Despite calls for change, Canada's RBC is one of world's top bankers to fossil fuel industry

Canadian banks have a serious fossil fuel addiction. But it is not just a Canadian problem.

The latest study of corporate data from 60 of the world's largest banks shows that rather than cutting back on the funding of fossil fuel projects since the 2016 global agreement to limit greenhouse gases, they have increased that funding to $3.8 trillion US in the past five years.

The report outlining the data, titled Banking on Climate Chaos 2021, is the 12th annual tally of fossil fuel financing by a group of seven climate advocacy organizations, including Rainforest Action Network and the Sierra Club, both based in the United States.

The good news for those concerned about climate change is that a crash in the fossil fuel business during the COVID-19 pandemic led to a sharp drop in investment growth in 2020, but the report's authors fear that a growing recovery this year will lead to a "snap back to business as usual."

Although U.S. banks, including JPMorgan Chase, have committed to establishing emissions targets for their financing portfolios in line with the Paris climate accord, the report declares that North America's biggest bank has also been "the world's worst fossil bank" over the past five years, lending $317 billion to the industry.

RBC punches above its weight

And while U.S. banks lead the pack, Canada's RBC has the dubious honour of punching above its weight. Four Canadian banks are in the top 20, including RBC, TD, Scotiabank and Bank of Montreal.

"Citi follows as the second-worst fossil bank, followed by Wells Fargo, Bank of America, RBC and MUFG [Mitsubishi]," the fossil fuel finance report says. "Barclays is the worst in Europe and Bank of China is the worst in China."

Despite repeated calls by people like former central banker Mark Carney and business leaders such as Larry Fink, CEO of investment giant BlackRock, for companies to decarbonize to avoid risks to the entire economic system, people close to Canada's banking industry say banks like RBC are having trouble changing direction.

"There's a lot in the Canadian psyche and history that is wrapped up in the fossil fuel economy, and we're feeling some of that inertia right now," said Laura Zizzo, co-founder and CEO of Manifest Climate, a Toronto company that advises financial institutions across North America on strategies to help them navigate climate change.

Working closely with Canada's big banks — though she wouldn't say whether RBC was one of her clients — Zizzo said she is convinced that people at the highest corporate levels really are committed to change. It's just happening more slowly than many who fear the impact of climate change would like to see.

Responding to my question asking why Canada's biggest bank continued to lend such large amounts — $160 billion over the past five years — to the fossil fuel industry and its projects, RBC reaffirmed its commitment to net zero emissions, including a promise of $500 billion in sustainable finance by 2025. It said it was also the first bank to commit not to lend to resource projects in Alaska's Arctic National Wildlife Refuge.

But in a country where there is so much political and economic pressure for oil and gas development, RBC said that to be successful, its move to net zero must be gradual.

"This transition is vitally important and it must be done in an inclusive manner that brings all sectors and communities along or we won't achieve the support we need to meet these goals," RBC said in an email.

Bad for banks, as well as the climate

As Carney — who was governor of both the Bank of Canada and Bank of England before becoming head of impact investing at Brookfield Asset Management — has warned in the past, when financial institutions take a stake in long-term fossil fuel projects, it is not just bad for the climate.

In order to hold temperatures at levels scientists say are necessary to keep temperature rise to 2 C, experts say the value of fossil fuel investments must fall to zero in about 30 years. Carney and others say a rush to get out of those investments as the crisis worsens could create a financial risk for the entire economy and for institutions such as banks, pension funds and insurance companies.

It also creates a risk for ordinary Canadians who depend on those institutions for their banking, pensions and insurance, as well as for investors and employees.

That is what Zizzo, who trained as a lawyer, sees as her company's job: to help banks transition to a point where climate risk will not hurt them or their stakeholders. And she says part of the difficulty for banks is that their normal investment horizons are two years, or maybe a little longer.

"But generally they are all still too short to think about the longer-term issues of climate," she said. Financial institutions are currently struggling to adapt to new global requirements, expected soon, where investors will have to be informed of a bank's long-term climate liability, she said.

"It's taking time before it actually percolates into the risk-management functions of these financial institutions," Zizzo said.

She also says that so far, banks have been better at expanding their investments in greener projects than they have been in paring back on fossil fuels.

That failure to reduce investments in fossil fuel expansion is the problem identified in Wednesday's bank report. Adam Scott, director of Shift, a Toronto-based group that monitors pensions for climate risk, says it demonstrates what he calls a lack of "climate literacy."

Despite the recent vote by federal Conservatives in Canada rejecting the idea that climate change is real, Scott said that is not a view shared by most bankers he meets. The problem is that they fail to recognize that the problem "requires the phaseout of fossil fuels entirely over a very short period of time."

"I think the thing that's missed here is that when you build new fossil fuel projects, you're locking in emissions for decades to come. So an investment today in new fossil fuel makes it harder to address the climate crisis," Scott said.

"It's going to make a very difficult thing more difficult," he said. "The banks are pouring money into making this problem harder, and that just has to stop."

Follow Don Pittis on Twitter: @don_pittis