The bank executive testimonies were part of a study by the House of Commons’ standing committee on environment and sustainable development about how the Canadian financial system contributes to the climate crisis. Using the findings from this study, parliamentarians hope to identify policies to advance a more sustainable financial system.

So far, the government has been slow to modernize our financial system to address climate change. While there has been general consensus across federal parties to align finance with climate action, the only tangible output has been in the Senate, where Senator Rosa Galvez introduced a proposed legislation called the Climate-Aligned Finance Act. New rules for climate-aligned finance make sense, given how climate risks already harm people across the country.

Parliamentarians summoned executives from Canada’s largest banks, often referred to as the Big Five – the Royal Bank of Canada (RBC), TD Bank, Bank of Montreal (BMO), Bank of Nova Scotia and CIBC – after they declined the original invitation.

During two hours of testimony, parliamentarians pushed the executives on how these banks are globally the largest investors in fossil fuels, and how this makes it harder for Canada to reduce emissions and meet its climate commitments.

Policymakers confronted the banks’ credibility on their stated climate targets. The Big Five all have commitments to reach net-zero by 2050, but none have published plans that show how they’ll reach their goals. According to Bloomberg research, the Canadian banks overinvest in oil and gas, and underinvest in clean climate solutions, relative to global peers.

Parliamentarians highlighted how this chasm between promises and actions misleads the public and creates risks. NDP MP Matthew Green asked RBC CEO Dave McKay, “When will you stop the greenwashing and double speak with climate plans when really you’re the companies pouring fuel on the fire?”

To address this chasm, other jurisdictions, such as the European Union, the United Kingdom, Hong Kong and Singapore, are moving toward introducing rules or guidance for climate transition plans that require banks to show concretely how they are decarbonizing their investments. Canada should follow suit. Currently, our federal regulator that supervises the Big Five banks only requires reporting on current emissions. Its rules reference the potential to require transition-plan reporting in the future.

When will you stop the greenwashing and double speak with climate plans when really you’re the companies pouring fuel on the fire?

–NDP MP Matthew Green

Even within these transition plans for climate action, the treatment of fossil fuels is a main sticking point. Liberal MP Leah Taylor Roy asked if the banks would commit to, when investing in oil and gas, “only invest in projects that reduce emissions.” BMO CEO Darryl White responded that he was “committing to continuing to finance our clients.” This is not terribly reassuring for a claim of financing positive change and climate action.

The Big Five provided $140 billion in financing to fossil fuels last year, which represents more than 13% of all fossil fuel financing by global banks. The International Energy Agency confirmed that any expansion of oil, gas or coal is inconsistent with a scenario of keeping warming to the safer level of below 1.5°C. Climate experts point to the need for a managed yet urgent phaseout of existing fossil fuels, particularly in Canada given our high historical contribution to global emissions.

A framework, known as a taxonomy, to define which investments are aligned with science-based climate action has been contentious, and the Ministry of Finance under Deputy Prime Minister Chrystia Freeland has been working on that for the better part of two years. Rumours have swirled that her department is trying to force fossil fuels, like so-called natural gas, into the climate-aligned label. Given that “natural” gas is composed of methane, whose global warming potential is more than 80 times higher than that of carbon dioxide, this move would be as deceitful as including harpooned whales under Ocean Wise (a sustainable seafood certification).

Earlier this year, more than 70 environmental groups wrote to the government about why fossil fuel investments – “natural” methane gas in particular – must be ineligible for the taxonomy’s sustainability label. The groups, including Environmental Defence Canada and Climate Action Network, emphasized that “there should not be a Canadian taxonomy unless it credibly aligns with” limiting global warming to 1.5°C.

The federal government seems on track to falsely label many kinds of fossil fuels as good for the climate transition despite expert concern. This would be, regrettably, a green thumbs-up for the Canadian banks to continue their harmful business as usual.

During the bankers’ hearing, the link between our financial system and a worsening climate crisis was made clear, and that link must be addressed. Parliamentarians should recommend credible climate transition plans across the economy, and most urgently, that any government sustainable-investment label exclude oil and gas.

Julie Segal is senior program manager of climate finance at Environmental Defence Canada.  Alex Cool-Fergus is national policy manager at Climate Action Network Canada.

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The government has started to take action, but more is needed. Last week, in the fall economic statement, the federal government promised action on sustainable finance. It committed to a green and transition taxonomy (a classification system for investments) and mandatory climate-related disclosure from large private companies. It also proposed to tackle greenwashing by strengthening competition law. If done well and implemented quickly, these policy promises would make the financial sector more sustainable and help Canada reach its 2030 emission-reduction commitments.

Canada can succeed on its global climate commitments only if financial institutions move in the same direction and allocate money to climate solutions instead of climate pollution. Yet many Canadian banks, pension funds, insurers and large companies still underinvest in clean energy and disproportionately invest in oil, gas and coal. Earlier this year, Canada was recognized as a “low-regulation jurisdiction” on sustainable finance by a UN sustainable investment group.

Recent polling by conducted by Pollara Strategic Insights shows that more than two-thirds of Canadians want new rules from the government to ensure that financial institutions invest sustainably. In general, respondents to the poll said they want the long-term good of society to be prioritized over short-term profits.

In other words, Canadians have connected the dots: a safe planet means a better quality of life with less volatility and more affordability. Regulating climate finance, as esoteric as it may seem, would make investments work in people’s best interests.

Some policy-makers have stepped up to the plate.

Last year, independent Senator Rosa Galvez introduced the Climate-Aligned Finance Act (CAFA), a comprehensive legislative proposal that would align the financial system with climate action. The proposal moves beyond traditional frameworks, which consider only how the financial sector is affected by climate risk, to also tackle how investments in polluting industries can make climate change worse.

The bill is finally being debated in the Standing Senate Committee on Banking, Commerce and the Economy. Last week was the first hearing of what is expected to be a many-session study of CAFA. Independent climate experts are expected to be called to discuss why this bill is important for Canada to meet its climate commitments.

If passed, CAFA would ensure that financial institutions reduce the emission footprints of their investments and invest in climate resilience. This would bring transparent reporting and clarify which institutions are taking real climate action versus which are counterfeiting their green credentials. The bill would create a duty for leaders of financial institutions to consider – and take – climate action.

Climate finance policies like CAFA have support. More than 120 organizations, climate experts and academics endorse the bill, even writing to other senators to encourage them to support it too.

Some banks have taken issue with parts of climate-aligned financial policy, in particular with the elements that would be most effective at stymieing fossil fuel investments. But others have endorsed the bill. In support of the bill, Vancity notes that “it is imperative to transform our economy into one that protects the earth and guarantees equity for all,” and Desjardins Caisse d’économie solidaire applauds the bill for its ability to “upgrade our federal financial system in the face of climate change.”

Climate-aligned financial policy is key to spurring new green activity across the economy, meeting the best interests of Canadians and enabling Canada to succeed on its climate commitments. The key policy: credible climate transition plans should be required across the economy, in which financial institutions and large companies publish plans to reduce their investments’ emissions in line with a safe climate. To have a scientifically credible climate plan, an institution would have to show how it would reduce its investments’ emissions by half by 2030 and achieve net-zero by 2050 or sooner.

People in Canada want regulation for a more sustainable financial system that aligns with climate action. What is needed now? Quick progress on the Climate-Aligned Finance Act and for the federal government to turn its policy promises into policies.

Julie Segal is senior manager of climate finance at Environmental Defence Canada.

Melanie Snow is the federal legislative affairs specialist at Ecojustice.

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In early April, Wet’suwet’en hereditary Chiefs and environmentalists looked to attend the Royal Bank of Canada’s annual general meeting, hoping to speak with the bank’s CEO, David McKay. They wanted to engage with him on RBC’s support for the Coastal GasLink pipeline construction across unceded Wet’suwet’en territory, despite the bank committing to net-zero emissions by 2050.

RBC cancelled the in-person meeting at the last minute and declined an opportunity to engage with the community representatives. The incident highlights how some Canadian financial institutions recognize the need for a “just transition” only to fail when it comes time to deliver.

The term “just transition” was coined by labour and environmental movements in the 1970s to support workers shifting away from polluting industries. Today, the term is used in the context of the climate emergency to ensure that workers and communities have alternatives while our economy pivots away from crude oil, natural gas and coal. But financial institutions use the term amorphously.

Over the past two years, investors and other financial players have collectively made “net-zero” pledges and recognized a just transition as a central tenet. RBC, among other Canadian banks, has celebrated that it joined the global Net-Zero Banking Alliance, to help “accelerate and support efforts to address climate change, and support an orderly and just transition to our net-zero future.”

But the financial sector is sidestepping two core principles of the just transition: taking early action to shift the economy away from fossil fuels and engaging affected people in the transition process. Most Canadian financial institutions continue to support new fossil fuel projects, despite the International Energy Agency calling for an end to investment in new oil and gas projects after 2021, if we’re to be net-zero by 2050.

RBC’s support of the Coastal GasLink pipeline is a stark contrast to the principles of a just transition. The project not only fosters continued economic reliance on natural gas, but also violates fundamental consultation principles for Indigenous communities, formalized in the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). The project has also been the site of significant police violence against Indigenous leaders, resulting in a UN committee sending three admonishing letters to the provincial and federal governments, the most recent one in late April.

Another member of the Net-Zero Banking Alliance, U.K.-based HSBC, recently gained attention when the bank’s senior responsible-investing executive, Stuart Kirk, dismissed climate change during his presentation at a sustainable finance conference in late May. Kirk asked, “Who cares if Miami is six metres underwater in 100 years’ time,” suggesting that the financial sector should not bother considering climate change and the related risks. Complaining that he spends too much time evaluating social and climate issues, Kirk showed disregard for the workers and communities already impacted by the climate emergency and the energy transition. Meanwhile, HSBC has published reports supporting the just transition.

To align with a just transition, the financial sector has to start with prioritizing good outcomes for workers and communities instead of business as usual. It should take its cues about the net-zero transition from vulnerable communities and workers. Quebec’s “solidarity economy” model can be a guide, where financial institutions collaborate with labour at the mandate and governance level to invest capital back into the community. Quebec financial institutions are known for being trendsetters on climate action, with Desjardins financial cooperative leading as the first Canadian financial institution to commit to 1.5°C-aligned climate action by, for example, excluding investments in coal. The solidarity-economy model, while imperfect, demonstrates that finance can take guidance from labour, climate and community.

Ultimately, governments should be driving forward climate finance policies with just-transition plans at their core, but Canada’s environment commissioner reported in April that the federal government is not delivering what’s needed. Environment Commissioner Jerry DeMarco said at the time that the government has been “unprepared and slow off the mark.” But the financial sector should not use this policy gap as an excuse to continue making harmful investments.

A just transition should be central to any net-zero plan even if an organization has yet to paste the term on its marketing materials. Climate inaction creates risks for the whole financial system, and ignoring the true principles of a just transition worsens climate inaction. In the most recent report from global scientists at the Intergovernmental Panel on Climate Change about reducing emissions, the authors write that “attention to equity and broad and meaningful participation of all relevant actors in decision-making” will seed a more successful climate transition. Focusing on environmental justice, planning for sunsetting industries, and including affected people in decision-making would make climate action more effective. Financial organizations have to deliver a transition that is equitable for people and communities to avoid being hypocritical and to make net-zero plans reachable.

Canada’s financial sector loosely uses the term “just transition” to vaunt their climate credentials, but they have to deliver on what that term means.

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