Canadian banks’ commitments to ‘zero net funded issues’ by 2050 have raised doubts among many investors, given the lack of a set target, details and their continued support for oil companies and gas, although in part it aims to help them switch to alternatives. .
But their growing funding for green projects also presents a dilemma for shareholders who might want to divest.
The situation highlights the largely Canadian dilemma facing both banks and their investors. Even in their quest to cut funding for large emissions producers, lenders cannot walk away from an industry that makes up about a tenth of the economy, despite being responsible for more than a quarter of emissions. .
Over the past five months, the Royal Bank of Canada (RBC) (RY.TO), the Toronto-Dominion Bank (TD.TO) and the Bank of Montreal (BMO.TO), have announced plans to achieve emissions nil net, but details including a definition of this target, interim reduction targets and plans to move away from traditional energy sources.
The six largest banks account for nearly 90% of industry revenue and operate in tandem on strategic changes, including climate initiatives, leaving shareholders with few local alternatives.
“The challenge with the current push to divest the banks because they are involved in fossil fuels is that they are the same banks essential to helping us meet many of our goals for alternative energy and sustainable financing.” , said Jamie Bonham, director of corporate engagement. at NEI Investments, which owns shares in all five banks.
Canadian bank loans outstanding to the oil and gas sector remained at their level of two years ago, although it fell 9.7% to C $ 47.5 billion ( $ 42.2 billion) from the previous year as of Jan.31.
They remain among the largest financiers of fossil fuel producers globally, with TD being the world’s largest oil sands banker and RBC’s largest fossil fuel financier in Canada, in 2020, according to the Rainforest Action Network. . RBC, TD and the Bank of Nova Scotia (BNS.TO) were among the 12 worst banks for fossil fuel financing globally between 2016 and 2020.
Reports from banks show that none of the proceeds from green bonds issued last year went to renewable energy projects by traditional energy companies.
Their reluctance to give up funding for fossil fuels makes them lag behind their global counterparts, in particular Europeans like BNP Paribas (BNPP.PA) and ING Groep (INGA.AS) who have distanced themselves from shale and / or tar sands. oil and gas projects.
“When we set the goal of net zero, it wasn’t about divestment for us,” said Andrea Barrack, global head of sustainability and corporate citizenship at TD, in an interview with Reuters. . “We’re a big company in a country where a lot of… people’s livelihoods depend on (oil and gas) industry. We take these obligations seriously.
TD’s 2021 ESG report, due for release next year, will include some interim targets, Barrack said.
For more details on how Canadian banks are approaching their net zero issuance targets, see
Despite the dilemma, some investors are taking action.
Amelia Meister, senior activist for retail investor group SumOfUs, which represents around 1,700 retail shareholders of Canadian banks, said some members have divested their bank shares and more than 2,500 have said they will transfer their money from banks to credit unions.
“We don’t necessarily know what their internal definitions of low carbon are,” Meister said. “Some define low carbon as light natural gas, which is still a fossil fuel. “
Others demand more transparency.
Banks should disclose milestones to achieve net zero issuance, including explicit criteria and timelines for exiting non-Paris Agreement activities, said Emily DeMasi, EOS engagement manager, a stewardship service provider at Federated Hermes, representing investors who own approximately C $ 3.3 billion in TD shares.
They should also show how they incentivize customers to reduce their emissions, she said.
If they don’t act fast enough, EOS could regroup with other investors, file shareholder resolutions and vote to remove the directors, DeMasi said.
None of the major Canadian banks have joined the Net-Zero Banking Alliance, which is committed to finding paths to net zero issuance by 2050. VanCity, the largest credit union, which has never funded fossil fuel companies, is the only Canadian financial institution in the Alliance.
Banks around the world face risks from the climate transition, said Jaime Ramos Martin, who manages ESG funds at Aviva Investors.
“To be ahead of the risks associated with the climate transition, banks should transition their (portfolios) faster than the economies where they are present,” said Ramos Martin. “It is important to note that in order for us investors to follow through on these efforts, we need a lot of information, which is currently lacking. “
Meister blamed the banks for some of Canada’s continued dependence on traditional energy.
“The dragging Canadian banks have put our economy in a worse position for the transition. “
($ 1 = $ 1.2287 Canadian)
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