Carbon Compass®
Methodology
Carbon Compass®
Methodology
Addressing our financed emissions through
our net zero aligned targets
A key aspect of JPMorgan Chase’s environmental sustainability strategy is helping our clients navigate the challenges and realize the economic opportunities associated with the transition to a low-carbon economy. For us, recognizing the balance needed to achieve long-term sustainability informs our approach to climate initiatives and is rooted in how we do business. We believe that by helping our clients finance and accelerate their transition objectives, we can contribute to efforts to strengthen the broader economy in response to climate change while also generating long-term returns for our shareholders and clients.
Addressing our financed emissions through
our net zero aligned targets
A key aspect of JPMorgan Chase’s environmental sustainability strategy is helping our clients navigate the challenges and realize the economic opportunities associated with the transition to a low-carbon economy. For us, recognizing the balance needed to achieve long-term sustainability informs our approach to climate initiatives and is rooted in how we do business. We believe that by helping our clients finance and accelerate their transition objectives, we can contribute to efforts to strengthen the broader economy in response to climate change while also generating long-term returns for our shareholders and clients.
Moving forward, we intend to continue to update and evolve our methodology to address additional sectors and to reflect other changes in our approach as necessary. We will also continue to make the details of our methodology public to help inform efforts across our industry and to support our clients' and our journeys in contributing to the global achievement of net zero emissions by 2050. For additional information on our environmental sustainability strategy and how we are supporting our clients, see our most recent firmwide Climate Report.
Key elements of
Carbon Compass®
Key choices and considerations in how we have sought to reasonably design our metrics and targets for individual sectors:
To evaluate net zero alignment of our global financing portfolios in each of the included sectors, we compute a portfolio-weighted average of emissions performance for all our clients in the sector portfolio. Weights are determined based on our cumulative financing to each client as a share of our total financing to the sector. Our financing portfolio is defined to include all lending, tax equity and capital markets activity, which we believe gives us a better understanding of how our financing is helping our clients make progress toward their decarbonization goals.
Science-based
Our targets build on the transition pathways outlined by the International Energy Agency’s Net Zero by 2050 Scenario (IEA NZE). We also reference a wide range of public resources, including additional climate scenarios, decarbonization research and other frameworks for assessing alignment with global emissions reduction goals.
Sector-specific
Within each sector, we focus on specific activities with material emissions and credible pathways toward decarbonization, enabling us to gain more useful insight and better support our clients in developing and implementing their transition strategies.
Decision-useful
For each sector, we define one or more core metrics that provide insight into companies’ performance and progress toward decarbonization, and that are compatible with the benchmark trajectories we use to evaluate alignment with global emissions goals.
Robust and consistent data
Each metric is designed to make use of consistent, well-reported and standardized data. Where data availability is limited, we support the need for improvement and define processes for use of appropriate alternatives.
portfolio emissions metric
How we designed Carbon Compass® for
each sector
Carbon Compass® incorporates what we believe are the most relevant, impactful, credible and decision-useful data and metrics to help support decarbonization within our portfolios. The graphic below summarizes the process we follow in crafting a tailored methodology for each sector.
Our 2023 global portfolio
emission
reduction targets
Key aspects of our methodology for each of the included sectors,
as well as our portfolio baselines and 2030 targets:
Energy Mix
We are expanding the boundary of our Oil & Gas End Use (Scope 3) target— now called Energy Mix—to include zero-carbon power generation activity from our Electric Power portfolio and better capture how our financing is helping to facilitate the substitution of fossil fuels with zero- and low-carbon alternatives, such as wind, solar, hydrogen and nuclear. Key to this approach is the understanding that energy remains vital to the functioning of society and the economy, and that most of the energy currently supplied by fossil fuels must eventually be abated or replaced by energy from low- or zero-carbon alternatives.
Oil & Gas Operational
We focus on the operational emissions from production and refining activities (Scopes 1 & 2), which includes emissions from fugitive and vented methane emissions, including the release of unburnt natural gas from flare stacks, and CO2 emissions from flaring and any on-site use of fossil fuels. This approach acknowledges that addressing methane emissions is one of the most important levers that contributes to the overall reduction in emissions from the sector’s operations, followed by eliminating routine flaring and increased electrification.
Electric Power
We focus on direct CO2 emissions from power generation (Scope 1), which account for the vast majority of the sector’s climate impact. The methodology is designed to track the fuel mix of power generation activities as it shifts from being predominantly fossil-based to more reliant on renewables, in a bid to rapidly decarbonize electricity grids globally. Due to the integrated nature of our Energy Mix target, and its partial overlap with our existing Electric Power target, we will include our financing of zero-carbon power generation activities in both targets’ calculations. We have calibrated our target to take into account the split of clients in our portfolio between OECD and non-OECD member countries to reflect the difference in rate of decarbonization of each region.
Auto Manufacturing
We include direct emissions from auto manufacturing (Scopes 1 and 2) as well as “tank-to-wheel” emissions aligned to the Worldwide Harmonized Light Vehicle Test Procedure (WLTP) from vehicle end use (Scope 3). In addition to global passenger car sales, our methodology also includes U.S. sales of light trucks (SUVs, vans and pickups), as these are primarily sold as passenger vehicles and can account for as much as 30% of global sales for some portfolio companies.
Iron & Steel
We focus on GHG emissions associated with crude steel production (Scopes 1 and 2). This captures emissions and activity from primary and secondary steelmaking processes, and accounts for approximately 97% of total value chain emissions for the sector. This enables us to account for variations in the emissions profiles of different steelmaking processes, while also concentrating on the full range of decarbonization strategies for the sector, which include electrification, increasing scrap recycling, using lower-carbon energy inputs such as biomass or hydrogen, and deploying carbon capture, use and storage technologies.
Cement
We evaluate GHG emissions (Scopes 1 and 2) from cement manufacturing. This includes both energy-related and process emissions, and accounts for approximately 90% of total lifecycle emissions for the industry. By using cementitious product, we are able to capture both the primary driver of sector emissions (i.e., clinker production) and potential levers for reducing them, including the use of cement and clinker substitutes.
Aviation
Our target focuses on direct (Scope 1) CO2 emissions for revenue-generating passenger service and belly freight operations of airline companies, specifically from combustion of fuels during flight. This allows us to focus on companies’ relative progress in reducing, and ultimately replacing, the use of fossil-based jet fuel — the primary driver of the sector’s climate impact.
Shipping
We focus on the intensity of Scope 1 tank-to-wake (TTW) CO2 emissions from the combustion of fuels by international maritime freight transportation vessels. We calculate intensity using the Energy Efficiency Operating Indicator (EEOI) developed by the International Maritime Organization (IMO), which captures both vessel design and operational levers for reducing emissions in the sector.
Aluminium
Our target focuses on the intensity of Scope 1 and 2 GHG emissions from key emissions-intensive activities associated with aluminum production. The target covers both primary production from refining and smelting processes and secondary production from recycled input. The benchmark emissions trajectory for the sector is supplied by the International Aluminum Institute 1.5 Degrees Scenario (IAI 1.5DS), which is in turn based upon IEA NZE.
As we continue to expand our sector-specific targets, we are also focused on aligning our capabilities and efforts to make progress toward them. We strive to use our knowledge and expertise to help clients frame and act on their decarbonization plans. Our strategy centers on three key elements:
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To bring a climate lens to the way we make financing decisions, we have developed an assessment methodology, Carbon Assessment Framework (CAF). Our CAF aims to provide a consistent, comprehensive, and data-driven approach to assess our client’s emissions and decarbonization plans, while giving us insights into how new in-scope transactions may affect progress toward our net zero aligned targets. Within the framework, we assess two key scores for each client—a CAF quantitative score and a CAF qualitative score (collectively known as the CAF scores). The quantitative score is driven by the client’s historical emissions reductions, current carbon intensity and forecasted intensity based on decarbonization targets. The qualitative score considers a variety of factors, including corporate structures for governance and oversight, which enable us to take a holistic view of how the client plans to advance their decarbonization goals. We plan to continue to expand the use of CAF assessments to encompass additional sectors and financing that we provide to in-scope clients of our Carbon Compass® methodology.
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We consider the CAF as one element of our decision-making for new in-scope transactions in our targeted sectors. The CAF process, and governance around the same, have been integrated into the various deal execution processes for each sector across credit and capital markets financing for all in-scope transactions. While all transactions are assessed on an individual basis with a holistic view of many factors, the CAF allows us to assess how each new transaction may affect progress toward our emissions intensity reduction targets. Accountability for progress toward the targets has been assigned to senior leaders with the relevant banking teams at a regional- and sector-specific level. This senior-level accountability—coupled with the CAF—is designed to serve as a monitoring mechanism to help senior management oversee progress toward achieving our sector-specific portfolio level targets.
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Assessing our clients’ decarbonization plans through our CAF creates an opportunity for us to engage with our clients, understand their views, plans and constraints, as well as their capital needs. Our Center for Carbon Transition (CCT), together with other banking teams, works closely with clients to help advance clients’ decarbonization initiatives. We recognize that different factors—such as technology development and scalability—beyond our and our clients’ control will pose difficulties in the low-carbon journey, and we continue to engage with our clients and support their decarbonization efforts. By delivering strategic advice as well as providing capital and structured financing solutions, we seek to help our clients in achieving their decarbonization goals.
Resources
- International Energy Agency’s (IEA) World Energy Outlook (WEO)
- IEA’s Net Zero Emissions by 2050 scenario (NZE)
- IEA’s Energy Technology Perspectives (ETP)
- Emissions from oil and gas operations in net zero transitions
- Global Methane Tracker 2023
- Tracking oil & natural gas supply
- Tracking renewables
- Tracking electricity
- Tracking low-emissions fuel supply
- Tracking transport
- Global EV Outlook 2023
- Tracking industry
- Tracking carbon capture, utilization and storage
- 2023 JPMorgan Chase Climate Report
Center for Carbon Transition
This center of excellence that provides clients the data and expertise needed to navigate the challenges of transitioning to a low-carbon future.
ESG at J.P. Morgan
Learn about our approach to ESG in driving long-term environmental and social sustainability for our clients, employees and the communities we serve.
Sustainability
Creating solutions that protect the environment and grow the economy.
Related insights
Center for Carbon Transition
This center of excellence that provides clients the data and expertise needed to navigate the challenges of transitioning to a low-carbon future.
ESG at J.P. Morgan
Learn about our approach to ESG in driving long-term environmental and social sustainability for our clients, employees and the communities we serve.
Sustainability
Creating solutions that protect the environment and grow the economy.
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