The support, which included both direct lending and underwriting of bonds, shares and loans, was provided by 65 large banks worldwide, according to the annual Banking on Climate Chaos (BOCC) report published June 9. The report is considered the world’s most comprehensive annual assessment of publicly available data on fossil-fuel bank financing.

The report estimates that since 2016 – a year after the Paris Agreement on climate change was adopted – $8.7 trillion in fossil fuel financing has been extended by the banks (all figures in U.S. dollars). The report states if these trillions had been used to finance the renewable sector instead, the world energy system of today would be “more affordable, more resilient, more secure and more climate-proof.”

More than half the 2025 total – $508 billion – was for expansion projects, primarily in the United States. These included new oil and gas pipelines, liquefied natural gas facilities for gas exports to Europe and Asia, and gas-fired power plants for a flood of new data centres. Coal-fired power infrastructure was also expanded, largely in China. Expansion financing grew by 27% in 2025 compared with a year earlier.

While overall financing increased, it has also become more concentrated, with a larger share of financing coming from the top 12 banks. In 2025, they provided $474.3 billion to oil, gas and coal companies, nearly 40% of the global total.

In addition to locking in decades of new carbon dioxide emissions, this rapid expansion is having a ripple effect through the global economy. Growing levels of debt by natural gas distributors and pipeline companies are contributing to growing gas-fired power utility costs. These are being passed on to electricity customers, many of whom are low-income people least able to afford higher prices.

“The more debt these fossil-fuel firms have, the more profit they need to service that debt,” says Niko Lusiani, climate and energy research director for Rainforest Action Network, the lead organizer of the report. “This creates constant pressure for short-term returns to shareholders, which has impact on price volatility but also inflation in gas prices and utility prices.”

The report, now in its 17th edition, is compiled by Rainforest Action Network; BankTrack; the Center for Energy, Ecology, and Development; the Indigenous Environmental Network; Oil Change International; Reclaim Finance; the Sierra Club; and Urgewald.

Back to peak financing

The $906 billion in bank fossil-fuel financing in 2025 marks the second year it has increased since reaching a low of $727 billion in 2023. (Organizers restated estimates from last year’s report after adjusting some of the financing criteria last year.)

The 2025 figure is equal to the previous peak in 2021, which was triggered by the post-COVID energy demand recovery. Financing declined in 2022 and 2023, then rebounded in response to the continuing wars in Ukraine and the Middle East. Combined with the recent invasion of Iran and the oil bottleneck caused by the closure of the Strait of Hormuz, the world is now in the largest energy supply disruption in history, according to the International Energy Agency.

“We’re facing a new reality,” Lusiani  says in an interview. “Relying on fossil fuels for our primary energy source globally is no longer reliable, it’s no longer affordable, and it’s no longer actually secure.”

Clean-energy investment is growing faster than fossil fuels despite the rapid expansion in gas infrastructure. The International Energy Agency estimates that clean-energy investment will be $2.2 trillion in 2026, primarily for grids, renewables, storage, nuclear, low-emission fuels, energy efficiency and electrification. Investment in oil, gas and coal is forecast at half that, $1.2 trillion.

Twenty-six out of the 65 banks in the BOCC report appear to agree that fossil fuels are not as attractive as they once were and reduced their oil, gas and coal financing in 2025. These are primarily European banks, led by La Caixa Group, Commerzbank, Groupe BPCE, UBS and BNP Paribas. Canadian-based CIBC, Bank of Montreal and Toronto-Dominion Bank also reduced their oil and gas financing last year. La Banque Postale of France was notable for having zero fossil-fuel financing in 2025.

But the remaining 39 banks ramped up their financing last year. “When you have more of the decision-making happening in smaller circles, it is more prone to group think [and] continuing models that have long surpassed their usefulness,” Lusiani says.

JPMorganChase is top lender

The top fossil-fuel lender and underwriter in 2025 was JPMorganChase, the largest bank in the United States and the world’s largest non-Chinese-owned bank. The New York–based bank extended $58.2 billion in fossil-fuel financing in 2025, a 12.5% increase from 2024. The report estimates that last year JP MorganChase was responsible for 4.7% of global fossil-fuel bank financing, as tallied from about 2,000 banks around the world.

The bank maintains that fossil fuels will be a necessary part of the global energy mix for many years to come and that it has a responsibility to finance both fossil fuels and clean energy. “As one of the world’s largest financiers of energy, we support the full range of energy solutions and technologies, with a focus on reliability, affordability, security and long-term resilience,” a JPMorganChase spokesperson said in an email response to the BOCC report. “We believe our data reflects our activities more comprehensively and accurately than estimates by third parties.”

The bank has committed to financing $1 trillion by 2030 in climate initiatives and sustainable resource management, including low-carbon energy solutions. It issued $309 billion toward this goal between 2021 and 2024. JPMorganChase is also one of the few banks to agree, under pressure from shareholders, to publish its annual energy-supply financing ratio. As of 2024, that ratio was 1.13:1, meaning that for every $1 of fossil fuel financing it provided in 2025, it financed $1.13 in clean energy.

Still, Lusiani argues that JPMorganChase is at the heart of a relatively small number of banks – mostly based in the United States – that are at odds with the energy transition. “Over 4% of global bank fossil-fuel financing is done by JPMorganChase, so they’re the kingpin of what you would call a new oligopoly of fossil-fuel financing.”

The other major U.S. players in this oligopoly are No. 2-ranked Bank of America ($47.3 billion in 2025), No. 5-ranked Citigroup ($45.3 billion) and No. 6-ranked Wells Fargo ($42.5 billion). Japanese banks Mitsubishi UFJ Financial and Mizuho Financial came in at No. 3 ($47.0 billion) and No. 4 ($46.5 billion), respectively. The Royal Bank of Canada stood at No. 7, at $36.6 billion.

Are bailouts coming?

The expansion of fossil-fuel financing in 2025 came as the Net-Zero Banking Alliance closed its doors last year, shutting down the global coalition of banks working toward the industry’s net-zero transition. The BOCC report argues that the NZBA collapse and continued expansion of fossil-fuel financing in 2025 show the limitations of voluntary commitments as a route to meaningful climate action.

The report calls for bank regulators to require comprehensive disclosures and robust testing of climate risks, increased capital requirements for banks extending high-carbon-footprint loans and mandatory climate transition plans.

The banks are entering a period of rising risk, as high oil and gas prices push individuals, companies and countries to seek out cheaper renewable-energy alternatives. This poses a growing risk that the billions of dollars in oil, gas and coal infrastructure now being financed could become stranded assets.

For Lusiani, policymakers need to jump in, even if it seems to cut against the grain of current thinking in the United States and around the world to loosen climate regulation. The alternative could mean multibillion-dollar government bailouts of energy companies in the future, he says.

“The question is going to be: Where are all these massively indebted LNG and pipeline companies going to go, and how are they going to pay back that debt? I worry about public bailouts of some of these companies. They are so over their skis.”

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

The post Banks up the ante on fossil fuels — again appeared first on Corporate Knights.

But big questions remain. Does the alliance’s collapse open the gates for full-scale bank financing of fossil fuels? Or does it point to a lower-profile but possibly more effective financing path for the climate transition?

And what about bank regulation? Does the failure of this voluntary initiative validate what many non-governmental organizations have been saying for years; namely, that the banks should be compelled to invest in the climate transition through regulation?

These questions are now front and centre after the alliance – known as NZBA – closed last week, ending its existence as a membership organization and converting to an archive of banking-industry climate-target guidance.

NZBA was the flagship of the Glasgow Financial Alliance for Net Zero, former United Nations climate envoy Mark Carney’s high-profile effort to marshal the world’s largest financial institutions to reduce carbon emissions. When launched in 2021, NZBA and other financial industry networks pledged to reduce their carbon emissions to net-zero by 2050 and to align billions of dollars in assets to the climate transition.

But as banks were called upon to live up to their net-zero commitments through short-term reductions in fossil fuel lending and underwriting, many of the alliance’s leading members jumped ship. All the major United States and Canadian banks left NZBA earlier this year, followed by many European and Japanese lenders. With Carney now in the role of Canada’s prime minister, the alliance lost its key leader. Staving off anti-climate pressures and potential legal challenges in Europe, the remaining 140 NZBA members voted to formally close the organization.

“The end of the NZBA is a real loss,” writes David Carlin, a climate adviser to the financial sector. NZBA provided market signals, a community of practice and transition pathways on climate risk, Carlin argued in a blog post: “Those values do not disappear with the end of the alliance, but the collective ambition is weakened.”

‘Zombie targets’ possible

Todd Cort, sustainability lecturer with the Yale School of Management, said the banks could enter a protracted period of limbo in which they don’t drop net-zero targets, but neither will they work toward them. “What worries me is that I think there is a higher probability of zombie targets,” he told Trellis Briefing.

Collaborations such as ShareAction in Europe and the Shareholder Association for Research and Education in Canada will continue to exert shareholder pressure on banks to account for their emissions targets. Climate-dedicated investors such as New York City Pensions will continue to be key members of these coalitions. And jurisdictions like California have enacted climate legislation to provide at least some measure of accountability by banks and other companies through mandatory disclosure.

But Donald Trump’s overwhelming control of the public agenda rules out any meaningful measures to compel the banks in the United States to reduce fossil fuel lending and underwriting. This would suggest that the banks – particularly those in North America – are getting ready for years of full-throated support of coal, oil and gas. After two years of decline in fossil fuel financing, the global banking industry reversed course in 2024, sharply increasing fossil loans and underwriting.

The distressing prospect that banks could enter a period of long-term financing for fossil fuels – and the impact this would have on global warming – has triggered a debate among climate and sustainability activists and researchers. Some are doubling down on public action, mounting bank protests in the United States and Europe.

But RMI (formerly known as the Rocky Mountain Institute) is taking a different approach, calling for a “recalibration” in how climate campaigners and advocates relate to the banking industry.

Banks not ‘moral agents’

In a report issued only weeks before the NZBA closure, RMI argues that the non-profit climate movement has overestimated the power of the banking industry to unilaterally direct its capital to the climate transition. “Banks are not moral agents or policy substitutes,” the report states. “They are commercial actors operating within regulatory, fiduciary and risk-based constraints.” The report says some climate advocates don’t consider the “complex, interconnected spider webs” of the banks and the economies in which they operate. “The expectation that banks (or any part of the financial sector) could drive the energy transition was myopic.”

Banks and fossil fuel companies are drawn to one another partly because lenders can extend sizable loans to oil, gas and coal companies based on their healthy balance sheets. This enables banks to issue credit without committing large amounts of their own capital under lending regulations. By contrast, low-carbon projects such as renewable-energy facilities typically require project financing, representing greater regulatory and financial risk to the banks. In addition, private equity, asset managers and pension funds can provide ownership financing to these projects that is not an option for most banks.

Given such limitations, RMI argues that civil society organizations should shift their focus from confronting the banks on climate targets to engaging with them on specific low-carbon transactions, such as clean power, green steel, zero-carbon homes, methane abatement and renewable fuel projects.

“What we need now is less choreography and more closing of deals,” says Kaitlin Crouch-Hess, senior principle for RMI’s newly formed Center for Climate-Aligned Finance. “We can get capital flowing by recognizing banks’ commercial role and playing to their strengths,” she says in an email statement. “Where the economics do not add up, we must work across the financial, policy and corporate systems to align policy and risk-sharing.”

Fossil risk buffer needed

While RMI’s new approach is aimed at boosting the low-carbon economy, it doesn’t address the large climate risk posed by bank-financed fossil fuel projects.

Last month, sustainable investment advocate Finance Watch issued a report showing that the 60 largest banks in the world carry more than US$1.6 trillion in credit exposure to coal, oil and gas. Finance Watch argues that as the world electrifies and decarbonizes, this large fossil-industry exposure poses a major risk to the banks as the value of fossil assets supporting loans could decline sharply and suddenly. “Banks have more than a trillion dollars of exposure to mispriced fossil fuel assets,” Julia Symon, head of research and advocacy at Finance Watch, said in a statement. “This is a carbon bubble that could burst, like subprimes in 2008. This risk is not properly recognized and banks are not prepared.”

Finance Watch argues that the European Central Bank (ECB) should impose a climate risk buffer (a requirement that additional bank capital be set aside for fossil loans). Banks with more fossil fuel credit on their books would be required to maintain a larger capital reserve, shoring up their stability in the event of a crash in fossil assets. Finance Watch is urging the ECB to impose such a buffer as part of a current review by the central bank on risks to the financial system posed by environmental issues.

While it’s unlikely that the Trump administration would permit such a climate risk buffer to be imposed in the United States, it’s expected that financial regulators in other countries would follow ECB’s lead. Global adoption could also pave the ground for a similar measure in the United States after Trump’s term comes to an end.

The end of NZBA is not good news, but it shouldn’t signal an end to climate action by the banks. Advocacy organizations could engage with the banks on important decarbonization projects and policy supports while also challenging them to achieve their net-zero targets.

At the same time, financial regulators can send a clear signal to the banks that fossil fuel lending is risky. If banks choose to lend to the industry, regulators should ensure they’re going to have to commit more of their own money to do it.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

The post Mark Carney’s Net-Zero Banking Alliance is done. Now what? appeared first on Corporate Knights.

In recent policy statements and conference appearances, officials at the Office of the Superintendent of Financial Institutions (OSFI) have sketched the outlines of a plan to unlock hundreds of billions of dollars – perhaps even as high as $1 trillion from the banking industry alone – for this mammoth undertaking.

OSFI head Peter Routledge, who holds the title of superintendent of financial institutions, says Canada’s financial system is so well capitalized that additional loan volumes or equity investments would not threaten the stability of the industry. Banks, for example, could make nearly $1 trillion in additional loans and remain above minimum regulatory capital requirements, he said last week at a financial industry summit.

“I do believe Canada’s financial system is in a strong position to help the economy adapt to our new economic environment,” he said in a speech hosted by the Global Risk Institute on September 17. Additional loans of $1 trillion would have a substantial impact on the Canadian economy, which, as Routledge pointed out, has a value of about $3 trillion in terms of gross domestic product in 2024. “Canada’s banks have ample capacity to help fund the country’s adjustment to this new era.”

Life insurance companies, which have boosted their capital over the last six years, have “ample capital buffers that can similarly be leveraged for new investments in the Canadian economy,” Routledge said.

Freeing up capital from insurers

Routledge said the Canadian economy and its financial sector are facing a level of turmoil not seen since the end of the Cold War in 1991. “The current era is no less bracing than that time. From escalating geopolitical instability and cyber threats to climate change; from domestic shifts to technological innovation; the risks and opportunities facing Canadian financial institutions are complex and consequential,” he said. OSFI “will enable Canadian financial institutions to play a central role in reinforcing Canada’s economic strength in this era of great uncertainty.”

This is not a philanthropic pursuit. This is a business strategy so that we have long-term resiliency. When you’re thinking 25 to 50 years out, you need to think about what the future economy is going to look like, and whether your investments will be there.

– Laura Zizzo, founder, Manifest Climate

In an example of the reforms to come, in July OSFI changed its life insurance capital adequacy regulations, which are the rules mandating how much capital life insurance companies must maintain as a buffer against potential losses on money they invest from policyholders and other customers. Under the new rules, life insurance companies can reduce the amount of capital set aside on investments in public infrastructure projects. The capital charge on debt investments in such projects drops to 3% from 6% and to 30% from 40% on equity investments. The aim is to free up the industry’s capital to create an incentive to invest more in infrastructure.

The life insurance industry welcomes these changes “as something we’ve long advocated for,” Blair Stransky, vice president of the Canadian Life and Health Insurance Association, said in a statement. The new rules “will help unlock significant investments, or billions of dollars, and accelerate national infrastructure projects.” The association estimates that life insurance companies held $50 billion in infrastructure investment in 2024.

The insurance company changes are only one facet of OSFI’s regulatory overhaul. OSFI has rescinded 20 guidelines to streamline regulation and paused some new capital requirements on banks as part of the federal government’s recently announced red-tape review. In remarks at another industry event in early September, Routledge also suggested OSFI may incentivize banks to increase their lending to the defence sector in keeping with the federal government’s pledge to boost military spending. More details will be announced in October, Routledge said.

Climate infrastructure is not charity

The life insurance changes will help the industry adapt to the transition to a low-carbon economy if they use this opportunity to invest in sustainable infrastructure, says Laura Zizzo, founder and chief strategy officer with Manifest Climate. Examples of sustainable infrastructure include flood-protection facilities, carbon capture projects, smart grids and renewable energy. “This is not a philanthropic pursuit. This is a business strategy so that we have long-term resiliency,” she says. “When you’re thinking 25 to 50 years out, you need to think about what the future economy is going to look like, and whether your investments will be there.”

In a joint brief with Corporate Knights to OSFI in 2021, Manifest, which uses artificial intelligence models to advise companies on climate risk, argued that losses on infrastructure investments are lower than on many market investments and capital requirements could be safely lowered, a suggestion implemented with the July changes.

In addition to relaxing the capital adequacy rules, Zizzo says, it’s reassuring that OSFI is holding firm on climate disclosure requirements for financial institutions. By holding the line on climate disclosure, OSFI is bucking the anti-climate backlash by United States and Canadian securities regulators, which shelved similar requirements for corporate stock issuers earlier this year.

Some Canadian insurance companies are recognizing the value of investments in sustainable infrastructure. Great West Life is partnering with Power Sustainable, an arm of parent company Power Corp., investing about $1 billion in sustainable food and infrastructure and renewable energy.

Sun Life has invested $4.2 billion in renewable-energy investments, about one-quarter of the company’s total infrastructure investment of $17.2 billion, according to figures cited by CEO Kevin Strain at the company’s annual meeting in May.

The OSFI reforms come at a time when the Liberal government of Mark Carney is under pressure to make good on his campaign commitment to make Canada into a conventional and clean energy superpower. The prime minister’s office did not respond to a request for comment on the OSFI reforms. However, Carney has said the government’s major projects office will play a key role in securing finance for projects on the national fast-track list.

A recent BloombergNEF report revealed that Canada’s big banks seem to be onside with the conventional-energy part of Carney’s ambition, but not so much on the clean energy side. The report shows that Canada’s major banks provided about $200 billion in fossil fuel lending and other financing in 2024, compared with about $104 billion to low-carbon energy. However, globally, in the first six months of 2025, banks and other financial institutions appear to be turning away from fossil fuels and increasing financing to renewables.

The scale of investment still not known

For now, the financial industry is non-committal on how much and what kind of investment could be financed from the OSFI reforms.

“At this point, we don’t know fully what the impacts of the OSFI changes will be on the insurance sector, but we welcome these changes and are watching with interest to understand what opportunities may exist to invest in Canada,” Stransky said.

The Canadian Bankers Association didn’t comment specifically on the OSFI reforms but in a statement said that “we can unlock growth, boost productivity and build long-term prosperity” through improvements in internal trade, infrastructure investment, financial regulation and tax policy, support for innovation, and fighting financial crime.

As the federal government’s major projects strategy names more infrastructure projects for fast-track approval, pressure will grow on Canada’s financial institutions to get on board with financing deals. It remains to be seen what mix of traditional and sustainable infrastructure and commercial deals will be made as the capital taps are loosened.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

The post Canada’s finance regulator says up to $1 trillion in lending could be unlocked appeared first on Corporate Knights.

But the Cambridge, Ontario, resident is “constantly evaluating” all her family’s consumer choices, she says. They watch how they shop and invest, but it wasn’t until last year, while attending an online class with financial consultant and podcaster Tim Nash, that Graham started thinking about the environmental and social impacts of the money in her chequing account. “I have been interested in sustainable investing for over 10 years but had never really thought about the money that wasn’t invested,” she says.

Since banks and credit unions lend about 20 times more funds than they hold in deposits, where we choose to bank has ripple effects, like any other consumer choice. While big banks lend to fossil fuel companies and other “sin” industries, money lent by credit unions stays in communities, supporting neighbours and local businesses.

Credit unions are also greener than big banks, with smaller footprints and outsized sustainability initiatives. “Credit unions can utilize their influence to facilitate a just [green energy] transition by supporting their members and local businesses in reducing their emissions,” writes Helen Tooze, a researcher at the University of British Columbia, in a 2023 report. Several credit unions already do this by offering lower-interest-rate loans for energy-efficient home renovations. Other Canadian credit unions, such as Vancity, Coast Capital and southwestern Ontario’s Libro Credit Union, have achieved B Corp certification – a designation that for-profit companies can attain if they meet high social and environmental standards, which no major Canadian consumer bank has attained.

The last time North American credit unions saw a major influx of new customers was on November 5, 2011, when about 40,000 people in the United States reportedly fled their banks to protest a monthly debit card fee at Bank of America. But no mass movement to credit unions exists today, with growth in Canada stagnating despite committing to positive environmental, social and governance practices. The big banks dominate about 90% of financial services in Canada.

It’s usually not that they’re eager to run to a credit union. It’s usually that they are eager to run away from their bank.

—Tim Nash, founder, Good Investing

For the past decade, observers and the industry itself have warned that the main body of credit union members is aging, and the next generation isn’t filling their place at the same rate. When younger people make the switch, it’s because big banks have financial links that don’t reflect their values, such as to fossil fuels, weapons manufacturing and the war in Gaza. “It’s usually not that they’re eager to run to a credit union,” Nash says. “It’s usually that they are eager to run away from their bank.”

A BDO Canada survey of 35 executives and other managers at Canadian credit unions reported expanding their member base as the second top challenge after “optimizing customer experience.”

Some industry publications suggest that the way to attract younger members is with flashy tech and modernization, but others say an analog, feelings-focused message could have a bigger effect. As a group of McKinsey financial services consultants put it in 2024, the trick might be highlighting the “credit unions’ history of commitment to social impact” and tying this to values consumers are trying to live by.

Making the connection

The first North American credit union opened in 1900 and was pioneered by Alphonse Desjardins, a Quebec journalist and stenographer. He wanted to offer working-class families affordable access to credit, combatting rapacious interest rates flogged by other lenders.

Today there are about 400 credit unions in Canada, ranging from large, full-service organizations with flashy marketing and dozens of branches to single outlets with a handful of employees. But in a noisy market full of traditional banks and emerging fintech companies like Wealthsimple, there’s more competition than ever.

“Credit unions do talk about their ESG bona fides,” says Chris Atchison of Shockwave Strategic Communications, a firm that frequently works on accounting and finance ad campaigns. “But they just don’t have the same marketing machines behind them that the big banks do.” The mission for shareholder-owned banks is to earn profit, he points out, so the marketing push is more aggressive than at credit unions, where cooperative-based sustainable growth is the priority. 

Read more from our collective economy series

Cooperative housing is making a comeback

Has the food co-op’s moment finally arrived?

The return of the collective economy

What Canada can learn from co-op power in the rural United States 

Another challenge is inertia. Most Canadians with traditional banks say they are satisfied with their banks, but Nilesh Kavia of Saskatoon-headquartered Affinity Credit Union says credit union members have higher satisfaction rates. A recent Canadian Credit Union Association survey found that 84% of credit union members rate their financial well-being as good or very good, compared to 78% of non-members. 

Kavia says that family is a key factor influencing the youth market: young people frequently stick with the bank their parents choose for them. And new immigrants, who tend to skew younger, have a “familiarity gap” with the concept of a credit union, he says.

Maria Phillips, marketing director at London, Ontario–headquartered Libro Credit Union, says the bank knows that younger generations want to see themselves reflected in the brands they trust. “That’s why we’ve shifted to featuring real Libro members in our marketing – showcasing the individuals and communities we serve,” she says. 

Success through social purpose

“Credit unions tend to attract an older crowd and – similar to churches – have struggled to redefine their value proposition to a younger generation as our membership ages,” says Sam Herscovitch of Coast Capital, a British Columbia credit union with 52 branches. Coast Capital launched a plan in 2020 to refresh the credit union, which included an additional focus on attracting new millennial and Gen Z members. To achieve this, the financial cooperative shifted to what it calls a “social purpose” business model, which focuses on helping members grow their incomes and financial opportunities. This includes financial education tailored to young clients and offering discounted or free services for students and members under 25. It also includes investing in community employment programs for female newcomers and young people with disabilities. Herscovitch says the efforts are paying off. “In 2024, 52% of new members were under the age of 35.”

For her part, Julie Graham closed her accounts at two other banks and opened a new one at a nearby regional credit union branch. She considers it low-hanging fruit compared to other consumer decisions she tried to align with her family’s values. “It seemed to be a very easy decision to make.” Next up? Setting up accounts for her husband and eventually her daughter, and enjoying the peace of mind that she’s putting her money where her values are.

Rob Csernyik is a freelance journalist specializing in business and investigative reporting, as well as long-form features.

The post How credit unions are pushing a just energy transition appeared first on Corporate Knights.

The turnaround is dramatic. After a previous high of $922 billion in fossil financing in 2021, lending and underwriting to the industry fell to $787 billion in 2022 and then again, in 2023, to $707 billion. Last year, this downward trend reversed, and financing increased to $869 billion, according to the report, Banking on Climate Chaos (BOCC). (All figures in U.S. dollars.)

Jessye Waxman, senior adviser for sustainable finance for the U.S.-based Sierra Club, one of the report’s partner organizations, said strong oil and gas production and weak economic conditions sent fossil fuel prices lower last year, creating a need for greater external financing. At the same time, lower interest rates made it more attractive for fossil fuel companies to seek bank financing. “The fossil fuel industry is really trying to shoehorn their way in, trying to push out alternative energy sources and so are looking for external funding to help their expansion,” she said in a BOCC press briefing.

The report, prepared by the Rainforest Action Network with other climate advocacy organizations, is an annual assessment of fossil fuel financing by the world’s 65 largest banks.

The ramp-up has come at a time when the International Energy Agency (IEA) forecasts that investment in clean technologies (renewables, nuclear, grids, storage, low-emission fuels, efficiency and electrification) is on course to reach $2.2 trillion in 2025, double the investment in oil, natural gas and coal at $1.1 trillion. The increase is due to the cost advantage of green energy as well as concerns over climate change and energy security. A decade ago, fossil fuels attracted 30% more investment than clean energy, the IEA said in its annual World Energy Investment report.

Yet, 45 of the 65 banks covered in the BOCC report increased their fossil fuel financing in 2024. The United States was the largest region for fossil financing at 33% of the global total, and Canada was second largest at 15%, a reflection of the large size of the North American oil and gas industry and the close ties between the industry and the North American banks. 

JPMorgan Chase financing up 39%

JPMorgan Chase, the largest bank in the United States, was the top fossil fuel bank in the world, with $53.4 billion in oil, gas and coal financing in 2024, an increase of 39% from a year earlier. Bank of America, the second-largest fossil fuel bank, increased its fossil commitments to $46 billion, 38% more than in 2023. Third-ranked Citigroup had $44.7 billion in fossil financing, nearly 50% higher than the previous year.

Among Canadian banks, Royal Bank of Canada was ranked eighth highest at $34.3 billion in fossil fuel financing, 16% higher than in 2023. Toronto-Dominion Bank was ninth at $29 billion, 45% higher than in 2023.

Several large and expanding energy companies have consumed significant shares of the banks’ fossil financing. These include Diamondback Energy, a major Texas-based oil and gas developer, and Enbridge, a large oil transporter and North America’s largest gas utility. Three other companies are among the banks’ top five fossil fuel clients: State Grid Corporation of China, developing large coal power plants; Saudi Aramco, the largest oil producer in the world; and BP, a leading oil and gas supplier.

The report looks only at fossil fuel lending and underwriting and does not include low-carbon financing, which has also been increasing in recent years. For example, JPMorgan Chase estimates that in 2023 it provided more funding to clean energy than to oil, gas and coal, providing $1.29 in green energy for every dollar in fossil fuels.

But it’s not clear whether that ratio will increase or decrease in 2024 given the sharp rise in fossil financing last year. And even if clean energy finance improves marginally, JPMorgan Chase’s energy supply ratio (the clean-to-fossil-energy financing metric) of 1.29:1 is significantly below the 4:1 clean/fossil level that BloombergNEF has established as the level needed worldwide for the climate to stay within 1.5°C of global warming. JPMorgan did not respond to a request for comment from Corporate Knights.

No new fossil investment needed

The BOCC report authors maintain that no new oil, gas or coal financing is needed. They point to a 2021 IEA assessment that there should be no new investments in fossil fuel projects if the world is to limit global warming to 1.5°C. Recently, the IEA has revised its position, saying that new investment is needed in existing infrastructure to replace declining production but that new fossil infrastructure is still not needed.

Bank financing of fossil fuels is expected to become even more contentious in coming years. In the last six months, all major U.S. and Canadian banks have left the Net-Zero Banking Alliance, the global climate coalition. Political conditions have also changed with U.S. President Donald Trump’s call for fossil fuel companies to “drill, baby, drill” and Canadian Prime Minister Mark Carney pushing for Canada to become a clean and conventional energy superpower.

This has set the stage for a new round of oil, gas and coal expansion. The BOCC report estimates that companies engaged in fossil fuel expansion received $429 billion in 2024, an $84-billion increase from 2023 and about half the total fossil financing of $869 billion.

The BOCC authors say this expansion is reckless for global warming and increases the risk that banks will be left holding loans and bonds on declining fossil fuel assets. They are calling on regulators to require banks to establish climate plans limiting oil, gas and coal financing.

“To see the numbers jump so high just means that the financial sector is at odds with the [climate] commitments that world governments have made,” says Allison Fajans-Turner, head of bank policy for the Rainforest Action Network. “They are still prioritizing short-term profits over the long-term stability of the financial system.”

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

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In contrast with the top five banks in the United States, which hold just over a third of the market, Canada’s Big Five famously dominate around 90% of the market for financial services. They’re also some of the most profitable on the planet, with their Canadian personal and commercial banking services regularly notching profit margins north of 30%.

This is the basic unwritten structure of the arrangement: in exchange for offering economic stability (largely avoiding the agony of this century’s financial crisis), Canadian banks are allowed to occupy an unchallenged position in our economy. 

But what do average Canadians get out of this bargain, and where do those world-leading profits come from? Amid a once-in-a-generation cost-of-living crisis, there is heightened scrutiny of the ways Canadians’ lives are made more expensive, big and small. Despite signs that inflation is dropping, and with the Bank of Canada expected to cut interest rates by the end of the year, many Canadians are still struggling. All the while, Canadian banks are quietly pulling in billions a year on a yawning gap between the rates paid to savers and charged to borrowers. 

The joy of fees

Banks essentially make money in two ways: interest income and non-interest income. Interest income is the interest made on a dollar loaned to you minus the interest paid on the dollars you loan the bank – your hard-earned deposits. Non-interest income is a broader category, but to everyday Canadians the most common instance of non-interest income is fees.

There is no interacting with Canada’s financial system without the ever-present joy of fees. There are fees to open accounts, fees to close accounts, fees to keep accounts open, fees to send and even to receive money, and the adding-insult-to-injury fees for not having enough money in your account. Fees are serious business for the banks, with non-interest income for the Big Five topping more than $17 billion in Canada last year, according to public financial statements. Not only have the average total fees Canadians pay on an inflation-adjusted basis over the past decade increased, but so too has the portion of Canadian bank earnings coming from non-interest income.

In a comparison with the U.K. banking sector, Canadian economic consulting firm North Economics estimated that Canadians are overpaying to the tune of $8.5 billion more in fees annually than the equivalent fees of our British counterparts. North Economics blames coordination between major banks and a lack of competition for these higher fees, as well as relatively lower quality of banking product offerings. Looking at non-sufficient-funds (NSF) fees, the charges incurred when a chequing account is overdrawn, North Economics sees in the divorce between fees and the cost to deliver the service “a clear example of sustained oligopolistic coordination.” 

If banks are coordinating, even tacitly, on how they earn non-interest income, the same behaviour could be shaping what’s on offer for Canadian savers and borrowers when it comes to interest income, too.

Interest galore

Those who have shopped around for a line of credit would likely be familiar with the phrase “prime plus X,” while potential homeowners might be more accustomed to “prime minus Y.” The “prime rate” for bank lending products is based on the overnight lending rate of the Bank of Canada. Historically, the Big Five have all maintained the same prime rate, moving in lockstep in the days following a Bank of Canada interest rate announcement, with some level of differentiation in the posted rates for individual products like mortgages. 

One critical detail that has changed is the spread between the Bank of Canada’s overnight interest rate and the prime rate used by the banks to set the rate for lending products. Since the early 2000s, that distance has quietly grown from 175 basis points (a basis point is a percent of a percent, with 175 basis points translating to 1.75%) to 220. Most average loan seekers wouldn’t have noticed that widening distance between the rate charged on lending from the Bank of Canada and the rates at which the banks lend to Canadians. While the Bank of Canada lowered its rates to historic lows during this time, we didn’t see a proportional shrinking of these spreads. In fact, they grew. This represents an almost imperceptible squeeze on Canadians as our savings do less work for us while the rates at which we borrow money rise.

After nearly 15 years of rock-bottom interest rates since the financial crisis and the COVID-19 pandemic, the rising rates of the past two years provide a useful example of how those interest rate changes are passed on to consumers. When it comes to lending rates, the banks are quick to pass on the full cost of rate rises without delay. Take the last rate hike in July of 2023, where each of the Big Five banks passed on the full 25-basis-point raise to their posted five-year variable mortgages the day after the hike. Since early 2022, the Bank of Canada has raised interest rates by 475 basis points, rates for five-year variable mortgages have risen by more than 500 basis points, and rates for five-year fixed mortgages have risen by approximately 300 basis points on average.

Canadians are overpaying to the tune of $8.5 billion more in fees annually than the equivalent fees of our British counterparts.

Personal savings accounts, on the other hand, have not seen similar increases from their pandemic lows, with regular savings rates stubbornly stuck below 2%. That growing spread between lending and savings rates, known as net interest margins (NIM), is driving net interest income, with some banks growing their margins by as much as 15%. Though banks deal in percents of percents, when applied to their trillion-dollar asset bases these small moves translate into billions more of interest income flowing into banks annually. Those growing margins accounted for another $1.4 billion in interest income for the Big Five in just the first quarter of 2024 and more than $5 billion since rates started rising in early 2022, according to analysis of financial statements.

The structure of Canada’s oligopoly markets also affects how customers are treated on an individual basis. In a recent CBC Marketplace report, the broadcaster found a systematic pattern of Big Five bank employees being pushed to mislead customers into purchasing financial products they didn’t need to meet corporate performance targets. CBC conducted a similar investigation in 2017 and received more than 3,000 testimonies from TD Bank employees about aggressive and misleading sales practices. Customers upset about being misled by their banks are faced with the annoyance of manually shifting their financial lives to another oligopoly player who may already be pushing its own staff to act in a similarly cavalier way.

Unfortunately, we are headed in the wrong direction on banking competition in Canada. RBC, by several measures Canada’s largest financial institution and corporate entity, was allowed to purchase HSBC Canada after the British-based international banking conglomerate put several of its global outposts on sale. In approving the transaction, the federal government allowed the takeover of a competitor that had differentiated itself in the market for mortgages and international banking, according to the Competition Bureau. That kind of competition could have exerted pressure on expanding interest margins while Canadians shop around more aggressively as monthly mortgage payments rise.

Most average loan seekers wouldn’t have noticed that widening distance between the rate charged on lending from the Bank of Canada and the rates at which the banks lend to Canadians.

Recognizing that the banks made outsized profits during the pandemic, the government introduced a one-time tax on the average profits above $1 billion for the 2020 and 2021 fiscal years. But while fair taxation is a cornerstone of a fair society, the move does nothing to change the conditions for Canadians’ everyday navigation of the financial system.

Thankfully this focus appears to be shifting toward opening up competition in the financial sector. In the most recent fall economic statement, the federal government committed to introducing legislation to give consumers greater control over their financial data, making the process of switching to competing banks easier. Neither of these changes represent groundbreaking shifts in Canada’s approach to its banks, but they create the foundation to rebalance the relationship between them and Canadian savers and borrowers.

Canada’s monopoly problem is not limited to the banking sector, but improvements here will ripple throughout the economy. In the landmark 1960s Philadelphia National Bank case before the U.S. Supreme Court, Justice William Brennan noted that concentration in the financial sector is a recipe for concentration in the broader economy. Looking across our economy, there are few markets that refute this proposition. If Canada wishes to break from the economic path that has led to less competition and fewer options across the economy, we should start with a hard look at the sector at the foundation of our economy.

Keldon Bester is the executive director of the Canadian Anti-Monopoly Project, a fellow at the Centre for International Governance Innovation, and a former special advisor at the Competition Bureau.

Photo illustration by Jack Dylan.

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While these measures are a step forward, they don’t give Indigenous communities a say over the financing of particular projects or exclude new fossil fuel financing – two key demands of the bank’s critics. But these concessions do open the door to dialogue with communities and investors on these critical issues.

The compromises came after weeks of negotiation with investors who supported Indigenous and Black leaders and their allies assembled at the bank’s annual general meeting in April, the largest showing of these community members at an RBC AGM.

Under an investor agreement with the British Columbia General Employees Union, the bank will appoint an independent auditor to conduct an Indigenous and racial equity audit to determine whether the bank’s business practices are consistent with human rights policies. Of critical importance to Indigenous communities is the right to free, prior and informed consent (FPIC) of projects it finances.

“A credible Indigenous rights policy must include the right to say ‘no’ and to have that ‘no’ respected,” said Grand Chief Stewart Phillip of the Union of British Columbia Indian Chiefs (UBCIC) in an email after the meeting. He noted that RBC has already acknowledged this principle in a thought leadership brief. “Reports and slogans are nice, but what really matters is action, and specifically whether the bank continues to fund projects that do not have the FPIC of impacted communities.”

The audit is part of a package of commitments made by the bank that include respect for FPIC responsibilities under the United Nations Declaration on the Rights of Indigenous Peoples. It also includes enhancement of social and environmental due diligence on client activities on Indigenous lands and communities for transactions above a certain threshold.

RBC also took a step forward on climate change disclosure under pressure from shareholder New York City Pension Fund and agreed to publish its ratio of renewable energy financing to fossil fuel financing.

The ratio – called the energy supply ratio – is an important metric that will give investors better understanding of how well aligned RBC is with goals to limit global temperature increases to 1.5ºC. It will significantly simplify how critics hold the bank to account, and how investors measure its performance.

According to BloombergNEF, global financial institutions must achieve an energy supply ratio of 4:1 low-carbon energy to fossil fuel financing this decade to keep global warming within 1.5°C. A recent report estimated RBC’s current energy supply ratio at just 0.4 to 1. The United States megabanks Citigroup and JP Morgan also agreed to disclose the same information.  As three of the largest banks financing fossil fuels in the world, this disclosure is expected to have major impact.

“As leading public investors, we expect that energy supply ratio disclosure will become a new standard for the banking sector,” says Brad Lander, the New York City comptroller, who oversees the city’s public pension funds.

Further to these changes, RBC agreed earlier this year to triple its renewable energy financing to $15 billion by 030.

As Canada’s biggest bank and the eighth largest in the world, RBC co-finances a broad range of projects and companies in pipelines and petrochemicals, two of the largest fossil fuel sectors. Many of these projects have galvanized local and international opposition because they have been built without community consent, or threaten to accelerate carbon dioxide emissions, air and water pollution and damage to forests, waterways and wildlife.

At its annual meeting last year, the bank required Chiefs and other Indigenous community members to watch and participate from a separate room, prompting accusations of ‘segregation.’ This year, community members who represented shareholders or who held proxies for investors were allowed to participate in the same room as management and directors but their comments were restricted to one minute, a limit that community members found disrespectful and insulting.

A credible Indigenous rights policy must include the right to say ‘no’ and to have that ‘no’ respected.

 

– Grand Chief Stewart Phillip of the Union of British Columbia Indian Chiefs

“You travel all that way to look them in the eye, tell them your truth, make sure they understand exactly what their money is doing to us, to the democracy of this country, and to climate change,” says Chief Na’Moks, a hereditary chief of the Wet’suwet’en First Nation in northwest British Columbia, in an interview after the meeting. “And then they give you 60 seconds to speak on it.”

RBC led a syndicate of banks in 2019 providing $6.1 billion to finance the Coastal Gaslink Pipeline in northwestern British Columbia without the consent of the Wet’suwet’en chiefs. The project, now nearing completion, threatens a vast swath of wild habitat and will dramatically increase greenhouse gas emissions.

Opponents of a number of other American and international projects co-financed by RBC with other banks also spoke at this year’s AGM. This  included the Enbridge Line 3 gas pipeline in Minnesota, the Mountain Valley Pipeline in Virginia, the East Africa Crude Oil pipeline in Uganda and Tanzania and a proposed new plastics plant in the primarily-Black, heavily-polluted community of St. James, Louisiana.

In the meeting, RBC chair Jacynthe Côté said the bank instituted the one-minute policy to give a broader group of shareholders and proxy holders an opportunity to ask questions. “After the last AGM, we’ve been hearing voices of shareholders, and we’re going to listen and hopefully again do better next year,” Côté said.

Phillip says RBC’s actions to limit participation at its annual meeting were “deplorable,” adding it’s now up to the bank to demonstrate whether it is serious in addressing Indigenous and racial rights and climate change.

What Phillip is suggesting – an effective veto over financed projects –  is a far-reaching action that would establish limits on RBC’s right to approve millions – perhaps even billions – of dollars in new project financing.

The investor agreements represent “positive steps in the right direction,” he says, but there is still a long way to go. “What matters now is whether and how it changes RBC’s decisions, which can directly determine the health and wellbeing of communities and the planet.” 

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now Responsible Investment Association).

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This issue is not unique to TD. Western banks have spent the last few years setting targets and measuring their financed emissions – that is, the emissions resulting from their lending, investments and underwriting. The numbers are huge, indicating that banks face massive transition risk as the economy decarbonizes and corporate clients adapt, or fail. 

Now comes the hard part. What are they going to do about it? Unfortunately, what we’ve been told so far by the banks doesn’t measure up. TD and other banks produce hundreds of pages of climate reports that talk about governance and processes but don’t tell us how their day-to-day business is going to change. Meanw hile, TD saw the largest jump in fossil fuel financing of any bank in the world in 2022 and ranked dead last in BloombergNEF’s low-carbon energy versus fossil fuel financing ratio out of 100 global banks measured.  

Strip away the rhetoric and banks have four main things they can do to transition: portfolio realignment, client transformation, climate solutions investing, and positive public policy lobbying. Let’s flesh these out, using TD as the test case. 

Portfolio realignment 

Portfolio realignment is the obvious climate response, and the one that banks resist the most. Essentially it comes down to getting out of the business of serving high-carbon clients and into the business of serving low-carbon ones. Banks resist it because they can still make short- and medium-term profits serving fossil fuel companies that are driving the climate crisis, even as this leads to a tragedy of the commons that poses an existential threat to the banks themselves via economic and societal disruption. 

Most banks, including TD, therefore only tinker around the edges of portfolio realignment, making commitments that don’t change their books much, like saying that they won’t fund oil and gas activity in the Arctic or that they won’t take on “new” coal clients (while keeping their existing ones). They won’t even commit to ending financing of oil and gas expansion, which takes the bank in the opposite direction to net-zero. Some banks, though, do make more substantive commitments in this regard; for example, BNP Paribas has set a target to reduce its financing exposure to oil and gas. 

Client transformation  

Client transformation is the next potential strategy. Instead of replacing clients, this involves making them better. The challenge here is that the banks are not in the power position in this conversation, seeking to profit from clients who can go elsewhere. This is why banks call this “client engagement” and resist clarity regarding their assessment of clients’ carbon progress and accountability measures should clients refuse to change.  

This year, TD joins other Canadian banks in articulating the kinds of things it looks for when assessing client climate plans – yet stops short of establishing a clear framework based on the kind of work done by bodies like the U.K.’s Transition Plan Taskforce. It also includes no measures to hold itself or its clients accountable for progress, referring only to vague “discussions” and to “share resources” with those not setting targets. TD peers RBC and BMO at least float the prospect of dropping clients who don’t advance. 

Climate-solutions investing 

Climate-solutions investing is something that TD and most banks claim to be doing at scale. TD has set a $500-billion Sustainable & Decarbonization Finance Target that sounds incredibly impressive and mirrors similar commitments set by the other banks. With so much money being put into green finance, that’s the climate problem sorted, right?  

Unfortunately, as our recent securities complaint on this topic points out, the banks have no way of proving that this financing is “sustainable” or that it is actually “decarbonizing” anything since they don’t report on any emissions impacts. In fact, there are several deals done under this label that have increased emissions instead of reducing them. At its core, sustainable finance is a business segment for the banks designed to profit from ESG concerns in the marketplace. Likely in response to our complaint, three Canadian banks, including TD, admitted in their recent climate disclosures that they cannot say that sustainable finance reduces emissions – though it remains featured as a key pillar of TD’s climate plan. 

An alternative to vague “sustainable finance” is setting more specific financial targets that matter. One example is adopting a target for renewables financing. Another is equity investing by banks in climate solutions, which puts them in a controlling position to ensure positive emissions outcomes. BMO and CIBC have had such funds for a few years, and RBC joined them this year by pledging a billion dollars toward this. To make it real, the banks need to marry these financial commitments with credible impact reporting.  

Lobbying 

Finally, banks can help drive progress to their own net-zero targets by lobbying for public policy that enables this progress. Each says that it relies on factors beyond its control that will shape the emissions profiles of its clients, but few then follow up by saying they will add their considerable lobbying might to influence these factors. Case in point: banks will make little progress decarbonizing their mortgage portfolios without better provincial and municipal building codes. So, are they asking for them? 

TD says that it has created an ESG Advocacy Executive Forum, “to align on advocacy activities and facilitate co-ordination of our engagement efforts,” but it doesn’t say what those advocacy or engagement efforts are. InfluenceMap recently gave TD a D+ on lobbying, noting that the bank has generally limited its overt climate lobbying to financial disclosure issues but that alongside the other big Canadian banks it retains memberships in several industry associations “that have engaged in opposition to real-economy climate policies in Canada and globally.” TD is also a member of the very anti-climate U.S. Chamber of Commerce and makes political donations to dozens of U.S. politicians, including climate denier J.D. Vance.  

Overall, in the four main ways that banks can drive toward net-zero, TD is doing little – and in some cases pushing in the wrong direction. This gives investors no confidence that the bank is on track to meet its own commitment.   

While our shareholder proposal is filed with TD this year, it could equally be filed with any of Canada’s large banks that suffer the same shortcomings. This brings us to a final conclusion. There is a systemic failure in Canada’s banking system to drive toward net-zero, which poses a growing risk that regulators must address. We should not have to rely on shareholder proposals like ours (the results of which will be revealed at TD’s annual general meeting on April 18) to get banks to do more on this front. Other jurisdictions like the United States, the European Union and the United Kingdom are ahead of Canada in requiring more details from their banks, and we need the Office of the Superintendent of Financial Institutions to follow suit. 

Matt Price is executive director of Investors for Paris Compliance and and Kyra Bell-Pasht is its director of research and policy. 

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“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. 

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At Investors for Paris Compliance, we just reviewed our major banks’ net zero progress to assess whether they may have it covered. They say they are committed to net zero, and between them, they have pledged about $2 trillion of what they call “sustainable finance” by 2030. Coincidentally, that figure corresponds to the amount of investment RBC estimates is needed to get the whole of Canada to net zero by 2050.  

Unfortunately, this isn’t what the banks mean. They in fact have no common yardstick to measure “sustainable” and are instead responding to general environmental and social concerns in the market with a range of instruments such as green bonds and sustainability-linked loans that pay a bit of lip service to these issues while making money for the banks. It’s a new profit centre, which is why they’ve set large targets for this business segment, but with no necessary relationship to reducing their financed emissions.  

This becomes apparent in the many examples of “sustainable finance” that result in emissions going up, not down. All the banks do this, whether it’s Scotiabank financing a company expanding airports in Mexico, RBC financing a company expanding an oil pipeline in Minnesota, or BMO and CIBC financing a company expanding metallurgical coal exports from BC. They rationalize this by saying the companies are getting more efficient at their business, but the net result is more emissions driving the climate crisis – the opposite of “sustainable.”  

To date, our regulators have been tolerant of this greenwashing, but that stands to change. Canadian securities regulators are signaling that ESG disclosure is still disclosure, subject to the same rules of veracity as financial disclosure. The Office of the Superintendent of Financial Institutions has new climate risk guidance that requires banks to have climate transition plans, while banks claim sustainable finance is a key pillar of that. And the Competition Bureau is already processing a complaint regarding greenwashing at RBC, which includes its sustainable finance practices.  

Moreover, Canada is developing a taxonomy to categorize which investments are sustainable and which aren’t. This has been held up by foot dragging at the Ministry of Finance, but given other countries are forging ahead with their taxonomies, it’s inevitable we’ll soon need to catch up with our own version.  

Ultimately, though, we won’t get the infusion of capital we need to make the transition without realigning incentives. As long as banks can profit from increasing emissions, they will – even if it contradicts their own net-zero promises. Last year, RBC became the largest fossil fuel financier on the planet, while TD logged the biggest jump in fossil financing of any global bank. This is why an escalating carbon price is necessary, but it’s not the only tool that regulators have.  

The greatest power we give banks is the ability to create money. Banks don’t print currency like the Royal Canadian Mint does, although they once did. Instead, we grant them the ability to lend out greater amounts than they hold in deposits, thereby increasing the money supply. We believe this is in the public interest since it fosters economic activity, but our banks also profit handsomely from the arrangement.  

Regulators do weigh in by adjusting capital requirements the amount banks must hold in reserve, varying this by the level of risk in the economy, which could cause liquidity pressure on the banks or, in extreme cases, bank runs.  

With our country on fire, we can now conclude that it is no longer in the public interest to let our banks create money to lend to activities that throw on more gasoline. In so doing, banks drive up risk to the financial system via climate disruption to the economy, as well as risk in delaying the transition by locking in high carbon assets.   

Regulators should address these financial risks with differentiated capital requirements. High carbon lending should require larger reserves, and low carbon lending the opposite. This would encourage money creation for activities that reduce emissions and curtail it for activities that increase them. The incentive structure would thereby better align bank financing with net zero and with reducing climate risk to the system.  

Canada is a rich country with the necessary capital to finance the energy transition, but we won’t get there without changing the incentive structure for banks and other financial institutions. Regulators have more tools in their toolbox to make this happen – it’s past time to use them.  

Matt Price is executive director of Investors for Paris Compliance, an advocacy group working to hold publicly-traded companies accountable to their net-zero promises. It just released its 2023 Canadian banks net-zero report card. 

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