Instead of playing a crucial role to help Canada achieve its Paris Agreement targets, Canada’s “Big Five” banks are actually hindering Canada’s progress on climate change.
The Big Five banks—RBC, TD Bank, Scotiabank, BMO and CIBC—are among the most powerful corporate entities in Canada, certainly among the largest and most profitable. They‘ve been called a “comfortable oligopoly”—an industry controlled by a few firms. RBC and TD Bank are so big they’re included in the “too big to fail” club of global banks.
With their political and economic clout, the Big Five could play a crucial role to help Canada achieve its Paris Agreement targets. The Expert Panel on Sustainable Finance, established by the Canadian federal ministers of Environment and Finance in 2018, agrees. The panel suggests that finance has a critical role to play in supporting the transition to a low-emissions future. And the banks seem to be doing this. In recent months they’ve all come forward with commitments to achieving net-zero carbon emissions in their lending by 2050. That’s 29 years from now. What are the Big Five doing today?
Finance has a critical role to play in supporting the transition to a low-emissions future.
To answer that question, I looked at bank financing practices between 2014, when oil prices first collapsed, and 2020 in a report just released by the Corporate Mapping Project, Fossilized Finance: How Canada’s banks enable oil and gas production. I found that Canada’s Big Five banks increased their lending to the fossil fuel industry by more than 50 per cent—to $137 billion in 2020. TD Bank led the pack with a lending increase of 160 per cent.
I also found the Big Five banks have invested billions of their clients’ dollars in shares of oil and gas and pipeline companies. Here, RBC leads with nearly $21 billion invested in the top 15 fossil fuel and pipeline companies as of November 2019. Add the other four big banks and the investment is over $50 billion. These banks continue to underwrite stock and bond offerings by fossil fuel companies—$90 billion over the six-year period. And they earn millions more advising companies on mergers, acquisitions and other corporate moves.
The Big Five have provided billions in loans and underwriting services to most major pipeline players such as TC Energy’s Keystone XL and Coastal GasLink, Trans Mountain, Dakota Access and various Enbridge pipelines, and to major oil sands and fracked gas players such as Canadian Natural Resources, Cenovus Energy, Suncor Energy, MEG Energy, Husky Energy and Ovintiv (formerly Encana Corporation).
If these banks are to lead the way in the transition to a low-emissions future, they must extricate themselves from their many conflicts of interest. They have come to rely on the profits they earn from financing the capital-intensive fossil fuel sector and they must be weaned off this habit.
The Big Five have provided billions in loans and underwriting services to most major pipeline players.
They must also loosen their many ties with the industry. First are their shared directorships. Current bank directors have present or previous affiliations with Capital Power, Cenovus Energy, Enbridge, Encana Corp. (now Ovintiv), Hydro-Quebec, Nexen Energy (now CNOOC International), Shell Canada, Talisman Energy (now Repsol Canada) and TC Energy Corp. There’s also an ongoing movement of senior bank executives into the ranks of fossil fuel companies where they can provide expert financial advice and connections.
These banks need to reduce their sponsorships of fossil fuel industry conferences. Most notable, perhaps, is Scotiabank’s sponsorship, along with the powerful industry lobby group the Canadian Association of Petroleum Producers (CAPP), of an annual two-day symposium. The 2019 symposium, held in Calgary, connected 70 presenters from Canada’s upstream sector (exploration and production) with 130 oil and gas institutional investors. The theme was how to ensure long-term supply growth. The 2021 symposium was held virtually at the end of March with the theme of how the upstream sector is managing current market conditions and the future of the industry. TD Bank, BMO, CIBC and RBC also sponsor industry conferences.
The banks also have to cut their memberships in industry organizations. Scotiabank is an affiliate member of CAPP. CIBC is a member of the Explorers and Producers Association of Canada, which represents small and mid-sized oil and gas companies. BMO, CIBC and RBC are affiliate members of the Petroleum Services Association of Canada, which represents companies that provide oilfield services such as drilling, testing, producing, maintaining and reclaiming crude oil and natural gas wells, the latter often at public expense.
Banks must reduce their support for fossil fuel industry expansion and pipeline building.
And, most importantly, they need to reduce their support for fossil fuel industry expansion and pipeline building. They justify such support as necessary to finance the transition to a low-carbon economy, but such an approach is ultimately self-defeating. All five bank CEOs have come out in favour of continued extraction and production. To cite just one example, in November 2019 CIBC CEO Victor Dodig defined “true leadership” as expanding Canada’s energy markets while making the transition to cleaner energy. The importance of building the Trans Mountain expansion “cannot be overstated,” he warned. Bank endorsements are highly valued within the industry because banks are perceived by the public as being outside Alberta and outside the energy sector. They provide third-party validation which, as Enbridge CEO Al Monaco put it, is “the best kind” of validation. Such endorsements need to cease.
The Big Five banks have begun investing in low-carbon and renewable energy projects, issuing and underwriting green bonds, lending to renewable energy projects and pledging tens of billions of dollars to projects that claim to follow environmental, social and governance (ESG) criteria. Yet a 2019 study by Refinitiv, formerly the financial risk business of Thomson Reuters, pegged their fossil fuel lending and underwriting as being 25 times greater than their renewable lending and underwriting.
Canada will not reach its climate goals as long as the Big Five banks keep undermining them. If the banks won’t act, government must.
Topics: Climate change & energy policy