© Reuters. FILE PHOTO: A Royal Bank of Canada (RBC) logo is seen on Bay Street in the heart of the financial district in Toronto, January 22, 2015. REUTERS/Mark Blinch/File Photo
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By Nivedita Balu
TORONTO (Reuters) – Some of Canada’s biggest banks have admitted for the first time that their climate-related finance efforts may not necessarily curtail emissions growth, following years of pressure from climate activists for banks to be more transparent about their claims on climate goals.
Canadian banks, said to be one of the biggest fossil fuel financiers globally, have drawn criticism from climate activists and investors for years claiming they are using sustainability-linked financing (SLF) merely for pretence of a lower carbon footprint rather than take meaningful steps in that direction.
In their latest annual climate reports released over the past week, many Canadian banks have pledged billions of dollars in sustainable financing to decarbonize high-emitting sectors, while highlighting major challenges to meeting their goals.
Bank of Nova Scotia, CIBC and TD noted that their sustainable finance targets may not necessarily curtail the growth of emissions.
“The question for regulators will be whether it’s enough for the banks to insert these brief disclaimers deep in their ESG reporting or whether they need to do a better job telling their investors and the public that these huge financial numbers they promote as green aren’t necessarily adding up to emissions reductions at all,” said Matt Price, executive director of Investors for Paris Compliance.
In January, the group urged securities regulators to investigate major Canadian banks on their climate-related claims and alleged misleading disclosures.
The complaint gave climate activists more fuel in their fight, that is part of a broader international push for accountability on corporate climate pledges.
Price said the latest revelations were still not enough to obviate the need for an investigation. He noted that TD, for example, is still leaning on its C$500 billion sustainable finance initiative, without the qualifiers it makes elsewhere, which he says is misleading.
Canada is the world’s fourth-biggest oil producer, and energy sector contributes about 5% to the country’s GDP. Despite the influence of the oil sector on the economy, the federal government has set out aggressive emissions goals that include pushing companies in the sector to cut emissions up to 38% from 2019 levels by 2030.
Bank of Nova Scotia gave a total of C$132 billion since 2018 towards its target of C$350 billion in climate-related finance by 2030, but said that climate-related projects “may — or may not — lead to reductions in overall emissions.”
The bank’s Chief Sustainability and Communications Officer Meigan Terry said it aims “to be transparent and support a clear understanding” about its climate-related financing target.
CIBC echoed a similar narrative, saying “sustainable financing may involve eligible green activities… but do not necessarily curtail the growth of their absolute emissions.”
Other big banks also highlighted the difficulties in achieving climate goals.
Royal Bank of Canada, Canada’s No. 1 bank, said the target of limiting global temperatures to 1.5 degrees Celsius above preindustrial levels would be a key challenge and just 2% of its clients have plans that are aligned with that goal.
The bank’s plans this year include tripling lending for renewable energy projects to $15 billion and boosting low-carbon energy lending to $35 billion by 2030.
TD said greenhouse gas emissions impact of its business activities that are eligible towards the C$500 billion sustainable and decarbonization target cannot, be “reliably measured at this time.”
In a recent report, think tank InfluenceMap said between 2020 and 2022 the big five banks steadily increased their fossil fuel financing exposure to an average of 18.4% in 2022 from 15.5% in 2020. That compares with an average of 6.1% for leading US banks and 8.7% for European banks across the same period.
Several global banks have committed to “net-zero financed emissions” by 2050 but have drawn doubts from many investors, due to concerns over the lack of a defined goal.
Regulators in the Americas and Europe have increasingly been worried about greenwashing, whereby companies exaggerate their environmental credentials.