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The Canadian flag flutters in the wind outside First Canadian Place in Toronto’s Financial District, on March 15, 2023.Fred Lum/the Globe and Mail

A shareholder advocacy group that seeks to hold companies to account on climate action is calling on securities regulators to crack down on Canada’s Big Five banks, accusing them of misleading investors and the public with their sustainability claims.

Investors for Paris Compliance (I4PC) is filing a complaint Tuesday with the Ontario Securities Commission and Autorité des marchés financiers of Quebec, urging investigations into the accuracy of the banks’ disclosures. It names Royal Bank of Canada RY-T, Canadian Imperial Bank of Commerce CM-T, Bank of Nova Scotia BNS-T, Bank of Montreal BMO-T and Toronto-Dominion Bank TD-T, all of which have announced multibillion-dollar commitments to expanding sustainable-finance initiatives and have set net-zero emissions targets.

The charity wants the watchdogs to force the banks to disclose the true emissions impact of their sustainable-finance divisions and make clear when activities do not advance net-zero goals. It is also calling on regulators to enforce clear standards for what constitutes sustainable finance.

Calling the banks’ environmental, social and governance (ESG) programs a “$2-trillion placebo,” I4PC cited a number of equity and debt financing deals billed under the banner of sustainability that, the groups says, resulted in increased fossil fuel production and greenhouse emissions.

“The banks themselves have said climate change is a direct threat to their business, and that means it’s a direct threat to securities holders. So they need to be taking credible action on that, and so far, what they are putting in the window doesn’t seem to meet the test,” said Matt Price, the group’s executive director. “In terms of sustainable finance, these huge numbers are getting thrown around. We think it’s sort of like grandstanding. They haven’t shown that it’s real.”

The complaint with securities commissions opens a new front for activists raising questions about the accuracy of companies’ claims on climate action. In 2022, the Competition Bureau launched an investigation into RBC after environmental groups alleged its climate-focused market practices were deceptive.

RBC has responded to critics by advocating for an “orderly” climate transition that includes financing energy companies’ efforts to generate cleaner sources of fuel – rejecting calls for an abrupt end to financing for those companies. The big banks, which are members of the Net Zero Banking Alliance, a global coalition spearheaded by former Bank of Canada and Bank of England governor Mark Carney, have consistently said they believe helping clients decarbonize is more beneficial to the environment and economy than abandoning high-emitting sectors.

In response to the I4PC complaint, the banks deferred to the Canadian Bankers Association. CBA spokesperson Maggie Cheung said the banks follow North American standards for ESG disclosure and contribute their views to industry forums and regulatory bodies to move standards for sustainability disclosure forward.

“Banks in Canada understand the important role that the financial sector has in an orderly transition to a low-carbon future. Sustainable finance is one tool for helping companies mobilize capital toward this effort and a range of other environmental and social goals,” Ms. Cheung said in an e-mail.

She did not address the details of the complaint, however, saying the association would not comment on specific deals or legal proceedings.

When asked if the OSC might investigate as requested, spokesperson Crystal Jongeward said the commission does not comment on the existence or nature of any complaint or investigation. Autorité des marchés financiers spokesman Sylvain Théberge also declined to say whether the Quebec regulator would look into the matter.

Among examples listed in the complaint are financings done using green and sustainability-linked bonds. In one case in 2022, RBC and National Bank were joint bookrunners for a $200-million bond issue by Tamarack Energy. The debt required Tamarack to reduce scope 1 and 2 emissions – those tied to operations and the energy to fuel them – on an intensity rather than an absolute basis. National Bank is not included in the complaint.

Tamarack used some of the proceeds to acquire a rival oil and gas company, which I4PC said increased production and scope 3 emissions – those stemming from the consumption of fossil fuels. The company issued more sustainability-linked notes worth $100-million that year, which contributed to the purchase of another producer.

In 2021, BMO and CIBC were “sustainability structuring agents” for a $4-billion sustainability-linked loan to Teck Resources Ltd., which I4PC said was planning on doubling oil sands production and expanding a coal terminal in North Vancouver at the time. Teck has since sold its oil sands operations.

TD, meanwhile, was the sustainability structuring agent for a US$4-billion sustainability-linked loan for Occidental Petroleum Corp. in 2021. Key performance indicators for the financing included absolute reductions in scope 1 and 2 emissions, but I4PC noted that Occidental’s increasing oil and gas capital expenditures were eight to 17 times its “net zero pathway” spending.

“These examples point to the absence of clear standards for sustainable finance, particularly with regards to climate change where emissions growth makes the crisis worse not better,” the group said in its complaint. “And, each of these deals would raise the participating banks own financed emissions – which account for scope 3 emissions – thereby taking them further away from their own net zero commitments rather than helping.”

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