Carbon Compass ℠ Methodology

J.P. Morgan decided to adopt the Paris-Aligned Financing Commitment because we do believe that climate change is real and it’s immediate. And we need to, as part of the global financial community, do our part.

We are making the commitment now because we acknowledge that the world is not on track to be Paris-aligned at this point in time. The Paris Agreement was adopted in 2015; 6 years down the road, I don’t think the world has done enough collectively. And the more we delay action, the more difficult it will be to actually meet the goals of Paris. And so time is in fact of a critical essential. And we’ve been studying the issue for years and the public announcement we made in October last year is the culmination of multiple years of study.

JPMorgan Chase’s methodology, called the Carbon Compass, for now covers oil and gas, autos and power sectors. It’s built on four pillars. Number one, it is assigned space. We are using established scenarios, primarily those developed by the IEA. It is sector specific; we want to make sure we take the nuances of every sector and their own transition pathway. Third, is it based on a decision-useful metric, which is carbon intensity for these sectors. There are clearly other viable choices, but we believe carbon intensity is the most useful one for these sectors. And finally data: we are using the absolute best available data to make sure our calculations are reflective of reality for each of these sectors.

A key philosophy at JPMorgan Chase is that we want to Paris align our portfolio by engaging with our clients. So what this means is we want to engage with every client who has a plan to transition or wants help with their own transition plan by providing them strategic advice, providing them access to capital, connecting them with other potential partners, whatever it takes to make sure that our clients can transition and help us transition.

JPMorgan Chase’s Paris Committment, we think, is just the beginning of our journey on this. We are analyzing what comes next. We have already announced that we are going to develop similar methodologies for our clients in aviation and paper & pulp. We plan to, on the sectors on which we already have a target, we will do annual reporting. We in fact will monitor those on a more frequent basis, but we’ll provide annual reporting on progress we are making towards our own target. We will, I am sure, learn from others who come up with other frameworks, other methodologies, and we will try to incorporate that.

We are committed to aligning our client financing with the goals of the Paris Agreement. This means we are measuring the GHG emissions of our clients in key sectors of our financing portfolio and are setting sector-specific, portfolio-level reduction targets that are Paris-aligned.

Climate change is a critical and urgent issue, and addressing it is a global necessity. Reducing greenhouse gas (GHG) emissions – the main cause of climate change – will require collective ambition and action across the public and private sectors. That is why in addition to our own operational carbon neutrality commitment, JPMorgan Chase & Co. announced our commitment to align our financing portfolio with the goals of the Paris Agreement.

To start, we have developed intermediate Paris-aligned targets to reduce the carbon intensity in our Oil & Gas, Electric Power and Auto Manufacturing portfolios by 2030. Our commitment to Paris alignment is an important step toward accelerating the low-carbon energy transition and encouraging near-term actions that will set a path for achieving net-zero emissions by 2050.

We refer to the methodology we have designed for this commitment as Carbon Compass^SM.

Establishing Our Paris-Aligned Methodology

In establishing our own methodology, we enlisted the support of ERM, a global pure-play sustainability consultancy with deep sectoral, technical and business expertise in the low-carbon and energy transition, to challenge and enhance our efforts. We believe the approach we have co-developed is practical and future ready, and reflects leading thinking on Paris alignment. We are making the details of our methodology public to help advance efforts across our industry and to bring our clients along on our journey to help meet the goals of the Paris Agreement.

Learn more about Carbon Compass^SM

Jamie Dimon
Chairman and Chief Executive Officer, JPMorgan Chase

“There must be collective ambition and cooperation by business and government to tackle climate change. Setting our Paris-aligned targets is an important step toward accelerating the transition to a low-carbon economy and meeting the goals of the Paris Agreement. JPMorgan Chase is committed to doing its part by working with clients around the world to reduce emissions and by ensuring our own operations remain carbon neutral.”

Keryn James
Chief Executive Officer, ERM

“JPMorgan Chase is leading the way for the banking industry by developing and transparently sharing a practical methodology which tackles key challenges, such as the urgency of reducing methane emissions in the oil and gas sector, and the prominence of light duty trucks in the non-commercial U.S. fleet. They have embraced the enormous opportunity for the banking industry to finance the transition to a low-carbon economy and provided clarity to their corporate clients on credible decarbonization trajectories.”

Keryn James
Chief Executive Officer, ERM

Ashley Bacon
Chief Risk Officer, JPMorgan Chase

“We have carefully chosen our targets and put the resources in place to help our clients transition to a low-carbon world. Our Carbon Compass^SM methodology creates incentives to deliver capital and advice to our global clients for the purpose of improving carbon efficiency, to help put us on a path to net zero.”

Science-based: To align our selected portfolios with the goals of the Paris Agreement, JPMorgan Chase has set targets that build on the transition pathways outlined in the IEA Sustainable Development Scenario (SDS), along with a wide range of public resources, including additional climate scenarios, decarbonization research and other frameworks for assessing Paris alignment.

Sector-specific: We have developed metrics and targets tailored to individual sectors, recognizing that each sector faces unique challenges. Within a given sector, we have focused on specific activities with material emissions and credible transition pathways.

Decision-useful metrics: For each sector, we define one or more core metrics that capture essential facts about companies’ performance and progress towards decarbonization, and that are compatible with the benchmark trajectories we use to evaluate Paris alignment.

Best available data: Our metrics are designed to make use of consistent, well-reported and standardized data. However, more and better data is still needed. In particular, improved company- and activity-level emissions data will enhance the ability to measure results, track progress and drive accountability. We are actively supporting improved measurement and better disclosure of data and will update our methodology to reflect improvements over time.

To evaluate Paris alignment of JPMorgan Chase’s global financing portfolio 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. We include both financing that we directly provide (such as through revolving credit facilities) as well as our share of facilitated financing (such as through our underwriting in debt and equity capital markets).

Carbon Compass^SM incorporates what we believe are the most relevant, impactful, credible and decision-useful data and metrics to drive progress. One of the essential features of our approach is the use of a tailored methodology for each included sector. The following summarizes the process we use, including key considerations at each step, and outlines the general framework for our sector-specific methodologies.

Focusing on Emissions Reduction in Three Key Sectors

Oil & Gas: We have established two distinct metrics and targets for Oil & Gas: Operational intensity for emissions from production and refining activities (Scopes 1 and 2), and End Use intensity to capture emissions from the combustion of oil and natural gas (Scope 3). This approach acknowledges that both Operational and End Use emissions are important to the sector’s climate impact, and that there is a particular need to address operational methane emissions in the near term.

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.

Auto Manufacturing: We measure direct emissions from auto manufacturing (Scopes 1 and 2) as well as “tank-to-wheel” emissions 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.

Over time, we intend to expand Carbon Compass^SM to address additional sectors, and we aim to extend and improve its application in accordance with best practices and improved data availability.

The table below summarizes the current portfolio-weighted average carbon intensity of JPMorgan Chase’s in-scope clients and the interim targets we have defined for 2030 for each sector, which are aligned to the goals of the Paris Agreement.

Going forward, we intend to align our lending and underwriting decisions in our chosen sectors to work towards achieving our portfolio targets. This means we will increasingly support those companies that are helping to advance the goals of the Paris Agreement, such as by expanding their investment in low- and zero-carbon energy sources and technologies and reducing their GHG emissions.

Significant amounts of capital and strategic advice will be needed to support companies in their low-carbon transition efforts, including to help decarbonize their operations and products and develop new technologies and solutions to address the critical challenges climate change presents. As a global financial services company, and one of the largest financiers to many sectors that will be significantly impacted by climate change and the energy transition, we are well-positioned to use our capital and expertise to encourage and help our clients to make the transition.

With our sector-specific and global portfolio-level commitment design, we are positioned to understand the unique challenges that each sector – and each company – faces in the low-carbon transition and to provide targeted support. We will continually look for opportunities to engage with new clients and to bank new sectors and technologies that focus on sustainability and low-carbon transition.

Our Carbon Compass^SM methodology establishes a strong foundation for implementation of JPMorgan Chase’s Paris-aligned financing commitment, including clear frameworks for how we will measure progress and engage with clients in key sectors, beginning with Oil & Gas, Electric Power and Auto Manufacturing sectors.

We believe our approach reflects the ambition, thoughtfulness and rigor that our clients and other stakeholders expect from us, and which will be crucial as we work together to help accelerate the transition to a low-carbon economy. Yet, these are just the first steps of the longer journey that our Paris-aligned financing commitment represents.

We will engage with and provide annual updates to our stakeholders on the implementation of our commitment. Over time as scenarios and data improve, technology develops and we engage more with clients, we will look at what it would take to enhance our targets to bring them in line with net-zero by 2050. Additionally, we will continue to evaluate the appropriateness and technical feasibility of expanding our commitment to other sectors.

We understand the urgency and the scale of the climate challenge. Our Paris-aligned financing commitment, combined with a number of other strategic efforts across our business, is a key step forward. We look forward to building on it and doing our part to achieve the goals of the Paris Agreement.

Benchmarking Methane and GHG Intensity Among Major U.S. Oil and Gas Operators

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International Energy Agency’s (IEA) World Energy Outlook (WEO) Sustainable Development Scenario

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Why has JPMorgan Chase adopted a financing commitment that is aligned to the goals of the Paris Agreement?

At JPMorgan Chase, we believe that climate change is a critical issue of our time and have long supported the goals of the Paris Agreement. However, the world is not currently on track to meet these goals, and we recognize we do not have time to lose when it comes to climate action.

Our commitment to Paris alignment is an important step toward accelerating the low-carbon energy transition and encouraging near-term actions that will set a path for achieving net-zero emissions by 2050. Our goal is to help our clients navigate the challenges and capitalize on the long-term economic and environmental benefits of transitioning to a low-carbon world.

Our business strives to do its part in collaboration with our clients, as well as policymakers, who have a critical role to play in creating the frameworks needed to advance significant reductions in greenhouse gas (GHG) emissions globally. We recognize that significant changes in policy and the creation of new technologies will ultimately be required to reach net-zero emissions. Learn more about our work engaging with stakeholders on climate matters and our $2.5 trillion sustainable development target here.

JPMorgan Chase has developed Carbon Compass – our methodology to align our financing with the goals of the Paris Agreement. To start, we have established intermediate emission targets for 2030 for our Oil & Gas, Electric Power and Auto Manufacturing portfolio.

To help advance the transition to a low-carbon economy and track progress towards Paris, the firm has chosen to evaluate its portfolios using carbon intensity metrics, which track emissions relative to units of output. When measured over time, carbon intensity provides insight into changes in efficiency, performance and business strategy.

Many groups have developed frameworks to help financial institutions align their financing with the Paris Agreement. Our methodology was developed by learning from and building on these existing approaches, and we are committed to continuously evolving our approach. In establishing our own methodology, we enlisted the support of ERM, a global pure-play sustainability consultancy with deep sectoral, technical and business expertise in the low-carbon and energy transition, to challenge and enhance our efforts. We believe the approach we have co-developed is practical and future ready, and reflects leading thinking on Paris alignment. We are making the details of our methodology public to help advance efforts across our industry and to bring our clients along on our journey to help meet the goals of the Paris Agreement.

We are starting with these three sectors because they are responsible for a significant share of GHG emissions from the global energy value chain. JPMorgan Chase aims to work with clients in these sectors to advance the goals of Paris, including by reducing GHG emissions and expanding investment in low- and zero-carbon energy sources.

Oil & Gas – We cover Operational emissions from production and refining (Scopes 1 and 2) and End Use emissions from the combustion of oil and natural gas (Scope 3)
Electric Power – We include direct CO₂ emissions from power generation (Scope 1), which account for the vast majority of the sector’s climate impact
Auto Manufacturing – We measure direct emissions from auto manufacturing (Scopes 1 and 2) as well as “tank-to-wheel” emissions from vehicle end use (Scope 3)

Oil & Gas – We have chosen to use two separate carbon intensity values to assess the Paris alignment of our Oil & Gas portfolio and provide a clear line of sight to the climate-related priorities of our clients:
1. Operational carbon intensity – expressed as grams CO₂e per megajoule (g CO₂e/MJ) of embedded energy – to track reduction in methane and CO₂ emissions from operations
2. End Use carbon intensity – expressed as grams CO₂ per megajoule (g CO₂/MJ) of embedded energy – to track the transition to low- and zero-carbon energy, such as bioenergy and renewables

Electric Power – We use the carbon intensity-based metric of kilograms (kg) CO₂ per megawatt-hour (MWh) of electricity generated to evaluate the Paris alignment of our Electric Power portfolio
Auto Manufacturing – We use the carbon intensity-based metric of sales-weighted average grams of carbon dioxide equivalent (CO₂e) emissions per kilometer for new cars sold, or g CO₂e/km

The table shown above summarizes the current portfolio-weighted average carbon intensity of JPMorgan Chase’s in-scope clients and the interim targets we have defined for 2030 for each sector, which are aligned to the goals of the Paris Agreement. For more information on each sector’s target, portfolio baseline, the scenario and methods used, the emissions included and other details, see our Carbon Compass^SM methodology.

We have seen a steady increase in the number of companies who have expressed support for achieving net zero emissions by 2050 and announcing goals to align their GHG emissions trajectories with the Paris Agreement.

While we anticipate seeing more such commitments from companies over time, transition pathways will be industry-specific, and strategies for individual companies will likely look different. We recognize that, for most companies, there will be opportunities to reduce GHG emissions and improve efficiency, yet it may not be feasible for every company to significantly transition their business models or strategies.

To support Corporate & Investment Bank (CIB) and Commercial Banking (CB) clients with their sustainability and energy-transition goals, we have launched the Center for Carbon Transition (CCT). The CCT is tasked with delivering on JPMorgan Chase’s commitment to align its financing with the goals of the Paris Agreement. Additionally, CCT provides clients with centralized access to sustainability-focused financing, information and advisory solutions. CCT also assists clients on their long-term business strategies and related carbon disclosures.

Today, there remains a significant gap between the path the world is on today and the changes to our global energy system that will be needed to successfully reach the goals of the Paris Agreement. To close the gap, significant investment and policy solutions will be needed to expand deployment of existing low- and zero-carbon technologies, and support the commercialization of new technologies that can advance decarbonization.

To advance long-term solutions that address climate change and contribute to sustainable development, JPMorgan Chase aims to finance and facilitate more than $2.5 trillion over 10 years, including $1 trillion for green initiatives.

Depending on the sector, progress towards 2030 Emissions Intensity targets in the coming decade may depart from a linear pathway. Progress in some sectors will likely be front-end loaded, and progress in other sectors will likely be more back-end oriented. For example, we would expect progress toward our Operational carbon intensity target for Oil & Gas companies to advance more quickly in the early years of the decade, as companies take aggressive steps to reduce methane emissions and flaring. Progress toward our End Use carbon intensity target, on the other hand, will likely be more concentrated in the latter years of the measurement period, given the more time-consuming measures necessary to reduce these emissions.

In addition, progress towards our carbon intensity targets will be somewhat tied to progress that society makes in reducing overall demand. If societal demand for carbon-intensive products declines at a pace equal to or greater than the pathway envisioned by the IEA Sustainable Development Scenario, our ability to meet or even exceed our 2030 targets will be greatly enhanced. If societal demand for carbon-intensive products does not decline as envisioned by the IEA SDS, some of our targets may prove more difficult to attain.

Why has JPMorgan Chase adopted a financing commitment that is aligned to the goals of the Paris Agreement?

At JPMorgan Chase, we believe that climate change is a critical issue of our time and have long supported the goals of the Paris Agreement. However, the world is not currently on track to meet these goals, and we recognize we do not have time to lose when it comes to climate action.

Our commitment to Paris alignment is an important step toward accelerating the low-carbon energy transition and encouraging near-term actions that will set a path for achieving net-zero emissions by 2050. Our goal is to help our clients navigate the challenges and capitalize on the long-term economic and environmental benefits of transitioning to a low-carbon world.

Our business strives to do its part in collaboration with our clients, as well as policymakers, who have a critical role to play in creating the frameworks needed to advance significant reductions in greenhouse gas (GHG) emissions globally. We recognize that significant changes in policy and the creation of new technologies will ultimately be required to reach net-zero emissions. Learn more about our work engaging with stakeholders on climate matters and our $2.5 trillion sustainable development target here.

JPMorgan Chase has developed Carbon Compass – our methodology to align our financing with the goals of the Paris Agreement. To start, we have established intermediate emission targets for 2030 for our Oil & Gas, Electric Power and Auto Manufacturing portfolio.

To help advance the transition to a low-carbon economy and track progress towards Paris, the firm has chosen to evaluate its portfolios using carbon intensity metrics, which track emissions relative to units of output. When measured over time, carbon intensity provides insight into changes in efficiency, performance and business strategy.

Many groups have developed frameworks to help financial institutions align their financing with the Paris Agreement. Our methodology was developed by learning from and building on these existing approaches, and we are committed to continuously evolving our approach. In establishing our own methodology, we enlisted the support of ERM, a global pure-play sustainability consultancy with deep sectoral, technical and business expertise in the low-carbon and energy transition, to challenge and enhance our efforts. We believe the approach we have co-developed is practical and future ready, and reflects leading thinking on Paris alignment. We are making the details of our methodology public to help advance efforts across our industry and to bring our clients along on our journey to help meet the goals of the Paris Agreement.

We are starting with these three sectors because they are responsible for a significant share of GHG emissions from the global energy value chain. JPMorgan Chase aims to work with clients in these sectors to advance the goals of Paris, including by reducing GHG emissions and expanding investment in low- and zero-carbon energy sources.

Oil & Gas – We cover Operational emissions from production and refining (Scopes 1 and 2) and End Use emissions from the combustion of oil and natural gas (Scope 3)
Electric Power – We include direct CO₂ emissions from power generation (Scope 1), which account for the vast majority of the sector’s climate impact
Auto Manufacturing – We measure direct emissions from auto manufacturing (Scopes 1 and 2) as well as “tank-to-wheel” emissions from vehicle end use (Scope 3)

Oil & Gas – We have chosen to use two separate carbon intensity values to assess the Paris alignment of our Oil & Gas portfolio and provide a clear line of sight to the climate-related priorities of our clients:
1. Operational carbon intensity – expressed as grams CO₂e per megajoule (g CO₂e/MJ) of embedded energy – to track reduction in methane and CO₂ emissions from operations
2. End Use carbon intensity – expressed as grams CO₂ per megajoule (g CO₂/MJ) of embedded energy – to track the transition to low- and zero-carbon energy, such as bioenergy and renewables

Electric Power – We use the carbon intensity-based metric of kilograms (kg) CO₂ per megawatt-hour (MWh) of electricity generated to evaluate the Paris alignment of our Electric Power portfolio
Auto Manufacturing – We use the carbon intensity-based metric of sales-weighted average grams of carbon dioxide equivalent (CO₂e) emissions per kilometer for new cars sold, or g CO₂e/km