Dive Brief:

• Morgan Stanley updated its interim climate targets for 2030 this month, which include targeting a range of global additional temperature rise of between 1.5 degrees and 1.7 degrees Celsius, as opposed to a strict 1.5 degrees Celsius goal.
• The new range reflects the bank setting targets that “are designed to strike an appropriate balance between being ambitious and credible while also being realistic about present near-term global challenges,” according to the report announcing the targets.
• It’s the first update to Morgan Stanley’s near-term targets since they were first issued in 2021 and comes as both the bank and recent United Nations’ reports recognize that the world is not on track to reach its Paris Agreement goal of limiting global warming to an additional 1.5 degrees Celsius.

Dive Insight:

Morgan Stanley’s update also adjusted existing 2030 targets for the power, energy and auto manufacturing sectors and set new targets for the aviation, chemicals and mining sectors. The bank said its current goals “reflect [the bank’s] best efforts at this point in time.”

“Current government policies, technology adoption and consumption habits are not yet aligned with the Paris Agreement’s ambition to limit the global temperature increase to 1.5°C above pre-industrial levels,” the report said. 

Morgan Stanley said that without “sufficient change” to the pace of global policy, adoption and consumption habits “our clients, and our firm, may not meet net-zero-aligned targets.” The bank said it is “steadfast” in its net-zero commitment and will engage with its clients on their transition strategies.

While the Paris Agreement had an ideal goal of limiting global warming to an additional 1.5 degrees above pre-industrial levels, its “central aim” is to keep “global temperature rise this century well below 2 degrees Celsius.” 

A report released by the UN last week — ahead of its COP29 climate conference in Baku, Azerbaijan — found current climate pledges and policies are “nowhere near” the level of ambition needed to reach global climate goals. The global body warned that, at the current pace of transition, limiting that temperature rise to “1.5°C will be dead within a few years.”

By establishing a range of net-zero targets, the bank is “acknowledging the challenges that the global economy faces whilst being aligned, still, with the Paris Agreement,” Morgan Stanley Chief Sustainability Officer Jessica Alsford told Reuters.

The bank’s 2030 sectoral targets include reducing portfolio intensity in:

• Auto manufacturing by 29% to 45%;
• Aviation by 13% to 24%;
• Chemicals by 18% to 28%
• End use energy by 10% to 19%;
• Operational energy by 12% to 20%;
• Mining by 23% to 31%; and
• Power by 45% to 60%.

In addition to expanding the sectors covered by its interim targets and establishing an upper-bound net-zero scenario, the financial institution also made additional adjustments to its target-setting methodology.

Morgan Stanley’s sector targets cover its corporate relationship lending exposure, using a sector-specific emissions intensity metric. The bank previously made these measurements using a financed emissions lending intensity metric, but will now measure sector targets using a physical intensity metric. That metric will allow the bank to exclude the measure of enterprise volume including cash, which Morgan Stanley said had “volatility.” 

The bank will now measure physical intensity by multiplying the ratio of the bank’s lending commitment to a client compared to its overall sector commitments by the ratio of the client’s annual emissions to their production. Morgan Stanley said the new measurement “better aligns the firm’s approach with our clients’ business activities and how they measure their decarbonization progress.”

The bank’s 2030 targets will also utilize 2022 as a baseline year now, rather than 2019, to use “the most recent and highest quality data,” according to the target-setting methodology in the report.