There has been intense scrutiny of fossil fuel corporations due to their emissions intensive activities, but I propose stepping back and widening the sphere of responsibility to get to the root of the problem and turn our attention to who is enabling these practices. Financial markets play a central role in the climate crisis, and they should not be absolved of liability because they are indirect financers of extractive industries. These industries would be unable to operate without the large capital investment and the additional range of financial services offered by banks. Thus far, banks have been able to rely on Environmental, Social, and Governance (ESG) branding to conceal their affinity for extractive industries. What green funds, socially responsible investing, and all those other ESG buzz words attempt to obfuscate is the centrality of finance to fossil fuel industries. Examining the underbelly of the beast by looking at the problem of financing fossil fuels rather than fossil fuel production targets the root of the problem and is a more effective means to stop oil extraction because it takes a proactive approach to address the climate-related impact of activities.
Canada’s big six banks—Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Toronto-Dominion Bank, and National Bank of Canada—are some of the most powerful corporate entities in Canada and control the largest shares of capital investment in Canada. As such, they should be making every effort to help Canada achieve our commitments under the Paris Agreement and the Glasgow Climate Pact. A study by Refinitiv calculated that risk associated with fossil fuel lending and underwriting is twenty-five times greater than their renewable lending and underwriting; yet, these banks continually provide more project financing to the fossil fuel sector. Canadian banks increased their lending and commitments to the industry by more than 50 percent, to $137 billion, between 2014 and 2020. This happened simultaneously as the Intergovernmental Panel on Climate Change (IPCC) released various reports which confirmed, with scientific certainty, this capital investment will not keep global warming under 1.5°C (the threshold temperature to avoid major climate change catastrophes and effects).
The banking sector displays a clear unwillingness to cut ties with the fossil fuel industry despite proof that big oil has been one of the worst-performing investments. The main mechanisms that banks use to finance extractive industries and address disclosure and net-zero initiatives have so far proven ineffective. These mechanisms rely on voluntary reporting and lack meaningful enforcement thereby hampering any chance we have at keeping global warming below 1.5°C and effectively preventing disastrous climate change effects already starting to occur.
Banks should not, yet are, being allowed to pull the wool over our eyes and conceal the industries that they are in bed with. In a period of major financial uncertainty for the future of the fossil fuel industry, and in the face of global consensus of the necessity to immediately stop extracting oil from the ground, the big six continue to firmly support the industry. Banks cannot be allowed to make bold statements about reducing carbon emissions while wholly supporting fossil fuel production.
While the big six continue to pour millions of dollars into the industry, Canada will not achieve its emissions reduction targets. Stronger government action, or litigation against banks, is needed to ensure that banks adjust their practices for a world in a global crisis and endeavour to invest in renewable energy projects, and support climate adaptation and mitigation.