If you’ve been reading the news, you’ll know we’re in the “follow the money” stage of the climate debate. For too long, the role of banks and investors in enabling the climate crisis was overlooked. Big Oil was the big villain, even though it can’t operate without Big Finance.
Canada’s banks are particularly carbon entangled, with our big five each featuring in the top 20 largest funders of fossil fuels in the world. While we need to keep lobbying governments to better regulate both the fossil fuel sector and the financial sector, climate-concerned Canadians can also take action by letting their bank know they are unhappy with its performance and either threatening to shift their business elsewhere or actually doing it.
But shift where? We get this question a lot because we carefully parse the climate disclosures of Canada’s banks to compare them with best practices given by science. They are each now talking a good game about getting to “net zero” by 2050, but the reality is unfortunately less than advertised. In this piece, we hope to provide a general ranking of where the banks are in their policy journey so that you can make your own decisions on how or whether to engage with them.
First, the usual caveat: none of this is intended to provide investment advice. Talk to professional investment advisors about that and, ideally, ones who are sincere about the energy transition and not just trying to sell you the usual stuff coated in green paint.
Shifting your banking business all at once can be tricky, so it’s best to ask the advice of the institution you are moving to about how to do it. Maybe it’s partial or in stages — you can open new savings or chequing accounts and shift credit cards relatively quickly.
Moving mortgages or registered savings accounts may take more time. Finally, if you shift, you’ll have a bigger impact if you tell your old bank — as well as friends and relatives — why you are leaving, rather than slipping away quietly.
This ranking deals with shades of grey and the messiness of compromise. There is no perfect answer, since even the greenest banks invest in or do business with other banks who do business with fossil fuels. Also, I genuinely hope this ranking changes over time as the banks begin to take the climate crisis more seriously and up their game. Finally, another ranking is needed to evaluate the banks on their respect — or lack thereof — of free, prior and informed consent (FPIC) in project financing, which is a major issue, for example, with the Coastal GasLink pipeline and the Trans Mountain expansion project. Without further ado, here is the ranking:
1. Credit unions
The first choice for climate-concerned Canadians may not, strictly speaking, be a bank at all but a credit union. Many don’t consider credit unions, possibly because the big banks are so ubiquitous and visible, but they are viable alternatives for most banking needs.
Climate-concerned Canadians can take action against fossil fuel-funding banks by shifting their business elsewhere, says Matt Price of @investors4paris. But where should you take your dollars? #FossilFuels #FossilFunding
The basic difference between banks and credit unions is that with the latter, you are a co-owner of the institution just by virtue of having your account there. You join as a member and then have a vote to choose the board of directors. Partly because of this, credit unions have the reputation of being more responsive to their customers.
A primary reason credit unions are more climate-friendly is that they are generally not large enough to engage in bigger commercial lending like to the oil and gas industry. In addition, many of them, like Vancity, have strong environmental policies, and if they don’t, you have a good pathway as a member to push for them.
Some credit unions also put screens on their investments — where your RRSPs and RESPs end up, but you’ll need to keep a close eye on that aspect. Ask lots of questions and ask for options for investments that don’t lead to more greenhouse gas emissions.
Here is a handy tool to find credit unions near you.
Laurentian is the eighth-largest bank in Canada, although operating primarily in Quebec. So far, it is the only Canadian chartered bank to make a commitment to not directly finance the exploration, production or development of coal or oil and gas.
This commitment coincides with the appointment of Rania Llewellyn as president and CEO, the first woman to head a chartered bank in Canada.
3. HSBC and BMO
Now we enter into the zone of banks with deep fossil fuel entanglements. The shades of grey to explore within this zone concern whether the banks are making meaningful decisions to reduce those entanglements.
HSBC is the largest foreign bank in Canada and seventh-largest in size overall in this country. It is the 13th largest funder of fossil fuels in the world but has made some commitments the large Canadian banks haven’t, including restrictions on financing new oilsands and coal activities, and it recently made a commitment to strengthen its action on phasing down fossil fuel financing.
Something to note, though, if you are considering HSBC: the bank also has a spotty ethics record when it comes to money laundering.
The Bank of Montreal is the other big bank that is doing slightly more than others to change course. Specifically, BMO is the only major Canadian bank to set a target to reduce its financed emissions in the oil and gas sector in absolute terms. The other banks set so-called “intensity” targets that only reduce emissions per unit of production, which leaves the door open for absolute emissions to keep going up with more production. BMO is also the only North American bank to make the Corporate Knight’s “100 most sustainable companies” list in 2022, which ranks companies with revenues over US$1 billion.
Whether BMO follows through on its fossil fuel reduction target remains to be seen. It is currently the 15th largest fossil fuel funder in the world and needs to do much more to change.
4. CIBC, Scotiabank, TD and National
We come to the peloton. But unlike in cycling, it’s unclear whether this group is pedalling to catch up to the leaders or prefers to stand still.
CIBC, Scotiabank, TD and National Bank have all committed to reach net zero in financed emissions by 2050, but none has set targets that would actually get them there. Each is a major funder of fossil fuels and has set intensity targets that will let them maintain or even expand that funding. Each one talks about “working with” its fossil fuel clients on the energy transition but lays out no criteria for what that will look like nor commits to holding any of its clients accountable should they fail to transition.
Customers of these banks should be skeptical about their net-zero rhetoric. Much more ambition by these banks is required to take them seriously on climate.
As Spiderman fans know, with great power comes great responsibility. RBC is Canada’s largest bank and, as such, sets the tone. Unfortunately, RBC is Canada’s largest funder of fossil fuels, fifth largest in the world. Moreover, the tone we are hearing from RBC is decidedly pro-fossil fuels.
Incredibly, RBC is doing less than even the banks in the prior category. Unlike the other banks, it is yet to set any targets for its financed emissions and underestimates its current emissions by failing to account for what’s called “Scope 3” or downstream emissions.
Recently, RBC put out a report that called for increasing oil and gas production in Canada. Note that the International Energy Agency found getting to net zero means no investment in new fossil fuels — we already have enough to cook the planet. Only dodgy math could argue the opposite.
For these reasons, RBC is bringing up the rear.
Finally, you'll notice that this ranking doesn't deal with purely online banks, which may be a good option, particularly in the future as they become more established. But watch out who owns them — for example, Scotiabank owns Tangerine and CIBC owns Simplii Financial, so you may not be getting away from the problem.
Matt Price is the director of corporate engagement with Investors for Paris Compliance, a shareholder advocacy organization that holds publicly traded Canadian companies accountable to their net-zero pledges.