A new report renders a damning portrait of Canada’s Big Five banks on their path to net-zero emissions by 2050. Instead of shifting toward net zero, the banks have moved backwards, raising their financing of the fossil fuel industry with only modest increases to low-carbon energy.
“The Big Five banks have taken little voluntary action to align their business practices with their own net-zero commitments,” states the report by InfluenceMap, a global corporate research think tank based in London.
The banks racked up $275 billion in loans and bond and equity underwriting to fossil fuel companies between 2020 and 2022, which represents 16.9% of their total financing activity of $1.63 trillion, states the report.
Instead of moving to reduce their financing of oil and gas, Canada’s financial heavyweights increased their fossil fuel involvement to 18.4% of total financing in 2022, up from 15.5% in 2020.
By contrast, European and U.S. banks reduced their fossil fuel exposure over that same period, says the report.
In fact, Canadian banks’ fossil fuel exposure dwarfs that of their U.S. and European counterparts. The Canadian bank tally of 16.9% fossil fuel exposure compares with 6.1% at the top five U.S. banks and 8.7% at the five largest European banks.
On an individual basis, CIBC had the largest exposure to fossil fuels at 23%, followed by TD bank at 19%, Scotiabank at 18%, RBC at 15% and BMO at 14%. RBC had the largest dollar value of fossil fuel financing of the Big Five with U.S.$72.4 billion in fossil lending and underwriting out of total financing activity of U.S.$499 billion.
The Big Five banks have taken little voluntary action to align their business practices with their own net-zero commitments.
- InfluenceMap
The report says the banks are failing on the key ratio of renewable energy to fossil fuel financing.
BloombergNEF, the new energy financing arm of Bloomberg News, has determined that global financial institutions must achieve a ratio of 4:1 low-carbon energy to fossil fuel financing this decade. This is the financial reallocation necessary to increase low carbon energy and decrease fossil fuels to sufficiently reduce carbon emissions and keep global warming within 1.5ºC.
According to the InfluenceMap report, the financing flows of the large Canadian banks between 2020 and 2022 was 3.9:1 in favour of fossil fuel financing, roughly opposite to where the ratio needs to be to avoid catastrophic climate change. The top five European banks had a ratio of 2.0:1 in favour of fossil fuels, while the largest U.S. banks had a ratio of 2.8:1.
The report notes that green industry financing has also risen in the 2020 to 2022 period, but it is a fraction of fossil fuel financing in the range of 2 to 6% of total financing activity.
In a media statement, Mathieu Labreche, spokesperson for the Canadian Bankers Association (CBA) said the 2020 to 2022 data cited in the report doesn’t capture recent climate change progress of the banks.
“Canada’s banks understand the important role that the financial sector can play in facilitating an orderly transition to a low-carbon future. Firm commitments are required to accelerate clean economic growth and that’s why banks are implementing climate action plans that set specific targets to meet the demands of this global challenge,” said the statement.
“This includes working with clients across industries to help them decarbonize and pursue energy transition opportunities, and financing new and existing green projects that will help Canada meet its net-zero ambitions.”
Banks and fossil fuels are closely linked
Canada has one of the largest fossil fuel industries in the world, ranked as the fifth-largest producer of natural gas and the fourth-largest producer of oil. It also has a very concentrated banking sector. Together with National Bank of Canada, the Big Five control 93% of the banking assets in Canada. This concentration of ownership means the banks provide financing to virtually every sector of the Canadian economy, including oil and gas.
Bank financing to the fossil fuel sector rises and falls with the price of oil as banks adjust their lending and underwriting in tandem with oil and gas company expenditures to raise profit or lower costs. Financing to the oil and gas industry fell in 2020 when the Covid-19 pandemic seriously depressed oil prices.
In 2020, bank financing of Canadian oil and gas companies was $36 billion. Despite joining the international Net-Zero Banking Alliance in late-2021 and pledging to bring their CO2 emissions to net-zero by 2050, fossil fuel financing rose sharply in 2022 to $73 billion when oil and gas prices soared after Russia’s invasion of Ukraine.
The InfluenceMap report found that three Canadian companies alone – Enbridge, TC Energy and Cenovus Energy – received 23% of all fossil fuel financing over the three-year period.
Calgary-based Enbridge and TC Energy are the top two Canadian oil and gas transportation companies. Enbridge is No. 1, with the longest oil transportation system in the world and the largest natural gas utility in North America. Cenovus, a major oil sands company, is the second largest Canadian oil and natural gas producer and the second-largest refiner.
As cited in the report, the Canadian Bankers Association often portrays the banks as passive actors in the climate and energy transition but asserts that their size and scope will enable the economy to transition as it gradually shifts to lower CO2 emissions.
But InfluenceMap says banks are powerful actors in and of themselves and are indirectly working to maintain the current high-CO2 emission economy through memberships in business groups opposing oil and gas emissions caps, carbon taxes and cap-in-trade policies.
“This narrative placing banks outside of the shaping of the real economy downplays their influence and is in tension with their membership to industry groups that are active on real economy policy,” states the report.
The InfluenceMap report shows that banks can’t simply stand by and wait for the climate transition to happen. They must use their power and influence to help shape a more sustainable economy or the climate transition may be seriously delayed, with potentially catastrophic consequences to the climate.
