Can A Bank Change?

The Royal Bank of Canada took a tiny step toward climate accountability last week. But “showing their work” isn’t the end. It’s barely the end of the beginning.

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The world’s biggest financier of fossil fuel and fracked gas projects took a tiny, baby step toward climate accountability late last week, after the powerful New York City comptroller’s office arm-twisted the Royal Bank of Canada and two U.S. financial giants into disclosing how much money they invest in fossil fuel projects relative to genuinely clean energy.

“Up until April 4, when a press release was issued, RBC's public position was that it would not disclose green energy to fossil fuel investment ratios,” CBC reports. “Now that it has voluntarily agreed to do, RBC will not face a public vote of shareholders that could have forced the issue.”

That vote was shaping up as a major public embarrassment for Canada’s biggest bank, The Energy Mix has learned. With its annual meeting coming up April 11, the proxy books were already printed and voting had already begun when New York Comptroller Brad Lander, acting on behalf of the city’s massive pension funds, hosted a briefing for institutional investors to explain why RBC should disclose the metric known as the Energy Supply Ratio. With the writing on the wall, and financial giants Citi and JPMorgan Chase making similar commitments, RBC fell into line, beginning with the annual report it issues next year.

“Despite their commitments to decarbonize, U.S. and Canadian banks have financed over $1 trillion of fossil fuel extraction since the Paris Accords,” Lander said, in a release co-published with Stand.Earth. “The transition from financing fossil fuels to low-carbon energy is going far too slowly—and thus far, it hasn’t even been possible for shareholders to track.”

Devil in the Details

There’s no question that this is a win. But it’s just a small, incremental one. In an interview with CBC, Lander stressed that disclosing a bank’s investment practices is not the same as actually shifting them away from products that fry the planet when used as directed.

"All they're doing with this agreement is agreeing to show their work," said Lander, whose pension funds held more than US$28 million in RBC stock as of November, 2022. But shifting actual dollars to net-zero—lots of them, quickly—“is financially prudent and critical,” he added. “Making sure they actually are doing it is a responsibility of shareholders and entirely consistent with our fiduciary duty.”

Stand.Earth Climate Finance Director Richard Brooks agreed that showing their work is just the first step the banks have to take.

“Banks like Citi, RBC, and Chase are fundamentally on the wrong side of history with continued over-financing of fossil fuels and lack of adequate support for renewables,” he said in the joint release. “Agreeing to this first step of disclosure is an admission that fossil banks have a problem. The next step is the science- and justice-based rapid phaseout of oil, gas, and coal funding, [and a] ramp-up for proven, climate-safe solutions.”

As institutions move from disclosing their ratios to rapidly shifting them in the right direction, it’s already clear that the devil will be in the details…same as it always is.

“The Energy Supply Ratio metric is science-based,” Lander’s office explained in the joint release. “It recognizes that phasing out investments in fossil fuels is a crucial component necessary to combat the climate crisis, and at the same time the pace at which low-carbon energy supply is scaled up will dictate the rate at which fossil fuels are phased down.”

Citing data from Bloomberg New Energy Finance, the comptroller said the banks were investing 61¢ in clean energy for every dollar they poured into the fossil industries as of the end of 2022. To hit global decarbonization targets, the ratio will have to reach 4:1 by 2030.

But those top-line numbers are just the tip of the iceberg. It remains to be seen:

• How fully RBC will disclose its methodology for calculating the ratio, as well as the final numbers;

• How effectively the bank will chart a course to a 4:1 ratio of clean vs. climate-busting investments by 2030—just five years away, if they plan to report next spring;

• How clearly and quantitatively they’ll distinguish between legitimately low-carbon investments like energy efficiency, solar, wind, and energy storage, versus the more problematic renewables like bioenergy and hydropower, versus deeply questionable, financially and technically challenged climate “solutions” like carbon capture and storage or small, modular nuclear reactors;

• And, of course, whether the RBC’s analysis will treat continuing investment in gas pipelines and distribution networks as the low-carbon bridge that the industry wants us to see, or the expensive and risky methane bomb that it turns out to be in real life.

If the RBC execs who agreed to the shareholder resolution really mean to show their work, it’s presumably to allow third parties like Brad Lander, Stand.Earth, and the rest of us to verify it. How easy or difficult they make that task will be one measure of how serious they are about complying with the resolution.

From Spin to Substance

So, can a bank change? That tagline, and the headline for this week’s post, comes from a long-ago TV ad campaign where one of RBC’s competitors tried to convince individual account holders that it could be a kinder, gentler financial institution. (I think it was Scotiabank, but haven’t been able to find the online video to verify. So the race is on! The first reader to confirm the source of the ads gets a free mention in next week’s Weekender. Second prize is two free mentions!)

Now, the task for RBC, Scotia, the rest Canada’s Big Five banks, and most of their international peers is to show us how quickly and deeply a bank can change in response to a global climate emergency that affects us all. As citizens, households, and neighbourhoods. As account holders, investors, and pension holders. As citizens of one of the world’s leading petrostates, and as members of the global community.

So far, RBC is making all the right noises, but only a few of the right moves.

They’ve set up a climate action institute, staffed by a small gaggle of smart analysts and communicators, “to support Canadians in our collective journey to Net Zero”.

Last fall, they published a “transition readiness framework” [pdf] to assess corporate clients’ plans to decarbonize their operations. Across Canada and around the world, those plans are too often found woefully lacking when they’re subject to independent analysis.

In March, RBC announced plans to triple its renewable energy lending and “plough billions of dollars into decarbonization measures,” the Globe and Mail reported at the time. The news story cited a “dual-track approach” that combines “scaling up low-carbon energy and decarbonizing traditional sources,” code for a continuing flow of dollars to fossil energy.

RBC’s climate action institute has been producing some solid analysis and gaining credibility—along with a steady diet of tart pushback on LinkedIn, pointing out that the bank is doing a great of telling everyone else how to decarbonize, but not doing so well at following its own advice.

Unfettered Access

And that’s ultimately the mountain the New York pension funds want RBC to climb. You don’t get to be the world’s biggest fossil fuel financier, lavishing more than $42 billion on oil, gas, and coal projects in 2022, by taking a back seat. Or by adopting strong enough policies that they require you to sit on your hands when the next fossil investment opportunity comes your way.

But it’s those dangerous, ossified policies and practices that give Canada’s oil and gas industry unfettered access to the investment capital it needs. Those well-established, well-worn business relationships make it easy for Calgary-based Cenovus Energy, for example, to announce a 19% increase in production over the next five years, or for a consortium of five Canadian oil sands producers to plan a $16.5-billion investment in carbon capture and storage. Sure, the Pathways Alliance is still holding out for ever more lavish taxpayer subsidies for that project, but it would quickly become a moot point if the financial sector didn’t have their backs.

That joined-at-the-hip relationship between investors and fossil producers was the subtext when Prime Minister Justin Trudeau brought the problem to the doorstep of the Calgary Economic Development agency.

“We’re working with all sectors to reduce emissions,” the PM said during a 45-minute “fireside chat” Friday, with industry heavyweights like Suncor CEO Rich Kruger, Cenovus CEO Jon McKenzie, and Pathways Alliance President Kendall Dilling in the room.

But it remains that the oil and gas sector continues to be a significant source of emissions in this country. And that’s why we’re talking about putting a cap on emissions—one that we’ve worked closely with the industry on...

A ‘Dual Track’ is No Track

Trudeau’s comment underscores that RBC’s “dual track” to decarbonization is no track at all—and why it’s so important for the banks to take the NYC shareholder resolution as a starting point, not a final word.

So far, the financial institutions are treating the biggest existential crisis our generations face as an adversarial, compliance-driven exercise where they’ll check the box because some of their biggest investors told them they had to, then desperately hope they can get back to business.

But that path depends on carbon capture technologies whose biggest boosters admit it can’t deliver at scale or on budget by the time we would need it to. A purported nuclear “renaissance” built on designs that haven’t made the jump from PowerPoints to real life, touted by an industry that never met a budget or timeline it couldn’t break, and break massively. And a fossil industry that thinks it can hit net-zero by eventually, maybe, bringing its production emissions to zero—when at least 80% of its climate pollution occurs when its product reaches the end consumer.

Which is a longabouts way of saying that RBC’s brightest ideas so far are a recipe for failure on the Intergovernmental Panel on Climate Change’s call for a 45% reduction in global greenhouse gas emissions by 2030. That makes it a threat to all of our lives, health, and prosperity. And, crucially for today’s discussion, a threat to all the other investments across the economy that RBC is counting on for the future financial returns it needs and expects.

That last point is a big motivator for shareholders like the New York comptroller to speak up. Lander and his team are no doubt concerned that if RBC, Citi, Chase, and all the rest don’t change their practices—fundamentally, and quickly—the banks will get run over by the climate emergency, and institutional investors will bear the brunt. When the investor is a pension fund, it means millions of households have their retirement savings on the line when the Royal Bank makes a bad call.

Or, some day, a good call. But the banks are running out of time to get to that point.

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Mitchell Beer traces his background in renewable energy and energy efficiency back to 1977, in climate change to 1997. Now he and the rest of the Energy Mix team scan 1,200 news headlines a week to pull together The Energy Mix, The Energy Mix Weekender, and our weekly feature digests, Cities & Communities and Heat & Power.

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