A big indicator of this altered sentiment is the changing fortunes of fossil-fuel and clean-energy exchange-traded funds (ETFs). As of August 15, the total return this year to date for the XOP oil and gas exploration ETF was -2.0% (it holds major positions in Exxon, Chevron and ConocoPhillips). By contrast, the iShares Global Clean Energy ETF (ICLN) returned 19.0% in the same period (First Solar, Vestas Wind and the utility Iberdrola are top holdings). The previous five-year returns were the opposite: 22.9% for XOP and -0.2% for ICLN.

Another significant sign of change comes from the top six United States banks. Financing for oil, gas and coal projects by this group fell to US$73 billion between January 1 and August 1, 25% lower than the same period in 2024, according to Bloomberg. The retreat is surprising since all of these banks recently withdrew from the Net-Zero Banking Alliance and sharply increased fossil fuel financing in 2024.

The last time there was an upswing in renewable-energy stocks and a decline in fossil fuel shares was in 2020, when the COVID crisis drove down oil prices and “Build Back Better” policies and low interest rates created a wave of renewable-energy optimism. This period came to an end with rising interest rates and a delay in U.S. clean energy programs that undermined projects, and the shift in attention to global security with the Ukraine war.

Now, market forces appear to be pushing banks and investors away from fossil fuels despite the politics of the Trump presidency. “These are not small adjustments,” energy consultant Michael Barnard wrote in a recent blog post. “They are meaningful changes in how capital is being allocated, and they are happening in the face of an administration that is telling the same banks to keep the money flowing.”

Reading the short-selling tea leaves

The reversal in fossil fuel funding is not confined to banks and energy stocks. Hedge funds have now shifted from long-term investment in fossil fuels to short-term selling. They are also shifting to long-term holdings in renewable-energy companies.

Most equity hedge funds were deeply invested in oil companies as recently as last summer. Last fall, that changed. Most shifted to short-selling positions on oil stocks in seven of the nine months between October and June, according to Bloomberg. This is a reversal of the situation that prevailed for most of the last four years, when the majority of hedge funds were in oil companies.

In short selling, investors profit on selling borrowed stocks at high prices by buying them back later at a lower price. That means hedge funds are betting that oil company shares will decline.

By contrast, hedge funds are shifting to long-term positions in renewables stocks. ​​The Bloomberg analysis shows that only 3% of hedge funds were short on solar stocks in June, the lowest percentage since April 2021.

Norwegian fund cuts holdings in oil majors

Some pension funds are also reducing their oil industry holdings. Norway’s government pension fund, the largest pension fund in the world, recently trimmed its position in Exxon from 1.46% of the company’s stock to 1.32%. It also cut its holding in Shell from 2.78% to 2.55%.

Banks and investors are responding to a sharp decline in oil prices in 2025, triggered by increased production from the Organization of the Petroleum Exporting Countries (OPEC) and the economic uncertainty of Trump’s global tariffs. Recent peace talks to end the Ukraine war have raised the possibility that Russian oil sanctions could be lifted, also depressing oil prices. Prices have fallen to about US$60 a barrel from US$100 a barrel in early 2022.

But the decline in oil prices is also part of a long-term energy transition. By 2030, oil demand is expected to plateau at 106 million barrels a day, less than the expected global production capacity of 115 million barrels a day, according to the International Energy Agency.

Long-term prospects for renewable-energy companies are looking good as additional generation will be needed for the explosion in data centres prompted by the progress of artificial intelligence, as well as growth in electric vehicles and home heating and industrial electrification. In a sign of this growing interest, Quebec pension manager Caisse de dépôt et placement du Québec bought Innergex Renewable Energy in a $10-billion deal in February.

The energy consulting firm Wood Mackenzie believes there is room for some oil majors to thrive over the long term. This is because companies like Exxon and Chevron can continue to pump their large low-cost reserves even as other oil and gas companies go into decline. “It’s less about growing – although some of that is still to come – and more about demand resilience,” the company said in a blog post.

Barnard says that if demand doesn’t fall as quickly as supply there could be shortages and price spikes. If demand and supply fall simultaneously, oil industry investment will wind down in an orderly way. “Either way, the direction of travel in private finance is set. Capital is leaving fossil fuels and moving toward the technologies and systems that will replace them.”

Barnard says the shift in financial industry support in favour of renewables is an act of “open defiance” of Trump, who wants the oil industry to pump more crude. “Wall Street is ignoring Trump not out of ideology but out of calculation. Banks are reading the market, listening to investors, and planning for a world where fossil fuels are no longer the safest bet.”

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 Defying Trump, banks and investors boost renewables as they recoil from fossil fuel stocks appeared first on Corporate Knights.

This is particularly important with the major gatekeepers of Canadian capital, our big banks, which will make or break Canada’s achievement of net-zero depending on whether they continue to allocate capital to the polluting status quo or else pivot quickly to financing climate solutions.

According to the Transition Pathway Initiative, major Canadian banks fall short when it comes to walking the talk. They continue to finance fossil fuels at a rate far higher than their international peers, and far above the financing they provide for climate solutions. None have provided clear transition plans for how they will get there – an essential and unavoidable step in the shift to a clean economy. Commitments are easy; follow-through requires courageous and skilled leadership.

Most Canadian corporate boards are still made up of people equipped with skills and experience that reflect the economy of yesteryear. All of Canada’s major banks have board members who are senior executives at Canadian oil and gas majors or else do double duty on their boards.

Strong board leadership is necessary to drive real change. If boards don’t evolve with the times, companies will fail to transition their business, and they will fail to thrive in a changing economy.

Scotiabank has a board member who also sits on TC Energy’s board; CIBC has a board member who is also CEO of TC Energy and a board member of the American Petroleum Institute; RBC has a board member who is the ex-CEO of Fortis; BMO has a board member cross-posted at Cheniere and Suncor; and TD has board members cross-posted at AltaGas and Enbridge.

Moreover, most of these same individuals are billed by the banks as ESG (environmental, social and governance) experts, even as they raise the prospect of a systemic conflict of interest between their fossil fuel duties and the banks’ net-zero commitments.

A small but meaningful shift toward better climate governance at TD

Banks recruit board members based on a skills matrix. Three out of five of Canada’s major banks – CIBC, BMO and Scotiabank – include climate-related expertise as an optional element of ESG within their board skills matrix. RBC does not even list climate as part of its ESG skills, of which the “E” for “environmental” is also optional.

Yet, in response to a shareholder proposal that we co-filed at TD, then withdrew for settlement, the bank pledged to improve how it recruits board members, now requiring climate expertise to help navigate the bank’s transition. This essential prerequisite sets a higher standard for other Canadian banks and financial institutions to follow. TD has replaced its previously undefined ESG skills with “environment and social sustainability” skills, which it defines as “understanding of leading practices of corporate responsibility and sustainability, including measures of environmental (including climate-related) and social performance.” [emphasis added]

This means that climate is now a mandatory element of its skills matrix. Further, so that shareholders can better assess board nominees, TD also committed to disclose more biographical information. Finally, the bank committed to review its governance processes to ensure the effective oversight of all its business activities, including its commitment to net-zero.

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These are concessions made in a period of significant shareholder distrust of TD’s governance. Further details continue to come to light regarding lapses in the bank’s risk oversight that enabled gargantuan amounts of money laundering through its U.S. operations. The money-laundering issues are being addressed in a government-ordered governance review. It is this governance review that TD refers to in its shareholder proposal-withdrawal agreement, clarifying that it will be broad enough to include climate-risk oversight.

Admittedly, TD’s climate governance improvements are incremental. Their effectiveness will be measured by the evolving composition of its board and whether it guides the bank to a stronger transition plan and actual changes on the ground.

We were glad to see some positive board renewal at TD in this direction this year, with the shuffling out of a director who sits on the board of oil-sands major Cenovus and the shuffling in of nominee Nathalie Palladitcheff, a professional with climate expertise from experience as CEO of real estate company Ivanhoé Cambridge, which has an ambitious target to reach net-zero by 2040. Two directors with ties to fossil fuel companies still remain.

Strong board leadership is necessary to drive real change. If boards don’t evolve with the times, companies will fail to transition their business, and they will fail to thrive in a changing economy. Canada’s banks have a long way to go to integrate climate expertise into their boards, but we hope that the TD settlement can serve as a starting point for change.

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

The post Canada’s bank boards need more climate expertise, fewer fossil fuel entanglements appeared first on Corporate Knights.

The three groups are the Shareholder Association for Research and Education (SHARE), Investors for Paris Compliance (I4PC) and the Trottier Family Foundation. They are part of an increasingly vocal portion of shareholders who believe that the Trump administration in the United States is worsening an already calamitous state of global warming, a situation that will – sooner or later – dictate a massive transition in how energy systems around the world are financed.

Canadian banks are poised to play a big role in this transition. With their deep ties to the oil and gas industry, the country’s banks are among the world’s largest fossil fuel funders through loans, investments and financial dealmaking. In a report last year, Royal Bank of Canada (RBC) was ranked the seventh-largest bank on fossil fuel financing between 2016 and 2023, while Scotiabank ranked 11th.

“Banks have tremendous power to either maintain the status quo or actively and intentionally steward our country towards the new economy,” says Éric St-Pierre, executive director of the Trottier Family Foundation. “The power is in their hands, and they could really embrace funding the new economy that is moving toward renewables and the cleantech sector.”

“Internationally, we see an energy transition that is happening regardless of politics,” says Amanda Carr, associate director of SHARE. “It’s an economic transition that is in play and very exciting. We want to understand how the banks that we invest in are seizing those opportunities.”

As banks backslide, shareholders band together

The campaigns come only weeks after two major global banks – Wells Fargo and HSBC – rolled back their net-zero emission targets. In February, Wells Fargo became the first major bank to abandon its goal to bring financed emissions to net-zero by 2050. HSBC, which had previously committed to a very ambitious goal of reaching net-zero in all its business by 2030, announced it would push back its net-zero target to 2050.

The rollbacks follow a move over the last few months by all major U.S. and Canadian banks to leave the Net-Zero Banking Alliance, the global net-zero banking coalition.

The banking sector should be identifying those new opportunities that bring us toward the transition to a cleaner economy. The Canadian banks could really set the bar here.

– Éric St-Pierre, Executive Director, Trottier Family Foundation

In February, the Trottier Family Foundation published an open letter to the banks signed by 34 pension funds, endowments, family offices and foundations representing more than $53 billion in assets. The signatories call on the banks to uphold their 2050 net-zero commitments, adopt short-term science-based targets and ensure transparent annual reporting on climate targets.

“We’re quite concerned that a lot of the Canadian banks have left the Net-Zero Banking Alliance,” St-Pierre says in an interview. He hopes the letter “sends a signal that the 34 of us are bank clients and we have significant assets, so we would ask to be taken seriously by the banks.”

In response to a request for comment on the letter, a spokesperson for the Canadian Bankers Association (CBA) issued a statement that the sector “understands the important role it can play in facilitating an orderly transition to a lower-carbon economy, supporting collaborative approaches between the public and private sectors.” Notably, the issue of climate commitments or 2030 targets is absent from the CBA statement. “Canadian banks remain committed to strategically supporting clients in their transition efforts. They will continue to implement and report on their own climate strategies and plans, integrating internal capabilities to adhere to relevant international standards.”

A crucial metric for bank accountability

In a separate campaign, SHARE, PFA Pension – the largest pension fund in Denmark – and other investors have filed shareholder proposals with four of Canada’s biggest banks: Scotiabank, Bank of Montreal, CIBC and Toronto-Dominion, urging them to adopt a key metric recognized as a crucial indicator of net-zero progress in the financial industry.

Called the energy finance (or energy supply) ratio, the metric compares the volume of low-carbon and fossil fuel financing. Developed by the new energy finance division at Bloomberg (BloombergNEF), the ratio illustrates an institution’s level of low-carbon energy financing compared with its fossil fuel financing. Bloomberg has established that the ratio can include some financing of oil and gas but needs to be at least 4:1 low-carbon to fossil fuel worldwide by 2030 to limit global warming to 1.5°C.

“What’s interesting to note is that the [target] ratio is four to one, not four to zero,” SHARE’s Carr says. “We’re not seeing something that is extreme from the BloombergNEF team.”

In a recent report, Bloomberg estimates that the energy finance ratio in the global banking sector stood at 0.89:1 in 2023, less than a quarter of what it needs to be to maintain 1.5°C of global warming.

Shareholder advocates gain ground

Shareholder pressure has generated some success. RBC is one of three banks (the others are Citi and JP Morgan) that are expected to start reporting their energy financing ratios in 2025 as a result of investor proposals last year. As well, this year’s proposal from SHARE has prompted Scotiabank to start reporting the ratio in 2026.

Carr says that the ratio helps investors understand how well individual banks are performing on energy finance and provides a good management tool on the climate transition. “What the ratio allows us to do is to compare banks, regardless of size, and it also allows a bank to determine its own destiny.”

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Shareholder advocacy group I4PC is using investor resolutions to push TD Bank to embed net-zero governance at the bank’s board of directors and Bank of Montreal (BMO) to disclose its support for industry associations lobbying against pro-climate policy.

As a result of I4PC pressure, TD has agreed to review board governance policies and director selection criteria to ensure that the board is accountable and competent on key risks and priorities, including net-zero issues. I4PC has also filed a resolution with BMO calling on the bank to disclose its support for associations such as the Canadian Association of Petroleum Producers, which is lobbying against policies such as a cap on carbon emissions.

A shift toward renewables at National Bank

The banking sector has pushed back in recent years on the idea that it can lead the energy and climate transition, arguing that it also needs to continue financing fossil fuel energy. Julian Wentzel, chief sustainability officer at HSBC, recently said it’s time to end the “negative bias” toward fossil fuels.

But St-Pierre points to National Bank as an example of a relatively small institution that is showing leadership on at least one important climate measure, the commitment to renewable energy financing. In its most recent climate report, National Bank says it has tripled its renewable-energy lending to $15 billion from $5 billion in 2019 and is aiming to bring this to $20 billion by 2030.

National’s renewable-energy commitment is larger than that of RBC ($15 billion by 2030), a bank that is more than four times bigger (although RBC is expected to publish its annual climate report shortly that may update this commitment).

St-Pierre says there could be a push by banks to expand fossil fuel financing as a result of Donald Trump’s tariffs, which have raised interest in a new national energy pipeline. But that would ignore other energy opportunities such as expansion of the national electricity grids and government clean energy procurement, he says. “The banking sector should be identifying those new opportunities that bring us toward the transition to a cleaner economy. The Canadian banks could really set the bar here.”

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 As banks backslide on climate, Canadian shareholder groups demand reforms appeared first on Corporate Knights.

The CEOs have become unlikely defenders of diversity and inclusion at a time when corporate DEI policies are being treated as fodder by a militant White House under Donald Trump, as well as Republican-led states and conservative shareholder groups.

Speaking in a television interview with CNBC, Jamie Dimon, CEO of JPMorgan, the largest bank in the United States by assets, had one message for activist investors planning anti-DEI actions: “Bring them on.”

Dimon – who last year described himself as a “full-throated, red-blooded, patriotic, unwoke, capitalist CEO” – said the bank will continue to include marginalized groups in its business because they’re good for the bottom line. “We’re going to continue to reach out to the Black community, the Hispanic community, the LGBT community, the veterans’ community,” he said.

In a separate interview, David Solomon, CEO of Goldman Sachs, said DEI policies are important to keep the bank in sync with the diversity of its client base. “We continue to stay focused on talking to our clients and doing the things we’ve always done.”

That two pillars of American finance have emerged as defenders of DEI – which the U.S. right has blamed for everything from plane crashes to wildfires – seems at odds with the broad movement away from environmental, social and governance policies, which embrace action on climate and social justice issues.

On February 11, proxy voting adviser Institutional Shareholder Services said it will stop considering gender, racial and ethnic diversity of U.S. company boards, a long-standing measure of good governance. Last month, JPMorgan and Goldman Sachs joined four other major U.S. banks to leave the Net-Zero Banking Alliance, the global coalition pushing banks on climate policies. And as recently as last summer, Trump mused about appointing Dimon as his Treasury secretary.

Yet, Dimon and Solomon appear to be speaking for a wider segment of the banking and investment industry. From their position as universal investors – institutions that invest in large swaths of the economy – there is a strong business case for major banks and asset managers to support DEI to expand their pool of qualified staff, borrowers and investee companies.

Costco slaps down anti-DEI shareholder activism

In a further sign of the gap between politics and good business practice, Costco shareholders voted a near-unanimous 98% against an investor resolution condemning the retail giant’s DEI policies. The resolution was from the National Center for Public Policy Research (NCPPR), a conservative think tank and activist investor. It argued that DEI holds litigation, reputational and financial threats to the company and is a risk to its investors.

Costco’s board issued a vigorous and direct response to the motion. It expressed confidence that the company’s DEI policies are not only fully lawful, but are good for its relationships with customers, suppliers and employees and have helped to boost investor returns. Conservative shareholder groups like NCPPR are “inflicting burdens on companies with their challenges to longstanding diversity programs,” the board wrote.

It’s not known how large asset managers such as BlackRock, State Street and Vanguard, which collectively hold about 20% of Costco’s stock, voted on the resolution. However analysts say it’s safe to assume that these companies, the three largest asset managers in the world, voted with the Costco board against NCPPR.

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Costco’s staunch defence of diversity and inclusion stands in contrast with many other companies that are rolling back portions of their DEI programs or cancelling them completely, including Walmart, Amazon, Meta, McDonald’s, Boeing, Molson Coors, Lowes and Ford. Many of these retreats have been in response to a campaign by conservative social media activist Robby Starbuck, who has amassed a large following based on corporate anti-DEI activity.

Trump has tapped into this movement and last month signed three anti-DEI executive orders covering the federal public service and private companies. The private company order ominously instructs federal agencies to compile a list of the “most egregious and discriminatory DEI practitioners.” As well, 10 Republican state attorneys general have recently threatened regulatory action against major U.S. banks for “unlawful race- and sex-based quotas” and green energy investments.

While some DEI actions such as hiring quotas could be seen as a form of illegal discrimination, a recent article in the highly respected National Law Review argues strongly that corporate DEI programs are lawful under the 1964 Civil Rights Act. “[DEI] programs operate to create a more fulsome collection of qualified job candidates and to build professional communities focused on collective success and individual opportunity,” the article states. “As long as an employer does that, it may continue its DEI efforts.”

Alison Taylor, professor at New York University’s Stern School of Business, told the industry publication Retail Dive that Costco’s defence of its DEI policies provides support for other companies to stand up to conservative attacks. “Other companies may follow through because Costco gives them a bit of top cover,” she said. “I think it gives a license and opens up a space to say there’s a different way to handle this.”

Anti-DEI resolutions will be on the agenda at a number of company annual meetings this spring, including tech giant Apple (February 25), Goldman Sachs (April 24) and JPMorgan (May 19).

If these resolutions and others are overwhelmingly voted down, similar to the result at Costco, it will send a strong message that the financial industry won’t support DEI attacks on U.S. corporations, a major source of its loan and investment profit.

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 The anti-DEI movement confronts an unlikely opponent: big banks appeared first on Corporate Knights.

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.

The post Parliament grilled Canada’s Big Five banks on their fossil fuel financing – here’s why it matters appeared first on Corporate Knights.

This sum includes US$3.3 trillion in financing for new fossil fuel expansion projects, investments that put the net-zero goal of the Paris Agreement in jeopardy.

Despite these alarming overall figures, bank lending and underwriting for coal, oil and gas fell for a second consecutive year in 2023, dropping 9.4% from 2022, and down more than 26% from the highest fossil financing recorded in 2019.

This is welcome news for the lead researcher on this year’s report, the 15th annual edition of Banking on Climate Chaos (BOCC), released Monday. But she says it’s too early to conclude that banks have reached peak fossil fuel financing.

“This is the second year in a row that we’ve seen a year-on-year decline in the overall financing,” says April Merleaux, researcher for the Rainforest Action Network (RAN) and BOCC’s lead collaborator.

“To me, that is somewhat hopeful,” she says. “But there’s an open question about whether banks will do things to lock that in or not. I see this as an opportunity for banks to seize this moment and lock in a business model that doesn’t depend on high revenues from fossil fuel clients.”

A total of US$705.8 billion in fossil financing was arranged in 2023, a drop from US$778.7 billion in 2022. The 2023 total is also the smallest amount of financing in the eight years of comparable data compiled by the researchers. Twenty-seven of the 60 banks increased their fossil fuel financing in 2023, and 33 decreased their financing.

In 2021, the International Energy Agency stated that to reach net-zero by 2050, there should be no investment in new fossil fuel supply projects. The BOCC report shows that many banks continue to finance companies that are expanding fossil fuel projects (aside from continuing operations), although expansion financing is also on the decline.

In 2023, US$347.5 billion was committed to fossil-fuel-expansion companies, down from US$385.2 billion in 2022. It was also the lowest level of expansion in the eight years of the report.

JP Morgan Chase top fossil bank

Topping the list of both overall financing and expansion financing is the U.S.-based bank JP Morgan Chase. At US$40.9 billion, up from US$38.7 billion in 2022, it is the largest financier to the fossil fuel industry in the world, and the largest financier to companies expanding their fossil-fuel operations at US$19.3 billion. Japanese bank Mizuho Financial is the second-largest overall, at US$37.0 billion. It’s also the second biggest at expansion financing, at US$18.8 billion.

JP Morgan told the Financial Times it is one of the world’s largest financiers to both traditional and clean energy companies, and noted its recent decision to start posting its energy supply ratio (the ratio of renewable energy financing compared with fossil fuel financing).  JP Morgan, Citigroup and Royal Bank of Canada (RBC) all agreed to the measure this year under pressure from shareholder New York City pension funds.

RBC is the largest Canadian bank and seventh-largest in the world on total fossil fuel financing, at US$28.2 billion. Unlike JP Morgan Chase and Mizuho, however, RBC’s 2023 financing was down from 2022, declining 16%.

One factor in this trend is lower financing for the high-emission Canadian oil sands. RBC is tied with CIBC and Scotiabank as the largest financiers to the oil sands, at US$523.2 million each, which is down significantly from last year for RBC (2022: US$1.8 billion) and CIBC (2022: US$1.1 billion), but higher for Scotiabank (2022: US$189.7 million).

Midstream “natural gas” companies (pipelines and terminals) have overtaken oil and gas producers this year as the largest fossil fuel borrowers.

Offsetting some of these declines is a retreat by some banks on their fossil fuel exclusion policies. Bank of America is the worst offender in this regard, according to the report, having dropped exclusions on Arctic drilling, thermal coal and coal-fired power plants. The bank stands as the third-largest fossil fuel bank at $33.7 billion and fifth-largest fossil expansion bank at US$14.7 billion.

One of the key trends is that midstream “natural gas” companies (pipelines and terminals) have overtaken oil and gas producers this year as the largest fossil fuel borrowers, a sign of the growing role of gas in the energy system. The top borrower in this category was Canadian-based Enbridge, a large gas pipeline operator and the largest gas utility in North America. Financing for liquefied natural gas facilities increased to US$120.9 billion in 2023.

This year’s report draws on a number of new data sources, which means that comparisons with previous reports are not possible. Of note, it looks at fossil fuel financing and does not address the financing of renewable energy. But the new data contained in the report enables the annual comparisons since 2016. Eight climate advocacy organizations jointly wrote the report coordinated by RAN.

The report authors note that there could be a number of reasons for the decline in fossil fuel financing, including large oil majors such as Exxon Mobil self-financing their operations from recent large profits.

Regardless, Merleaux says too many banks are still financing fossil fuel expansion plans.

“The fact we see any financing for companies expanding fossil fuels really throws into question those banks’ climate commitments.”

The post Bank financing for fossil fuels dips second year in a row appeared first on Corporate Knights.

Investors for Paris Compliance (I4PC), a shareholder advocacy organization, has called on the provincial regulator, and its Quebec counterpart, Autorité des marchés financiers, to investigate whether Canada’s “Big Five” banks – RBC, TD, CIBC, Scotiabank and BMO – have misled investors as to the seriousness of their response to climate risk. I4PC submitted a complaint to both regulators earlier this week, asking them to look into whether the banks’ sustainable finance disclosures were adequate and accurate.

They also urged the regulators to require the Big Five to disclose the emissions impact of their sustainable finance departments – to show that they were in fact different from their “regular” financing. “At best, sustainable finance as currently practised by Canada’s big banks is a $2-trillion placebo at a time when we need strong medicine to reduce emissions,” Matt Price, the executive director of I4PC, said in a statement. “At worst, it is greenwashing of carbon-intensive businesses, misleading investors and the public.”

In 2021, all five banks signed on to the Net-Zero Banking Alliance, which committed them to reach net-zero in their financed emissions by 2050. And each bank has acknowledged that the climate crisis could pose significant risks to their businesses. But none have fully disclosed the emissions impact of their sustainable finance divisions to the public or shareholders. And that’s a problem, Price says.

“We allege that by presenting sustainable finance as part of their climate responses, and attaching huge dollar figures to this, that banks are misleading their investors as to the seriousness of their response to a business risk that they themselves have called material,” Price said in an email. “There’s no evidence that sustainable finance is actually moving the needle, since the banks don’t disclose any emissions measurements associated with it.”

The I4PC complaint cited deals within the banks’ sustainable finance divisions that it says expanded fossil fuel production. One of these deals saw Scotiabank act as joint bookrunners (or secondary underwriters) on an $800-million “sustainability bond” of a utility company called Georgia Power, which then filed with Georgia state regulators to expand its use of fossil fuels. Another deal involved RBC and National Bank acting as joint bookrunners and structuring advisers for a $200-million sustainability-linked bond issuance, a portion of which went to buying another oil and gas company – which I4PC says raised emissions and moved the banks further away from their stated net-zero goals. (That was followed by another $100-million sustainability-linked issuance that helped acquire another fossil fuel company.)

In response to the complaint, the Canadian Bankers Association (CBA), which represents the five banks, said that Canadian banks understand the financial sector’s role in the energy transition and that sustainable finance is “one tool” to help companies “mobilize capital toward this effort.”

“Canadian banks follow prevailing North American market standards on environmental, social and governance disclosure, comply with applicable disclosure rules and regulations, and continue to work with industry forums and relevant governing bodies to advance standards that govern sustainability reporting and disclosure practices,” CBA spokesperson Maggie Cheung said in an emailed statement.

Price says the problem with banks following the “prevailing North American market standards” is that those very standards are not good enough. Even the emissions-increasing deals cited in the complaint comply with those standards, which Price says are too vague. The complaint called on regulators to establish clearer standards for sustainable finance. And there is hope that the guidelines will get better, as Price says regulators are trending in this direction, having identified greenwashing as a securities problem and issued reminders that the disclosure of ESG issues is subject to the same rules as all disclosure.

In response to a request for comment, the Ontario Securities Commission spokesperson said they were “unable to confirm or comment on the existence, status or nature of any complaint, review or investigation.”

The post Are the ESG departments of Canada’s Big Five banks a ‘$2-trillion placebo’ for an ailing planet? appeared first on Corporate Knights.

The joke is a good reminder of the limitations of the climate-scenario exercise about to be conducted by Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI). All federally regulated financial institutions, including banks and insurance companies, will be required to participate during 2024 in an echo of a pilot project conducted with similar methodology last year with a handful of financial institutions volunteering.

Scenario analysis is a structured way of asking “What if?” based on possible versions of the future so that risks can be assessed and managed. In the climate context, possible future scenarios centre on physical risk, transition risk or both. Physical risk is the tangible impacts of climate change, like fires and flooding, while transition risk is the impact that climate policy has on the economy, technology and consumer demand.

The good news is that OSFI’s exercise will help to bolster acceptance of climate risk within Canadian financial institutions as a counterbalance to the sector’s prevailing focus on short-term profit. Last year’s pilot project arrived at some remarkable conclusions about the potential loss of value of carbon-intensive assets like oil and gas and the significant rise in the probability of debt default in those companies. Canada has a polluting, high-carbon economy, so it’s no surprise that the economic institutions that finance and facilitate these sectors face high transition risk.

The bad news is that to run the exercise, OSFI is assuming a can opener. In part, this is inevitable since all scenario analysis will assume away large amounts of complexity to have a workable model. As the analysts say, “All scenarios are wrong, but some are useful.” The question is whether the particular assumptions OSFI is making in its exercise lead to a result that enlightens more than it obscures.

One major choice OSFI is making is to essentially ignore physical risk. While its model assesses real-estate exposure to physical risk, it doesn’t actually assign a financial cost to that exposure. In other words, this means that climate change itself is assumed away. Only the implications of economic policy response will be factored into the possible future impacts on asset prices and credit risk.

This effectively bypasses the raging debate in the climate-scenario community about the pace and scale of climate impacts on the economy. Mainstream economists have generally pegged these impacts as relatively small and manageable, ignoring both the litany of climate catastrophes – this year was the worst on record for billion-dollar climate disasters in the U.S. alone – and  the increasingly dire findings of climate scientists. Should the world breach climate tipping points or experience so-called second-order impacts such as mass migration or wars, the impact on the economy could be catastrophic.

That’s a lot to leave out and strains the plausibility of the model on its face. Dig deeper, and we see that physical risk also affects the assumptions that go into a pure transition risk model, such as macroeconomic factors like growth, or sector-specific pathways like for agriculture, which will be significantly affected by floods and drought, or for the power sector hit by water availability.

Moreover, OSFI’s transition scenarios are bloodless narratives that don’t sound much like the real world. For example, one says we keep current policies constant, while another says we reach compliance with under 2°C of warming after initial foot-dragging. But none talks about the whiplash of policy that we see because of things like the war in Ukraine or conservative politicians resisting change. The International Monetary Fund just published a paper analyzing how the “polycrisis”  – the simultaneous experience of multiple global disruptions like inflation and armed conflict – challenges transition scenarios. Overall, transition scenarios need to place more emphasis on extreme volatility and explore how that will affect financial institutions.

OSFI is accepting feedback on its proposed exercise until December 22. We’ll never have perfect climate scenarios, and odds are OSFI will press ahead with the model it has proposed without much revision. It’s important to keep its limitations front and centre and to keep asking about what it includes, and what it doesn’t.

Ultimately, though, we need to ask what the climate-scenario exercise will actually accomplish. OSFI seems to believe that better information will mitigate climate risk. It won’t by itself. While the exercise can be useful, the history of financial crises shows that the financial sector won’t properly manage risk unless it is regulated to do so. OSFI has stronger tools than climate-scenario analysis in its toolbox once that realization hits home. The safety and soundness of the financial system in the face of climate change depends on their use.

Matt Price is executive director of Investors for Paris Compliance, a shareholder advocacy organization holding Canadian companies accountable to their net-zero commitments.

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That figure is more than 20 times the amount the region received in funding to combat climate change, according to a report released by ActionAid last week.   

The report tracks how money flows from some of the biggest banks in Europe, North America and Asia into fossil fuel and industrial agriculture ventures in the 134 countries that comprise the Global South, which spans Africa, Latin America and Asia.  

It found that banks have provided an estimated $3.2 trillion (all figures in US dollars) in financing for the worst climate offender, the fossil fuel industry, in the Global South since the Paris Agreement on climate change was enacted in 2016. Over that same period, $370 billion went to the next most greenhouse-gas-intensive sector: industrial agricultural companies, including meat and palm oil giants as well as chemical makers.

Together, that amounts to an average of $513 billion a year – or more than 20 times the $22.5 billion that governments in the Global North directed to countries in the South to combat climate change in 2020.  

“The world’s money is flowing in the wrong direction,” Arthur Larok, secretary general at ActionAid International, said in a statement. “This is absurd and must stop.”  

Teresa Anderson, the global lead on climate justice at ActionAid and the author of the report, singled out the hypocrisy of banks that publicly commit to climate action but fund projects that work against it, including coal mines, gas wells, oil pipelines and monoculture farming.  

“It is communities in Africa, Asia and Latin America who are suffering the impacts of decisions made in distant banking boardrooms,” she said. “By financing fossil fuel and industrial agriculture in the Global South, banks are condemning communities to the cruel combination of landlessness, deforestation, water pollution and climate change.” 

In Europe, the largest financiers of fossil fuels and agribusiness are HSBC, BNP Paribas, Société Générale and Barclays. HSBC alone poured $63 billion into fossil fuel projects in the Global South and more than $17 billion into Big Ag. In the Americas, the sectors’ biggest funders are Citigroup, JPMorgan Chase and Bank of America, with Citigroup investing $90 billion into fossil fuels. The largest funder overall was out of Asia, the Industrial and Commercial Bank of China, investing a whopping $146 billion to fossil fuel companies. 

“Recent research has shown that only seven percent of the financing provided by the major international banks featured in our report has gone to renewable energy in the seven years since the Paris Agreement,” the report noted.  

No similar dataset is available for the financing of sustainable agricultural projects, but the report provides ample examples of the two faces of the financial services industry.  

For example, banks – including Barclays, BNP Paribas, HSBC and Citigroup – that have vowed to stop lending to coal producers in the long term continue to do so in the interim. None of the banks has a policy to fully phase out oil and gas financing, even though the report says “it’s required” if their financing is to be consistent with the goal to keep global warming at 1.5°C. They are virtually silent on limiting the financing of industrial agriculture: if a policy exists, it typically relies on certification schemes that have proven flawed, the report notes.  

Indeed, while we should all be well versed in the need to dramatically curb our use of fossil fuels, which account for more than 75% of global greenhouse gas emissions, industrial agriculture often falls under the radar.  

But it is the second-largest contributor of greenhouse gases. According to the Intergovernmental Panel on Climate Change, agriculture, forestry and other land– use sectors produce 13 to 21% of global greenhouse gas emissions.  

Industrialized agriculture usually involves monoculture plantations that gobble up massive amounts of land and rely on greenhouse-gas-intensive synthetic fertilizers to produce commodities for export. These plantations are responsible for aggressive deforestation and destruction of biodiversity. In Brazil, for example, the beef industry and soy fields that are used to grow animal feed are the main drivers of deforestation in the Amazon and Cerrado regions. Emissions from livestock manure and enteric fermentation, along with methane emissions from rice paddies, are the other main sources of greenhouse gases in agriculture.  

Bayer, the German multinational that bought the controversial agrochemical and biotechnology company Monsanto, received the most amount of financing from the banks highlighted in the report, to the tune of $20.6 billion, for its agribusiness operations in the Global South since 2016.  

“In this urgent era of climate change, public funds must be scaled up and channeled in the public interest, to bring about equitable transitions to renewable energy and agroecology,” the ActionAid report notes. “And the madness of the world’s banks and governments continuing to finance the destruction of the planet must come to an end.”  

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As the Intergovernmental Panel on Climate Change (IPCC) highlighted last week, we are in the midst of a climate emergency. At the same time, Canada’s financial system continues to pump billions of dollars into fossil fuel developments. This cannot continue if we are realistically going to achieve the goals of the Paris Agreement and keep global warming below 1.5°C. Canada needs to adopt a package of financial regulations that will drive down carbon emissions and shift billions of dollars toward investing in clean technology and renewable energy.

The latest federal climate plan – introduced in early 2022 – points toward tightening regulation of the oil and gas industry. And hopefully, today’s federal budget will send strong signals to the financial sector that enables it. A commitment to phasing out fossil fuel subsidies would be a good start.

Until now, financial regulation has been a major gap that has left Canada lagging several years behind other G20 countries. New climate rules introduced earlier this month by Canada’s financial regulator – the Office of the Superintendent of Financial Institutions (OSFI) – are a long overdue effort to bridge that gap.

The new OSFI guideline will require banks and insurance companies to disclose the financial risks they face in a world hit by climate change impacts and shifting toward a low-carbon future.

Mandatory disclosure will help to drive down carbon emissions by reducing the pool of those willing to supply financial backing and so increasing the cost of capital for the riskiest fossil fuel assets.

Around the world, finance is shifting away from fossil fuel investments. We are already seeing capital flee from Alberta’s oil patch. This will only accelerate as Canada’s financial system is forced to reveal how dangerously exposed it is to climate risk.

Some have argued that these rules are enough on their own, but Canadian financial institutions must also be required to align their portfolios with climate goals. Disclosure alone will not be sufficient. Crucially, OSFI’s new rules could require financial institutions to not only count carbon emissions, but also cut them.

Fossil fuel companies may seek out alternative funding sources, but the laws of supply and demand will make that an increasingly pricey prospect.

In addition to disclosing their climate risk, financial institutions will be required to develop a “climate transition plan” to manage those risks. While the details are yet to be fleshed out, OSFI can draw from a growing body of international guidelines when selecting the essential ingredients that make up a credible plan.

Getting those details right will be critical if they are to support Canada’s climate goals and tackle rampant greenwashing in the financial sector. A credible plan forces financial institutions to think beyond short-term risks and address the “tragedy of the horizons” that too often hinders timely climate action.

Environmental groups have developed proposals that draw from global best practice to distill the essential elements of a credible climate plan. To be credible, a transition plan must buttress a long-term emissions target – such as reaching net-zero by 2050 – with more meaningful five-year targets. Those targets should be synched with Canada’s legislated targets and its goals under the Paris Agreement.

A credible climate plan must commit to action that will achieve those targets. Canada’s oil and gas industry does not have a viable pathway to net-zero, so climate transition plans need to acknowledge that reality. Engagement is too often a fig leaf for inaction. A responsibly managed wind-down would free up capital that can be better invested in the clean technologies that we know are essential in a 1.5°C world.

And plans must be subjected to regular scrutiny by the public, investors and, crucially, regulators like OSFI.

As the IPCC reminded us last week, climate change requires coordinated action from every level of government and in every sector of the economy. The climate emergency gives every government department and regulator an implicit mandate to manage the climate transition. All regulators must be de facto climate regulators. Climate change poses a huge risk to the Canadian financial system, putting climate change squarely within OSFI’s core mandate as a prudential regulator. By issuing climate rules and establishing a specialist climate-risk unit, OSFI is recognizing that reality. But other regulators must follow.

We need a network of regulators armed with the mandate, skills and capacity to protect investors and consumers from rampant greenwashing by corporate Canada. For example, the Competition Bureau needs to protect consumers from misleading climate advertising, such as RBC’s claim to be committed to the Paris Agreement while doubling down on fossil fuel expansion.

To ensure a coordinated and consistent regulatory response across Canada, the federal government needs to take the lead. Until now Finance Minister Chrystia Freeland has been missing in action. We will be watching today’s budget for any signs that the federal government is ready to rein in both the fossil fuel industry and the financial giants that feed it.

Alan Andrews is the climate program director at Ecojustice, where he leads a team of lawyers across Canada who use litigation and law reform to combat climate change.

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