The state of the clean energy transition in 2024

JPMorgan Chase said a “reality check” was needed on the timeline for a global energy transition, noting that the shift from fossil fuels to renewable energy takes time in a report the bank unveiled in April 2024. The report, seen by ESG Dive, called the transition a “highly complex” process and said it “should be measured in decades or generations, not years.”

The global energy strategy report, spearheaded by JPMorgan’s Global Head of Energy Strategy Christyan Malek, identified inflation, high interest rates and geopolitical issues — such as the Russia-Ukraine war and Middle East tensions — as key obstacles hindering governments from facilitating the energy transition.

The short-term focus on the pathway to clean energy, according to the report, should be on the coal to natural gas switch, which it estimates could save up to 17% of global emissions compared to a 2022 baseline. Coal made up 44% of global fuel emissions while providing 33% of global fossil fuel energy the same year, per the report’s findings.

The research also offered a long-term solution for the energy transition, following the coal-to-gas substitution, built on a market-based approach: the creation of a global carbon tax and emission trading system.

“Climate change is a global problem and addressing it regionally is not effective,” the report said, adding that “eventually, a global carbon price would allow the free market to do the work,” instead of placing the burden of the transition on government and public policies.

This approach, according to Malek’s research, would guarantee “the most efficient distribution of a limited carbon budget” and allow governments to streamline their attention on balancing the social aspects of the energy transition with environmental goals.

The strategy would also provide a solution for the steep price tag that comes with the energy transition, one the report said requires a significant level of investment and currently offers “subpar returns.” The bank estimated the wind and solar buildout between 2024-2030 alone will require approximately $3 trillion annually — which amounts to 0.5% of the global annual GDP — highlighting how cost-intensive the move to renewable energy could be.

This year alone, several energy companies — such as Equinor and BP — nixed offshore wind projects citing rising inflation, interest rates and supply chain disruptions. Such retractions in the U.S. wind power industry have impeded states in reaching their goal of deploying renewable energy over a certain timeline. New York State recently canceled three offshore wind projects which promised 4 gigawatts of capacity, setting the state back in its goal to deploy 9 gigawatts of offshore wind by 2035.

The report further noted that rising energy costs associated with an “expedited transition” could spur negative outcomes such as social unrest and consumer revolt, driven further by inflation hikes.

“Given the level of investment needed, this has left governments (and ultimately taxpayers) as the major underwriters of the energy transition,” the report said.

Additionally, the research said increased inflation, geopolitical challenges, increased borrowing costs and debt levels have also restricted how far governments can go to fund the shift from fossil fuels to renewable energy.

The report comes on the heels of JPMorgan Chase CEO Jamie Dimon calling for a “serious review” of the bank regulatory and supervisory process in his annual letter to shareholders earlier this month. Dimon also expressed fears that companies are being driven away from public markets due to a myriad of reasons, including more intense reporting requirements, growing demand for ESG information, litigation expenses, regulatory costs, and shareholder activism, and “heightened public scrutiny.”

The New York-based bank exited the Climate Action 100+ investor group earlier this year, shortly after CA100+ said it required signatories to enhance their corporate disclosure and implement climate transition plans. JPMorgan previously told ESG Dive its departure was due to the development of its own climate risk engagement framework.

LevelTen Energy, which specializes in providing financial transaction infrastructure for renewable energy deals, scored $65 million in its latest funding round, the company announced in July 2024.

The Series D financing will help LevelTen scale its online platform — which connects renewable energy buyers, sellers, advisors, investors and asset owners — to support expansion into new markets such as clean hydrogen, and increase its global reach, per the company.

The new funding was led by global investment firm B Capital and also backed by Google, Microsoft’s Climate Innovation fund, Equinor Ventures, energy supplier Constellation, climate tech venture capital firm Aster and others. The funding includes new growth capital and convertible loan notes, which can convert from debt to equity in future funding rounds.

The additional funding will also facilitate the company’s goal to develop a trading and management platform for “granular certificates,” verifying the time and location of carbon-free energy generation. The company plans to launch this platform in collaboration with Google, Microsoft, Constellation and American utility provider AES as part of the Granular Certificate Trading Alliance, which the companies announced in December 2023.

The LevelTen platform, which the company claims is the largest online hub and market place for carbon-free transactions, has facilitated power purchase agreements, asset sales and other renewable energy deals worth over $14.8 billion since its launch in 2018. In terms of energy, the platform has helped to procure over 8 gigawatts of clean energy according to the company.

The platform consists of an energy marketplace — which presents PPA opportunities — and an asset marketplace — which supports the purchase or sale of clean energy assets such as wind, solar and storage. Most recently, the company expanded the platform to help facilitate the transfer of federal clean energy tax credits, building on the Inflation Reduction Act’s clean energy tax credit transferability mechanism. The company’s platform also provides users with software tools and industry-relevant information.

“The clean energy industry’s growth has been astonishing, but the climate crisis demands that we deploy even more clean energy at a much faster rate,” LevelTen Energy CEO Bryce Smith said in the release. “Our existential need to keep global warming in check requires us to scale procurement and bring new technologies to mass markets even more quickly.”

LevelTen Energy itself has pulled in over $125 million in investments since its inception in 2016, according to its release. The platform’s partners and buyers include companies such as Gap, Starbucks, Salesforce, Bloomberg, Workday and others, its website says.

Citigroup said that 71% of its energy sector clients either lack a substantive low-carbon transition plan that accounts for scope 1, 2 and 3 emissions or have a high-level plan in place but have “unclear ability to execute” on it, the bank disclosed in its 2023 climate report.

The report found that 42% of Citi’s energy clients lacked a substantive transition plan for greenhouse gas emissions across their supply chain, while 29% of energy clients don’t have a clear strategy in place to execute on their high-level transition plans.

The bank agreed to disclose the progress of its energy and power clients’ transition plans as a result of a shareholder resolution proposed by As You Sow in November 2023, which has since been withdrawn. Citi Chief Sustainability Officer Valerie Smith told ESG Dive that while As You Sow’s proposal varied from the final disclosures, the bank “had a sense for what the disclosure could be that would make sense in terms of [its] strategy.”

Citi’s energy clients include companies predominantly related to oil and gas production, but also include bioenergy, carbon capture, utilization and sequestration, direct air capture hydrogen and renewable energy, according to its 2021 Task Force for Climate-related Financial Disclosures report. Its power sector clients are power generation companies, utilities and others in the electricity sector like battery, carbon capture, utilization and sequestration, hydrogen fuel cells, nuclear and solar companies. 

Smith said Citi had recently completed a two-year process building a net-zero review template to review the energy and power sectors when it received As You Sow’s proposal, and had been previously thinking about how to show investors it was helping clients transition..

“The core of our net zero commitment was really around supporting our clients in the transition,” Smith told ESG Dive Monday. “We think [the transition plan assessment] will be a very useful way for us to demonstrate to our investors and other readers [of the report] that we are in fact helping our clients to transition.”

Citi’s clients in the energy sector are doing better in their transition plans for scope 1 and scope 2 emissions — which Smith said the bank assessed separately for the sector because those are what the clients have control over — according to the report. The findings also concluded that 37% of clients were taking steps to decarbonize their operations and 37% had comprehensive and ambitious plans with “demonstrated ability to execute.”

When assessing energy clients’ scope 3 preparations, the report found that they were less aligned: 20% were assessed as having all the core elements in place and taking steps to decarbonize, while only 8% had comprehensive plans and a demonstrated ability to execute. 

Smith said while a lot of companies are making progress on their scope 1 and 2 emissions plans, “a lot of clients are sort of somewhere in the middle,” when looking at the full scope of strategies undertaken to curb emissions.

“When you think about sort of how demand affects supply, you would just expect to see that demand side transition happening first,” Smith said. “What we see on the energy side is that there are a lot of different strategies that our clients are engaging with in order to think about their near term decarbonization and longer term transition.”

As You Sow Chief Counsel Danielle Fugere said in a release that the organization commends Citi for its “transparency and responsiveness to shareholders” in providing this disclosure, but the results of the energy sector’s full-scoped emissions transition plan assessment “indicates that Citi must begin addressing this critical shortfall to meet its own climate commitments.”

This is also the first year that Citigroup, a founding member of the Net Zero Banking Alliance, disclosed its facilitated emission for the energy and power sectors as part of its TCFD report. The bank reported it facilitated 2.9 million metric tons of carbon dioxide equivalent of scope 1 and 2 emissions in the energy sector and 3.5 million metric tons of carbon dioxide equivalent in the power sector. Those are the equivalents of burning nearly 16,000 and over 19,000 railroad cars of coal, respectively, according to the Environmental Protection Agency’s GHG equivalencies calculator.

The firm only calculated its facilitated scope 3 emissions for the energy sector, where it facilitated 15.5 million metric mtCO2e; The equivalent to burning over 85,000 railroad cars of coal; according to the EPA’s calculator.

However, Smith noted that all of the report’s metrics — which also includes financed emissions and additional data aligned with the TCFD’s recommendations — are intended to be viewed as a suite of data, rather than individually. Additionally, she said the industry is still in the early days of the climate data market, contributing to a time lag in the data analysis, as the report is based on its clients’ fiscal year 2022 financial reports and 2021 sustainability reports.

“I believe that the disclosure we had this year, helps to increase the transparency helps to begin to orient the investor in terms of where we're headed, and our work with our clients, and also hopefully shares with the market our learnings,” Smith said.

The disclosures come shortly after Citi agreed to a shareholder proposal put forth by the New York City Comptroller’s office, asking the company to disclose its financing ratio of low-carbon energy supply to fossil fuel supply. JPMorgan Chase had similarly agreed to the green financing ratio proposal the comptroller’s office proposed earlier in March.

Morningstar launched its Low Carbon Transition Leaders indexes in March 2024, giving investors more access to data on how companies are working to adapt to a low-carbon economy, without excluding energy companies or other high-emitting sectors.

The nine indexes have global, regional, developed, emerging and single country options that have portfolios composed of the top 50% of each sector's market cap. The companies are given equal weight for their current carbon intensity and their low carbon transition rating management score — forward-looking metrics developed by Morningstar Sustainalytics.

“We think it really solves a key kind of market issue for investors that want to maintain lower active risk to the market by maintaining exposure to high carbon-intensive sectors, but doing it in a very different way,” Rob Edwards, global director of ESG product management for Morningstar Indexes, told ESG Dive.

The indexes will allow investors to target companies from every sector that are “taking the most action toward aligning with net-zero,” Morningstar said in a press release. Each index portfolio targets 11 sectors across three categories: The basic materials, consumer cyclical, financial services and real estate sectors are classified as cyclical; the communication services, energy, industrials and technology sectors are classified as sensitive; and the consumer defensive, healthcare and utilities sectors are categorized as defensive.

The LCTL indexes also give investors increased transparency and comparable data, Anya Solovieva, Sustainalytics’ director of global commercial strategy for climate solutions, told ESG Dive. Sustainalytics, a subsidiary of Morningstar, focuses on ESG research, ratings and analytics. Soloveiva said one of the biggest challenges for investors, in regards to the climate transition, has been understanding companies’ progression against their net-zero commitments and climate targets.

“Institutional investors were saying that … it is still challenging to fully understand the credibility of those commitments or targets … [and] understand what are the actions companies are taking today to give them confidence that the companies are on track to reduce emissions and of course, as a consequence, succeed in a low carbon economy,” Solovieva said.

In addition to a global index based on the methodology, Morningstar released regional LCTL indexes for the Asia-Pacific and Nordic regions, Japan and the United States. The developed and emerging markets indexes will have options to target all sectors in all developed markets, developed markets outside of North America, developed markets in Europe and emerging markets.

The indexes launched alongside a paper and case studies which further explain how the LCTL index methodology works.

The carbon intensity score will look at companies’ scope 1, scope 2 and scope 3, scaled by the size of a company, to give investors an “apples to apples footprint,” Edwards told ESG Dive. The carbon transition management score will try to evaluate the quality of companies’ programs, strategy, governance and financial position to inform “the likelihood that the issuers will anticipate risks and manage their emissions in line with expected government policies and market changes and net zero commitments,” the paper said.

The management score will look to evaluate companies’ operational readiness to implement their transition plans. Morningstar said when it looked at a universe of 8,000 companies with the Sustainalytics low carbon transition rating, as of the end of 2023, “paint[ed] a dire picture of the global economy’s carbon emissions trajectory,” according to the paper. The analysts said that those reviewed companies are on track for an implied global temperature rise of 3.1 degrees Celsius, if all companies were to overshoot their emissions budgets by the same proportion.

“This focus on assessing management actions is really key for investors,” Solovieva said. “To want to then narrow down universes or make investment decisions, you really need to understand what the company is actually doing to transition to a low carbon economy.”

The LCTL indexes’ two-pronged score allows for companies like French oil and gas “supermajor” TotalEnergies SE to be listed in the energy sector of its indexes, in the same portfolios that contain a global decarbonization leader like Ørsted, Denmark’s largest energy company, in its industrials sector.

The paper said TotalEnergies SE “might be a surprising inclusion in a low-carbon transition leaders index given its massive carbon footprint” and its current goal of reaching net-zero by 2050 “ is inadequate for a 1.5-degree world.” However, the analysts said the company has “taken concrete steps” towards net-zero. The analysts note the company has raised over 3 billion euros ($3.25 billion) for green bonds — focused on renewable energy purchasing and research into green hydrogen products — has begun accounting for carbon pricing in decision-making and internally strengthened its internal governance for climate.

Meanwhile Ørsted — which generates 70% of its energy from renewable sources and has decreased its emissions intensity from energy generation and operations by nearly 40% in the past three years — was also ordered by the Danish government to continue or resume operations in three of its coal and oil plants until June 2024. The analysts note this setback “may hamper” Ørsted’s goal of carbon neutrality by 2025.

“I think a lot of investors understand that supporting [higher-emitting] industries, investing in them, helping them develop into lower carbon and aligning to net zero is at a very crucial point,” Edwards said.

Shell updated its energy transition strategy in March 2024, scaling back a carbon emissions reduction target for 2030 and scrapping a goal to further reduce its carbon footprint by 2035.

The oil major said it aims to reduce the net carbon intensity of its energy products by 15-20% by 2030, compared to a 2016 baseline. The company previously said it would decarbonize its products by 20% by 2030, 45% by 2035 — a goal it has now discarded — and reach net-zero status by 2050. Shell said its 2050 target “remains at the heart of [its] strategy.”

“When we provided the 2035 target, it was assumed the world would develop an accounting system for tracking carbon emissions. That has not happened which means we cannot track the 2035 target today,” a Shell spokesperson told ESG Dive over email. The spokesperson attributed Shell’s decision to retire its initial goal to the “uncertainty in the pace of change across many countries, and the broader energy transition.”

Shell said it’s prioritizing “value over volume” when it comes to generating and selling power and is concentrating on select markets and segments and, as a result, has shifted its focus to commercial customers over retail customers. The company expects a lower total growth of power sales leading up to 2030 because of the revised strategy, which led it to modify its net carbon intensity target for the end of the decade, according to the spokesperson.

This is the first time the company has updated its energy transition strategy since unveiling it in 2021, a year after the company pledged to reach net-zero emissions by mid-century. The oil major has said it aims to reduce emissions from its operations and from the fuels and other energy products it sells to its customers, per its website. Shell also said it would capture and store any remaining emissions using technology or balance them with carbon offsets.

Though Shell’s strategy aims to decarbonize its operations, it focuses on the net carbon intensity instead of absolute emissions of its products. The former gives companies room to increase their overall carbon footprint while using offsets or renewable energy measures to balance out their impact on the environment. Carbon intensity metrics technically allow companies to mask their total emissions growth, whereas absolute emissions metrics are more transparent and provide a straightforward measure of the total emissions emitted.

Despite watering down some of its carbon reduction goals, Shell introduced a new target to reduce emissions generated by customers who use its oil products — which factor into the company’s scope 3 emissions — to help accelerate decarbonization in the transport sector. The company aims to reduce its scope 3 emissions by 15-20% by the end of the decade, compared to a 2021 baseline.

The oil major said it would invest $10-15 billion in low-carbon energy solutions between 2023 to 2025. The company also said it has reached 60% of its target to halve its scope 1 and scope 2 emissions by 2030, compared to a 2016 baseline.

Brookfield Asset Management announced on Feb. 5, 2024 it had secured $10 billion for its latest energy transition fund in its first close. The firm said it will continue to raise money for the fund until the third quarter of 2024.

The clean energy investor — which has over $850 billion in assets under management, out of which $102 billion is from renewable power and transition projects — said the Brookfield Global Transition Fund, or BGTF II, is a successor to its first transition fund, BGTF I, that raised $15 billion in 2022. However, Brookfield said BGTF II is on track to exceed its predecessor’s fund size.

The fund will invest in the expansion of clean energy, the development of sustainable solutions and the transformation of companies operating in carbon-intensive sectors to more sustainable business models, the company said. BGTF II’s seed portfolio currently includes an onshore renewables developer in the United Kingdom and a solar development partnership in India.

Brookfield said BGTF II will build on its predecessor’s investing strategy and focus on investments that accelerate the pathway to a net-zero economy. BGTF I has backed a range of projects across renewable power, carbon capture and storage, renewable natural gas and nuclear-power services — all of which are managed according to science-based sector pathways for net-zero, according to the firm.

The second Brookfield Global Transition Fund will be managed by Mark Carney, Brookfield’s chair and head of transition investing, and Connor Teskey, CEO of Brookfield Renewable Power and Transition.

Teskey said the funding points to the “growing appetite” among global investors to capitalize on clean energy and green infrastructure projects. He also said the space has witnessed the evolution of new trends such as supplying reliable, clean power to the surging data and technology sector, building new industrial supply chains and scaling the technologies needed for industrial decarbonization.

“Corporate demand for decarbonization technologies is now the primary driver of transition investment, delivering significant economic value as well as meaningful environmental benefits,” Teskey said in the press release. 

Brookfield’s renewable power and sustainability platform Brookfield Renewable Partners also comprises a portfolio of clean energy projects including hydroelectric, wind, utility-scale solar and storage facilities in North America, South America, Europe and Asia. The firm said its sustainable solutions assets include investments in nuclear power services, carbon capture and storage, renewable natural gas, waste recycling, green ammonia and solar panel manufacturing.

Last year, Brookfield bought a majority stake in Westinghouse Electric Company in a bid to expand its foothold in carbon-free energy technologies and use Westinghouse’s nuclear power services. The purchase was made through BGTF I.

The expansion of Brookfield’s clean energy portfolio taps into a growing trend of investing in green infrastructure and development. BGTF II’s financing follows BlackRock’s January acquisition of Global Infrastructure Partners in a deal valued around $12.5 billion. The acquisition combines GIP’s energy, transport, water, waste and digital infrastructure focused portfolio with BlackRock’s $50 billion infrastructure platform.

The nation’s largest asset manager cited “a movement toward decarbonization and energy security in many parts of the world” as a reason for the deal.

The financial expansion of the new fund also comes amid a growing demand for clean energy investments. According to recent data from BloombergNEF, investments in the sector jumped by 17% in 2023 compared to 2022, hitting around $1.8 trillion. The research and data services provider said projects in renewable energy, electric vehicles, hydrogen and carbon capture all drove investment growth year-on-year, and investments in the clean energy supply chain could rise to $259 billion by 2025.