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Number Cruncher Oil sands vs. renewables: Where Canadian banks are putting their dollars

What are we looking for?

Where the big banks are putting their financing in the energy sector – how much is flowing into oil and gas, and how much into renewables.

The screen

As institutional (and also individual) investors become increasingly concerned with environmental, social and governance (ESG) issues, oil sands companies are experiencing depressed share prices. In fact, some giant U.S. and European institutions are starting to put “tar sands” involvement in the same bucket as predatory lending or gun manufacturing and pledging to divest completely.

Although some, especially in Alberta, might argue that this is misinformed, it is probably good news for the health of the planet; it certainly has an impact on Canada’s economy as the energy sector is the country’s second-largest. On the other hand, the largest sector, financials, is seen as a world leader in ESG issues with Canada’s Big Five banks averaging an ESG score of 84.2 and an emissions score of 96.9 from Refinitiv.

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However, the energy and finance sectors do not exist independently of the other. Canada’s banks are the main financiers and lifeblood of oil sands companies, and thus indirectly finance much higher levels of greenhouse gas emissions than those they produce directly from their own operations. We will look to see which of the Big Five are most involved in the oil sands and which are facilitating the most capital flow to renewable energy sources.

Using Refinitiv’s deals database, we look at all loan, bond and equity deals year-to-date to Canadian companies and issuers for both oil and gas – exploration, drilling, production, transport, refining, marketing, etc. – and renewable energy. We then rank these companies, one through five, in terms of total dollar value of financing for oil and gas and for that of renewables. Based on these results, we rank the banks one through five overall. (Note: A ranking of one in oil and gas would be a negative in overall ranking; conversely, holding the top spot in renewables would be very positive.)

More about Refinitiv

Refinitiv, formerly the financial and risk business of Thomson Reuters, is one of the world’s largest providers of financial markets data and infrastructure, serving more than 40,000 institutions worldwide. With a dynamic combination of data, insights and technology, as well as news from Reuters, our customers can access solutions for every challenge, including a breadth of applications, tools and content – all supported by human expertise.

What we found

Over all, Royal Bank of Canada and Bank of Montreal score the best and Bank of Nova Scotia scores the lowest. Scotiabank was one of the main banks (along with others among the Big Five) responsible for $5.7-billion of loans and credit facilities made this year to Canadian Natural Resources Ltd. – Canada’s largest greenhouse gas emitter, according to Refinitiv’s ESG database – and $5.5-billion to Enbridge Inc., the country’s sixth-largest GHG emitter.

RBC arranged this year’s largest renewable energy loan, a $700-million credit facility for TransAlta Renewables Inc., while BMO was the (joint) book runner for the year’s largest renewable bond, a $300-million investment-grade 10-year issue for Algonquin Power & Utilities Corp.

Investors are advised to do their own research before trading in any of the securities shown below.

Big Five Canadian banks: capital flows into energy sector, year to date

Overall RankCompanySymbolOil & Gas Loans (US$ Mil.)Oil & Gas Bonds (US$ Mil.)Oil & Gas Equity (US$ Mil.)Oil & Gas Total (US$ Mil.)Oil & Gas RankRenewables Loans (US$ Mil.)Renewables Bonds (US$ Mil.)Renewables Total (US$ Mil.)Renewables Rank
1Royal Bank of CanadaRY-T6,212652426,9054631n/a6311
2Bank of MontrealBMO-T4,6111,0531135,7785n/a1131134
3Toronto-Dominion BankTD-T9,072805n/a9,8772370n/a3703
3CIBCCM-T9,0451,1567010,27112991134132
5Bank of Nova ScotiaBNS-T7,173434427,6493n/an/an/a5

Source: Refinitiv

Hugh Smith, CFA, MBA is the manager of Refinitiv’s investment management business for the Americas, and is a director on the board of the Responsible Investment Association of Canada.

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