penomo
Penomo is a digital asset infrastructure platform specializing in tokenized energy and AI infrastructure financing. By transforming physical infrastructure into compliant digital securities, we connect private capital markets with institutional-grade renewable energy and AI investments. Through tokenization, Penomo is streamlining capital access, enhancing liquidity, and enabling efficient financing for the global energy transition and AI expansion.
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