Banks under fire for oil financing

Last week, the Supreme Court of Canada ruled that the federal government Carbon tax is constitutional – set a floor for the tax rates observed by each province and give credibility to the government’s proposed $ 170 per metric tonne tax by 2030. But how far will the money follow? Actually?

If Canada is to be a leader in the fight against climate change, its banks should be world leaders in decarbonizing their loan portfolios, ”said Jackie Cook, director of investment management at Morningstar. It’s hard to argue that we are working on a transition away from fossil fuels as Canadian banks continue to finance oil and gas.

The 2021 Fossil Fuel Financing Report titled Banking on climate chaos 2021 analyzes corporate data from 60 of the world’s largest banks. He finds that instead of cutting back on fossil fuel financing, these banks have regularly increasing space financing. In 2016, total fossil fuel funding (broken down by Tar Sands, Arctic Oil, LNG, coal mines, coal power, etc.) was around US $ 709 billion. In 2020, that number exceeded 750 billion US dollars. In total, banks lent more than US $ 3.8 trillion to fossil fuels from 2016 to 2020.

The report was written by a group of seven climate advocacy organizations, including the Rainforest Action Network and the Sierra Club. He noted that the coronavirus pandemic has led to an interesting outcome for the financing of fossil fuels.

“From January to June, fossil fuel financing was the highest in every six months since the adoption of the Paris Agreement, as large companies around the world took advantage of very low interest rates and programs buying central bank bonds to prepare for the difficult times ahead. Meanwhile, the second half of the year was marked by record funding levels. The impact of these two hugely divergent half-years has been that, globally, funding from the world’s 60 largest private banks to 2,300 fossil fuel companies fell nearly 9% from 2019 to 2020, after three years of decline. ‘increase of between 4.4% and 5.5% per year. », Declares the report.

The authors see these numbers as a cause of both hope and fear. “I hope, because as even the oil majors BP and Shell now project, the impact of COVID-19 coupled with the acceleration of the energy transition may mean that the world will never again be able to extract and burn as much oil as it does. ‘in 2019. But they should also be scary, because we could only make a dent in the heavyweight of fossil fuels because of the terrible pandemic, ”he notes.

Oh CanaTar?
The top three funders for fossil fuels are all based in the United States: JPMorgan, Citi, and Wells Fargo. But Canada is not far behind. The Royal Bank of Canada (RBC) has the dubious honor of being the first Canadian bank to finance fossil fuels. It ranks fifth, with more than US $ 160 billion funded for fossil fuels over five years. The Toronto Dominion Bank (TD), Scotiabank (Scotia) and Bank of Montreal (BMO) all make the top 20. CIBC has the least funding of the Big 5 – ranking 22nd.

In total, the Big Five banks have lent US $ 558.98 billion to fossil fuels, or more than $ 700 billion in Canadian dollars.

Much of that funding has gone into tar sands oil. “2016-2020 funding was dominated by Canadian banks, led by TD and RBC, as well as JPMorgan Chase. The Line 3 pipeline is an example of how bank financing supports oil sands expansion and violations of indigenous rights, ”the report notes.

It is important to note that 2020 has seen funding decline. The Big Five Canadian banks cut their fossil fuel funding in 2020. RBC, the fifth worst bank in 2019, fell to 15th place in 2020. TD, the tenth worst bank in 2019, fell to 18th place in 2020 .

“The Alberta oil sands ‘patch’ has been one of the fossil fuel sectors most severely affected by COVID-19, and the oil sands majors have slashed their capital budgets in 2020 in an effort to ‘appease their investors and reduce debt. Aggregate bank financing for the top 35 oil sands companies fell 27% in 2020 to US $ 16 billion. This amount is less than sector funding in 2016, hopefully indicating that the heyday of the oil sands is long gone (the peak year for oil sands funding in the past half decade was 2017, with funding of $ 43 billion). As of 2016, oil sands lending and underwriting has been dominated by the Big Five Canadian banks – particularly TD and RBC – plus JPMorgan Chase. These six banks once again dominated the oil sands sector in 2020, although all but one were at lower levels than in 2016, ”the report said.

RBC shareholders demand change
Investors don’t think that’s enough. RBC shareholders represented by SumOfUs have filed a shareholder proposal who will vote at RBC’s annual meeting of common shareholders on April 8, 2021 and at Scotiabank General meeting of April 13, 2021.

The proposal calls for RBC to adopt company-wide quantitative and time-bound targets to reduce greenhouse gas (GHG) emissions associated with the company’s underwriting and lending activities and publishes an annual report. , at a reasonable cost and omitting proprietary information, discussing his plans. and progress towards achieving those goals.

RBC has announced a funding target of $ 100 billion in sustainable financing by 2025 and has committed to reporting in accordance with the recommendations of the Climate-Related Financial Disclosures Task Force.

“Yet these steps fail to address the much greater risks arising from exposure to high carbon projects in one’s loan and underwriting portfolio. The bank’s exposure to high-carbon industries and projects, including oil sands development, has put it on a collision course with the upcoming transition to a low-carbon economy expected in the ‘Paris Agreement. Shareholders need the bank’s transparency on the carbon footprint of its portfolio, ”shareholders say.

In response, RBC says it recognizes climate change is one of the most pressing issues of our time and that its strategy addresses key concerns raised by this proposal to reduce greenhouse gas emissions in the transition. towards a sustainable economy.

The bank is asking shareholders to vote against the proposal, saying in part, “Our strategy is designed to position us as a partner for clients and our communities as they seek to invest in net zero transition activities. – ultimately deepen customer relationships and develop new markets that build resilience and accelerate cleaner economic growth. To take meaningful action, we are revising our sustainable funding target from $ 100 billion to $ 500 billion by 2025. Our loans, investments, and underwriting of debt and equity securities are subject to a high level of debt. ESG due diligence and we have a rigorous process in place. to identify, assess and mitigate risks. “

At the end of February, RBC became the 100e financial institution to join the Partnership for Carbon Accounting Financials (PCAF), an industry-led initiative to standardize the measurement and reporting of funded emissions. Membership commits RBC to disclose emissions associated with lending and investing activities in accordance with the CFP Global GHG Accounting and Reporting Standard for the Financial Industry. BMO joined in January and in early March pledged to fund net zero issuance by 2050. TD joined in November 2020 and announced its net zero ambitions.

RBC is not the first
Cook points out that last year, a resolution filed with JPMorgan by investor advocacy group As You Sow asked the bank to tell shareholders “how it intends to reduce GHG emissions associated with its lending activities, in accordance with the goal of the Paris Agreement to maintain the global temperature. go below 1.5 degrees Celsius. “This motion garnered just under 50% shareholder support. The same resolution was filed with Citigroup this year and subsequently withdrawn when the Bank announced its intention to release the plan and play a role. at the forefront of the transition to a zero-interest global economy.

“Coordinated action across the financial sector to decarbonize loan and investment portfolios is perhaps the most powerful tool in driving the global economy to net zero emissions,” Cook notes.

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