Canadian banks facing climate votes at AGMs starting this week

By Matt Price, Director of Corporate Engagement, Investors for Paris Compliance

TORONTO, April 4, 2022 /CNW/ - This annual general meeting season Canada's banks will face shareholder proposals aimed at moving their climate pledges off paper and into reality. The results from these votes will not only influence the banks but will serve as an indicator of how much the wider investment community is walking its talk on going green. The results could also accelerate action by bank regulators on managing climate risk.

Investor scrutiny of our banks on climate change is warranted. The latest annual report quantifying global banks' fossil fuel lending shows Canada's big five banks have supplied over C$910 billion to fossil fuel companies since the Paris Agreement, and over the past year increased this lending by more than banks in any other country. This means Canadian banks are some of the largest financial enablers of emissions in the world, highlighting the degree to which our financial system is exposed to transition risk once our energy systems begin to shift in earnest.

But aren't the banks on top of this shift with their net zero commitments and pledges to sink billions into sustainable finance? Unfortunately, when you scratch the surface, you'll find many of their claims misleading or full of wiggle room.

One shareholder proposal at TD asks the bank to stop financing fossil fuel expansion, in keeping with the finding by the International Energy Agency that in a net zero scenario we don't need new fossil fuel projects – the world already has enough in production. TD opposes this measure and has set only intensity-based 2030 targets for its oil and gas financing rather than absolute targets that would require a reduction in overall emissions. This lets the bank keep growing its oil and gas loan book and means it's unlikely to fulfill its commitment to net zero.

At RBC we're asking the bank to update its "sustainable finance" criteria to preclude fossil fuels and projects facing significant opposition from Indigenous peoples. This was inspired by the bank participating in a sustainability linked loan and bond to Enbridge last year during the height of the controversy over expanding the Line 3 oil sands pipeline. That project's emissions impact is equivalent to 50 coal fired power plants, and it was vociferously opposed by local Indigenous peoples. In February, RBC helped structure a sustainability linked bond with Tamarack Valley Energy, the proceeds of which helped acquire another oil and gas company, thereby expanding production and increasing emissions.

Whether the large asset managers – including the banks themselves – will vote in favour of these resolutions is an open question. While some of them have joined Mark Carney's Glasgow Financial Alliance for Net Zero, many are also heavily invested in fossil fuel companies, and therefore have conflicts of interest. The gatekeepers of shareholder reform are also in need of reform.

How do we break this deadlock on banks and climate change? The answer preferred by those profiting from fossil fuels is "technology." Banks are keen to believe that carbon capture utilization and storage (CCUS) will allow ongoing fossil fuel expansion in a net zero world. Yet, even if taxpayers pay the tens of billions demanded by the oil industry for carbon capture subsidies, and even if the technology is wildly successful (it never has been anywhere), CCUS only abates up to 30% of emissions, since the vast majority occur when the product is burned.

After analyzing announcements made over the past year or so, there isn't one major energy company in Canada with a credible net zero plan. These companies are the ones on our banks' loan books, comprising their financed emissions. As long as these clients refuse to transition away from fossil fuels, or as long as they remain clients, then by extension our banks will not meet their net zero targets. Some global banks are starting to see the writing on the wall – in response to a shareholder proposal, HSBC recently pledged to phase down its financing of the fossil fuel industry.

Ultimately, it may fall to the bank regulator to break the deadlock. We are facing what some call a "climate Lehman moment," referring to the 2008 financial crisis when the banks undermined their own existence with dodgy deals and had to be bailed out. Likewise, by pouring hundreds of billions into fossil fuels, they are helping to precipitate climate chaos, with massive existential risk to their own business, and to the rest of us.

The Superintendent of Financial Institutions Peter Routledge has already said he's looking at increasing capital buffers at financial institutions to address growing climate risk. So far, his words have been about protecting our banks from climate change, but to avoid a climate Lehman moment he'll also need to consider how to protect our climate from the banks.

Meanwhile, investors who'd rather ward off increased regulation can vote in favour of the shareholder proposals at the upcoming AGMs. Let's see if banks and their investors can self regulate their fossil fuel financing toward a credible path to net zero.

Investors for Paris Compliance is a shareholder advocacy organization dedicated to holding publicly traded Canadian companies accountable to their net zero commitments. For more information visit www.investorsforparis.com

SOURCE Investors for Paris Compliance