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Giant dump trucks haul raw tar sands at the Syncrude tar sands operations near Fort McMurray, Alta. on Sept. 17, 2014.Todd Korol/Reuters

Canada’s largest banks have managed to hold off an attempt by activists to force them to hold an annual “say-on-climate” vote that would give shareholders a bigger voice in determining lending policies as the banking sector moves toward its goal of net-zero carbon emissions by 2050.

At their annual meetings this month, top executives and directors of the country’s five biggest banks successfully argued against the “say-on-climate” proposals, which were all soundly defeated.

Still, it is unlikely the issue will go away. Not when the Big Five are among the world’s top lenders to the fossil-fuel industry, a distinction that has made them a prime target of global environmental groups and the subject of unfavourable media coverage.

The Big Five last year signed on to the United Nation’s Net-Zero Banking Alliance, led by former Bank of Canada governor Mark Carney, committing themselves to aligning their lending policies with achieving net-zero emissions by mid-century. Even so, they continue to lend billions of dollars to the fossil-fuel sector annually and have no plans to stop doing so any time soon.

Royal Bank of Canada RY-T, Bank of Nova Scotia BNS-T and Toronto-Dominion Bank TD-T are among the “dirty dozen” of global financial institutions that provided the most in loans and underwrote the most bonds for fossil-fuel producers and pipeline operators between 2016 and 2021, according to the annual Banking on Climate Chaos report compiled by the Rainforest Action Network.

The report pegged RBC’s fossil-fuel financing at US$201-billion over the five-year period, followed by Scotiabank at US$149-billion and TD at US$141-billion. Bank of Montreal BMO-T and Canadian Imperial Bank of Commerce CM-T also made it into the top 20 with fossil-fuel financings of US$117-billion and US$90-billion, respectively.

Canadian bank investors resoundingly reject push for ‘say-on-climate’ votes

The RAN report said bank funding of oil sands operators and pipelines surged 53 per cent in 2021 from the previous year, to US$23.3-billion, with Canadian banks, led by RBC and TD, accounting for more than 70 per cent of the total.

Canada’s big banks face unique challenges in decarbonizing their lending portfolios, given the oversized importance of the oil and gas industry in the domestic economy. Cutting off that sector from bank financing, as some activists demand, would have negative short- and medium-term repercussions not only for the banks’ bottom lines but for the entire Canadian economy.

That is especially true as the oil and gas sector looks to invest tens of billions of dollars in carbon capture, utilization and storage (CCUS) projects after Ottawa this month unveiled a 42-per-cent emissions reduction target for the sector by 2030. Oil and gas companies will look to their banks for funding for such projects, all while continuing to increase fossil-fuel production.

In its 2021 Environmental, Social and Governance (ESG) Performance Report, RBC estimated its portfolio of financed emissions at around 45 million tonnes of CO2 equivalent, with about 11 million tonnes coming from business loans and project financing in the oil and gas sector.

“Achieving net-zero emissions in our lending will require absolute [greenhouse gas] emissions reductions across a number of key sectors that are both high-emitting and critical to the Canadian economy,” RBC said in the report.

Continuing to finance the fossil-fuel industry need not be inconsistent with the banking sector’s net-zero goal provided the oil and gas industry progressively reduces its emissions, both in absolute terms and on an intensity-based level.

Ottawa’s plans to develop new best-in-class guidelines as the basis for approving new oil and gas developments should inform the banks’ own lending policies. Environment and Climate Change Canada said this month that, under the new guidelines, future oil and gas projects would need to integrate best environmental practices, compare favourably with the world’s most high-performing projects on an emissions basis, and achieve net-zero emissions by 2050.

Ottawa will also take into consideration “how the project will remain competitive across global low-carbon transition and net-zero scenarios, and how it avoids supporting activities and assets that are at risk of becoming stranded from declining demand.”

Investor activist group calls on Canada’s big banks to hold annual ‘say-on-climate’ votes

Ottawa’s approval this month of the Bay du Nord offshore oil project in Newfoundland and Labrador – with estimated carbon emissions of eight kilograms a barrel, compared with an average of more than 70 kilograms a barrel in the oil sands – was greeted with scorn by climate activists. But is was entirely in keeping with the goal of transforming Canada into the “cleanest” oil and gas producer.

Surging fossil-fuel prices since Russia’s invasion of Ukraine have upended many assumptions about the future of the Canadian oil and gas industry, which saw capital expenditures fall by 55 per cent between 2014 and 2019. Europe is looking for permanent substitutes for Russian fossil fuels and Canadian producers are keen to answer the call.

Canada’s banks will have a decisive role in determining whether the oil and gas sector can meet Ottawa’s reductions targets while at the same time supplying the world with responsibly sourced oil and gas. Doing so would require more, not less, bank financing in the years to come.

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