Over the past few months, we’ve engaged each of the five largest Canadian banks on their climate work. We’ve filed a few shareholder proposals, at least one of which will be going to a vote (more on that soon). And we produced this best practices report which we will use to benchmark the banks after their expected announcements of interim targets and plans over the coming months.
Here’s a few overall reflections from our engagement experience this season:
- These Are Sincere People Dealing With Rapid Change
We’d like to thank the banks for making time for shareholder engagement. In the course of those discussions, we interacted with smart and sincere people trying new things. Some were quite open about not having all the answers yet, while all seemed genuine in wanting to set and meet climate reductions targets. These are large institutions with a lot of inertia and facing sometimes contradictory incentives when it comes to change. (Hello $90 oil!) This doesn’t excuse the banks from taking greater responsibility for their role in financing greater or fewer emissions in our economy, but they are now genuinely working on it.
With one exception, the five major banks welcomed this dialogue and made an effort to follow up. We’ll let the outlier remain anonymous for now but wonder whether this may be an early indicator of future performance.
2. Canada’s Banks Have A Ways To Go Breaking Their Fossil Fuel Addiction
By now we know the stats about Canada’s banks funding of fossil fuels, but when we engage with them we also realize this addiction is cultural. We heard several variations on oil industry talking points of “we’ll need fossil fuels for decades” or “abrupt change is in nobody’s interest.” We didn’t hear much variation on “we need to get off fossil fuels quickly” or “the climate crisis is already causing abrupt change.” The language demonstrates a general orientation towards protecting existing economic interests – and, presumably, existing bank business – rather than truly embracing the transition.
The rubber hits the road on this with the banks’ collective mantra that “we’ll work with our clients on the energy transition” when challenged to drop clients who are making the climate crisis worse. There’s no transparency or accountability in that mantra, which a cynic would say is perhaps as intended, but this won’t wash over time as greater disclosure on progress is insisted upon by investors and the public.
3. The Math Will Start To Bite
Banks are good at math. After all, numbers are their business. And here’s the thing: all of Canada’s major banks have now signed up with PCAF which requires them to measure the Scope 3 emissions of heavy carbon sectors like oil and gas and include that in their financed emissions. And they’ve committed to getting to “net zero” on such emissions by 2050, with Mark Carney pushing for them to accept their fair share of the halving of such emissions by 2030.
But their clients in the Canadian oil and gas sector have plans to increase production by 30% by 2030, which is an increase those Scope 3 emissions that not even wildly successful carbon capture would reverse. Banks could somewhat deflect attention from this contradiction in the short term by talking instead about Scope 1 and 2 emissions and “intensity” targets, but ultimately the math is the math, and honest disclosure will eventually tell the story.
There is in fact a binary choice banks need to make between meeting their numeric climate targets and retaining clients who are making the climate crisis worse. The energy transition is not about making fossil fuels a bit cleaner, since that won’t meet net zero. It’s about very quickly replacing fossil fuels with renewables, and none of Canada’s big energy companies yet have plans to do that.