This week's first ministers meeting in Vancouver will be a test of Canada's commitment to its international climate change policy obligations.
As climate action and the transition to renewable energy speeds up in North America, it will also be a test of Canada's banks. Are they ready for the future? While Scotiabank CEO Brian Porter and many of his colleagues at Canada’s largest banks remain cheerleaders for an oil sands industry that is in terminal decline, a number of the world’s leading commercial banks and institutional investors have published financing policies which completely exclude the direct financing of tar sands oil and coal projects. Storebrand - a Norwegian pension fund and insurer – directly excludes a large number of coal and oil sands companies from its investment portfolio. They have already determined that as countries act to reduce emissions in line with internationally agreed upon targets, these assets will become “financially worthless.”
French banks Crédit Agricole, Société Générale, and BNP Paribas have all announced they will no longer finance coal mining projects. Natixis and ING have signaled an end to their direct financing of new coal plants. Tar sands oil and other high-cost, carbon budget-busting projects will soon be added to the list of toxic investments. Canadian bank directors also sit on the boards of many of our largest fossil fuel companies, yet they do not appear aware of the risks to the industry's business as usual approach. With many of the world’s largest investors in the process of aligning their portfolios with the 1.5 - 2 degree emissions target agreed to in Paris, Canadian bank directors should be doing the same.
Competition for the future of green finance heats up
If high cost oil sands and coal are an investment Titanic, the directors of Canada’s largest financial institutions have seats at the top table. Our Big 5 banks have large equity stakes in the major fossil fuel companies and are involved in almost every major underwriting transaction in the oil patch. This should be a great opportunity to either drive change towards lower carbon business models, or to manage the orderly wind-down of companies whose balance sheet relies on stranded assets.
Given these bank executives’ access to internal financial information on distressed oil sands and coal players, shareholders should be deeply concerned about their decision to continue lending money to companies that they can see from the inside are sinking. As Storebrand and other international investors have pointed out, the legally binding Paris Agreement, signed by 196 governments will be implemented in Canada, and has serious implications for fossil fuel investors as the transition to renewable energy accelerates.
As Scotiabank and other fossilized Canadian banks continue to champion an investment strategy based on dangerous global warming and disregard for international climate law, the future of finance for the global energy transition is being fought over in London and Shanghai. In London, the UK government is leading the push to capture the deals that are arising in a world that is rapidly transitioning towards zero-carbon energy systems. The UK has partnered with China on a G20 Green Finance Study Group, and Harriet Baldwin, Economic Secretary to the UK Treasury indicated to a high-level audience in London last month that:
"Capital markets are particularly important [in the energy transition], because they can channel large-scale investment into sustainable projects – water treatment, waste management, renewables, clean transportation networks and more."
Gifford stressed that the green finance push by London was about “creating a platform for investors to back new technology and infrastructure” and to do necessary work around environmental transparency and accreditation standards.
Our national financial sector leaders should wake up to the energy transformation that is happening all around them. Canada’s own transition to renewable energy, and the growth of associated financial tools, has been stunted by a decade of hostile government in Ottawa and successful fossil fuel lobbying. But it is time for Bay Street and the directors of our largest banks to throw off the shackles of the 20th century energy economy and embrace the future deal-making potential of a low carbon energy transition. There will be plenty of green to go around for those who act quickly.