“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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Of course, that was before the coronavirus began pummelling the economy. COVID-19 is only deepening our desire to support companies that behave nobly and put people and planet ahead of profits.

It just so happens that corporations with better environmental, social and governance (ESG) scores are proving themselves to be more financially resilient during the pandemic. Yes, sustainably minded funds have taken a big hit because of COVID-19, but Bloomberg found that they have been outperforming their conventional peers. Bloomberg’s analysis of 2,800 responsible investing (or RI, also known as sustainable, socially responsible or ethical investing) funds globally found that the average RI fund has fallen by about 12% this year as of March 12. That stings, but it’s just half the decrease seen by the S&P 500 Index over the same period.

According to Ipsos polling released by RBC Global Asset Management in January, two thirds of Canadians surveyed say they’re interested in RI. Nearly three out of four believe RI is “the way of the future.”

So why do so few Canadian banks offer any sustainably focused investing options?

Most bank advisors are poorly informed about ethical options

Corporate Knights anonymously visited Toronto branches of the Big Five banks in January and inquired about ethical investing. While some bank advisors were enthusiastic and fairly well informed, many advisors didn’t know whether their banks offered ethical investments or what those offerings entailed. Some advisors downright discouraged us from putting our savings into RIs. Notably, BMO and RBC were the only two banks that had dedicated RI funds.

The Toronto-based Responsible Investment Association (RIA) did its own polling with Ipsos in 2019 and found that while 79% of Canadian respondents would like their financial services provider to inform them about RI options, only 23% have been asked by their banks if they’re interested in RI. That helps explain why only a quarter of Canadians say they already have responsible investments, according to stats from Wealthsimple, BMO and the RIA.

In the U.S., meanwhile, new investments into sustainable funds quadrupled in 2019 compared to 2018 (pulling in a record US$20.6 billion in new money last year), and European investments doubled to a record-busting €120 billion, according to Morningstar.

Push to regulate the wild west of green investing

The tricky part for would-be purchasers is figuring out what investments genuinely align with their values. One CIBC branch advisor told Corporate Knights that “all the mutual funds we offer have gone through these ESG checks.” Ditto for all of RBC’s funds around the globe. That doesn’t mean they screen out any dubious companies or sectors. Only exclusionary funds with negative screens do that – and they may just screen out, say, tobacco and gambling but not thermal coal and oil. Part of the problem is there’s no universal standard for how terms like “ESG,” “low carbon” and “fossil-fuel free” are defined or applied, leaving funds vulnerable to “impact washing.”

Many Canadian ethical fund managers choose not to screen out fossil-fuel companies, instead investing in those they consider sector leaders. Which is fine for some responsible investors – if funds are transparent about it. But after the RIA received flak for listing fossil-fuel-free funds in its directory that were later exposed to contain oil and gas companies, the association is now considering creating a certification process for RI funds in Canada.

It gets even more muddled when retail investors start exploring the wider world of self-directed online trading accounts and robo-advisors (digital platforms such as apps that rely on software to offer financial advice), which often offer access to a number of American and international ETFs, or exchange-traded funds. (Branch-level bank advisors are generally not able to sell ETFs despite their booming popularity.) One ETF known as iShares MSCI ACWI Low Carbon Target ETF was called out for having holdings in Shell, Chevron and a number of other high-carbon companies.

To counter potential “impact washing” in Europe, the EU sets standards for the labelling of financial products, mandating that financial advisors disclose the sustainability risks of a finance product to investors, “regardless of the sustainability preferences of the end investors.”

Canada’s federally convened Expert Panel on Sustainable Finance recommended we do something similar here. The panel (which included Tiff Macklem, a Scotiabank director and Rotman School of Management dean, as well as RBC director Andy Chisholm) recommended that Finance Canada create “financial incentive for Canadians to invest in accredited climate-conscious products through their registered savings plans.”

How green are the banks’ own investments and loan books?

Many climate-conscious investors will also want to know just how their banks are dishing out their own money. All five banks have signed on to the UN-supported Principles for Responsible Investment, promising to fold ESG factors into investment decisions, though research by Corporate Knights has found that while the Big Five invest billions in sustainable-solution companies, they also invest billions in controversial weapons, for-profit prisons and severe environmental violators, as well as a number of other themes that would register as egregious on many responsible investors’ radars. All five also have loan books bulging with fossil fuels in relation to their renewable energy lending, putting them at odds with global money trends.

With former Bank of Canada governor Mark Carney cautioning that firms that ignore the climate crisis “will go bankrupt without question,” Canadians should be able to readily invest their retirement savings in environmentally-conscious options, sustainable finance champions say

With even central bankers now warning of climate-induced systemic financial crisis and former Bank of Canada governor Mark Carney cautioning that firms that ignore the climate crisis “will go bankrupt without question,” Canadians should be able to readily invest their retirement savings in climate-conscious options, sustainable-finance champions say.mo

In the meantime, the first RRSP deadline of the new decade gives Canadians a chance to rethink their finances, knowing there are now some options on the shelf that allow them to bank on a sustainable future.

Big Five ethical investing report card

We visited Toronto-area branches of the Big Five banks and asked advisors what ethical or sustainable investment options they offered. Here’s what we found:

Scotiabank

Ethical options: No responsible funds available in branch, though Scotiabank said in a statement that it has “considered” ESG factors in the investment process, and added, “Scotia iTRADE offers sustainable investing tools [online].”

Fossil-fuel-free or climate-conscious funds: No.

Knowledge of adviser: The personal banking adviser was unaware of any sustainable options and returned five minutes later to confirm that no options exist that the bank’s financial advisers were aware of.

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): Scotiabank dishes out the second-most oil and gas loans ($14.8 billion), compared to zilch in loans to renewables.

Score: D-

TD Canada Trust

Ethical options: TD Canada discontinued its sustainability funds in 2013, and at this point there are no specific RI-themed­ funds available to Canadians at branch level. TD did not respond to our request for comment.

Fossil-fuel-free or climate-conscious funds: No.

Sustainability knowledge of advisor: One bank advisor was blunt, saying “To be completely honest, most socially aware investment funds don’t make a lot of profit. As such, we don’t have funds that invest in these companies.”

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): TD has the smallest oil-and-gas loan book of the Big Five, but its investment book is another story. Among the Big Five, it has the worst ratio of investments in sustainable-solution companies to harmful companies.

Score: D-

CIBC

Ethical options: No specific RI funds. CIBC’s VP of Public Affairs says that “ESG factors are included in our investment process across all funds.”

Fossil-fuel-free or climate-conscious funds: No.

Sustainability knowledge of advisor: Initially, the branch manager said that CIBC has some ethical funds that “don’t invest in tobacco companies or oil companies,” but the manager and a financial advisor weren’t aware of specifics, so they placed a phone call. “We don’t get asked this question frequently,” the manager said. After their call, the manager updated earlier comments: “The good news is there’s no specific mutual funds that actually do that since all the mutual funds we offer have gone through these ESG checks.”

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): CIBC says all its funds are filtered through an ESG lens, but it has $2.7 billion, or 6.4% of assets, invested in companies flagged for harmful products and activities, including palm oil deforestation and severe human rights violations. On the bright side, the bank has 9.4% of its investments in companies tagged as sustainable-solution providers, because they earn more than a fifth of their revenue from themes like renewable energy and electric cars. On the loan side, CIBC’s exposure to oil and gas companies is almost five times as large as its renewable energy book.

Score: D

RBC

Ethical options: RBC’s Vision line uses ESG filters to determine holdings while screening out weapons makers, as well as traditional sin stocks like tobacco and alcohol. RBC Vision also has a Women’s Leadership fund.

Fossil-fuel-free or climate-conscious funds: Yes: the RBC Vision Fossil Fuel Free Global Equity Fund. Though a financial planner at one branch said the bank doesn’t offer entirely fossil-free options, suggesting that omitting a whole sector could limit the opportunity to grow. RBC’s Vision Fossil Fuel Free fund actually outperformed RBC’s Global Equity Fund in both 2018 and 2019.

Knowledge of adviser: The financial planner was well versed in the Vision line (besides fossil-free funds) and enthusiastic about the Vision balanced fund, saying it has outperformed RBC’s regular balanced fund (“being green is saving companies a lot of money down the road”).

Cost of values-aligned portfolio: Varies, but many are slightly lower than conventional funds.

Bank loans and investments (clean vs. dirty): Canada’s largest bank has the highest total amount of oil-and-gas loan exposure on its books ($16.4 billion). That’s more than seven times more than its renewable loans, which gets it into trouble with environmental activists, though it also has the biggest ratio of investments in sustainable solutions to harmful companies among the Big Five.

Score: C+

BMO

Ethical options: Branches offer BMO’s Sustainable Opportunities Global Equities mutual fund, as well as a Women in Leadership fund. There are eight new ESG ETFs for self-directed online accounts.

Fossil-fuel-free or climate-conscious funds: Yes: the BMO Sustainable Opportunities fund.

Knowledge of adviser: The personal bank associate was enthusiastic about BMO’s sustainable opportunities fund, explaining that she invests in it herself, but she cautioned that it is mid-to-high risk and is best for longer-term investments. A financial planner follows up via email to discuss ESG options further.

Cost of values-aligned portfolio: Fees vary, but the Sustainable Opportunities fund has a somewhat lower fee than comparable BMO funds. The ESG ETF fees are also priced lower than many non-RI equivalents.

Bank loans and investments (clean vs. dirty): BMO has both the biggest renewable-energy loan book and sustainable-solutions investment book among the Big Five, but it has the largest amount invested in companies classified as “harmful.”

Score: B-

A version of this article appeared in the Toronto Star.

*Note: This article was updated for the Spring Issue of Corporate Knights magazine.

** Sustainable solution investments includes 512 companies in the Corporate Knights database that earn more than 20% of their revenues from products or services (such as reneable energy, energy efficiency, electric cars, public transit and organic food) that benefit the environment or society as tracked by Corporate Knights Radar.

*** Harmful investments include 451 companies in thermal coal, weapons, for-profit prisons, as well as companies with severe human rights and environmental violations, and other types of egregious products and misconduct tracked by Corporate Knights Radar.

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