Banks, fossil fuels, and a collapsing oil and gas industry

Rainforest Action Network is one of the advocacy groups which monitor fossil fuel investment on an ongoing basis: their Fossil Fuel Report Card for 2020: Banking on Climate Change  was released on March 18.  As it does every year, the report calculates how much money  has been invested in fossil fuels since the Paris Agreement was signed in 2015 – in 2020, that has reached $2.7 Trillion.  The report also names and ranks the  banks behind the fossil fuel financing, which continue to be dominated by the big U.S. banks: JPMorgan Chase, Wells Fargo, Citi, and Bank of America.  Canada’s RBC ranks 5th in the world, having invested $141 billion since the Paris Agreement, wit  TD ranking 8th,  ScotiaBank 10th and Bank of Montreal ranked 16th.

Against this entrenched position in support of fossil fuels comes the plummeting price of oil and an industry in crisis.  An April 1 blog by the International Energy Agency explains the five key dimensions – including the Covid-19 crisis –  which explain that “The global oil industry is experiencing a shock like no other in its history”.  The panic setting in to the industry is captured in the Wall Street Journal article on April 14, “Thirst for Oil Vanishes, Leaving Industry in Chaos”.  The Carbon Tracker Initiative published “COVID-19 and the energy transition: crisis as midwife to the new” which states: “Fossil fuel demand has collapsed and may never surpass the peaks of 2019.  By the time the global economy recovers, all the growth may be met by renewable energy sources….. And once the peak is passed, the fossil fuel sector as a whole will face an eternal scrappy battle for survival, struggling with overcapacity and stranded assets, with low returns and high risks.”

Forbes is even more blunt in  “After COVID-19, The Oil Industry Will Not Return To “Normal” (April 5), which states:  “Canada and the United States are in a bind. There is a temptation to bail out oil, if only to keep people employed and ensure that these over leveraged companies don’t drag banks underwater…. Financial support for oil workers is an imperative, but support for the oil sector is a waste of money, whether the Saudis and Russians stay their course or not. Investments in shale and the Canadian oil sands are bound to become stranded assets, even if we return to “normal.” Oil’s days were numbered before coronavirus, and they will be numbered after it.”

The Canadian picture

Andrew Nikoforuk provides a Canadian view in “The other emergency is crashing oil and gas prices” in The Tyee (Mar. 18).  A Globe and Mail article on March 19 (updated Mar. 20)  outlines political calculations and lobbying, and predicts that the federal government will offer a multi-billion dollar post-Covid-19 rescue package to the oil and gas industry (although determined lobbying is also pushing for investment in clean energy instead.  Jim Stanford addresses the issue in We’re going to need a Marshall Plan to rebuild after Covid-19 ” (in Policy Options, April 2), and  writes: “ With the price of Western Canada Select oil falling to close to zero (and no reason to expect any sustained rebound to levels that would justify new investment), it is clear that fossil fuel developments will never lead Canadian growth again. ….. However, the other side of this gloomy coin is the enormous investment and employment opportunity associated with building out renewable energy systems and networks (which are now the cheapest energy option anyway). This effort must be led by forceful, consistent government policy, including direct regulation and public investment (in addition to carbon pricing). Another big job creator, already identified by Ottawa and Alberta, will be investment in remediation of former petroleum and mining sites.”  By April 9,  the Globe and Mail published “Climate, clean tech could take centre stage in federal economic recovery plans” .  The Narwhal argues  “Doubling down on Alberta’s oil and gas sector is a risk Canadians can’t afford to take”  (April 14).

Despite this, in what Common Dreams calls “a shameful new low”, the Alberta government announced a $1.5 Billion cash infusion to “kickstart” the Keystone XL Pipeline on March 31. Ian Hussey of the Parkland Institute reacted with “Alberta’s Keystone XL investment benefits oil companies more than Albertans” (April 2).  Bill McKibben reacted with outrage in “In the Midst of the Coronavirus Pandemic, Construction Is Set to Resume on the Keystone Pipeline” in The New Yorker .  Other reactions, circling back to the role of Canadian banks: “Reckless Keystone XL Decision by TC Energy Endorsed by JPMorgan Chase, Citi and Canadian Peers”  (Rainforest Alliance Network);  and “Bank of Montreal, RBC, Blackrock Among the Backers for Alberta’s ‘Reckless’ Keystone XL Subsidy” (The Energy Mix , April 5)  .

Answering Mark Carney: What are the climate plans for Canada’s banks and pension funds?

On December 18, the Bank of England was widely reported  to have unveiled a new “stress test” for the financial risks of climate change. That stress test is a proposal contained in an official BoE Discussion Paper,  2021 biennial exploratory scenario (BES) on the financial risks from climate change , open for stakeholder comments until March 2020.  Mark Carney, outgoing Governor of the Bank of England, has led the BoE to a leadership position on this issue in the financial community and will continue  in his new role as United Nations special envoy on climate action and climate finance in 2020.  In a December BBC interview reviewing his legacy, he warned the world yet again about stranded assets and asked: “A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?”

What are the climate plans for Canada’s pension funds ?

shift action pension report 2019In their June 2019 report, Canada’s Pension Funds and Climate Risk: A Baseline For Engagement  , ShiftAction concludes: “Canadian pension funds are already investing in climate solutions, but at levels that are far too low relative to the potential for profitable growth, consistent with levels required to solve this challenge.” The report provides an overview, and importantly, offers tips on how to engage with and influence pension fund managers.

Since then…..

The sustainability performance of  the  Canada Pension Plan Investment Board (CPPIB) continues to be unimpressive, as documented in  Fossil Futures: The Canada Pension Plan’s failure to respect the 1.5-degree Celsius limitreleased in November ccpaFossilfuture2019 by the Canadian Centre for Policy Analysis-B.C. (CCPA-BC).  According to the CPPIB Annual Report for 2019, (June 2019) the CPPIB is aiming for full adoption of the Task Force on Climate-related Financial Disclosures recommendations by the end of fiscal 2021 (page 28).

Canada’s second largest pension fund, the Caisse de dépôt et placement du Québec (CDPQ), announced in November that CEO Michael Sabia will retire in February 2020 and move to the University of Toronto Munk School of Global Affairs and Public Policy. The press release credits Sabia with leading the Caisse to a position of global leadership on climate change, beginning in 2017 with the launch of an investment strategy which aims to increase low-carbon assets and reduce the carbon intensity of investment holdings by 25%. In 2019, the Caisse announced that its portfolio would be carbon-neutral by 2050.   Ivanhoé Cambridge ,the real estate subsidiary of the Caisse de dépôt, has a stated goal to increase low-carbon investments by 50% by the year 2020 and to reduce greenhouse gas emissions by 25% by the year 2025. In December 2019, Ivanhoé Cambridge announced that it had issued a $300 million  unsecured green bond to finance green initiatives – the first real estate corporation in Canada to do so. Shawn McCarthy reviewed Sabia’s legacy in “Canada’s second largest pension fund gets deadly serious about climate crisis”, in Corporate Knights in December.

AIMCo, the Alberta Investment Management Corporation is a Crown Corporation of the Government of Alberta, with management responsibility for the public sector pensions funds in Alberta, along with other investments. In November 2019, the Alberta government passed Bill 22, which unilaterally transfers pension assets from provincial worker plans to the control of AIMCo (see a CBC summary here ). The Alberta Federation of Labour and the province’s large unions protested in a joint statement, “Union leaders tell UCP: ‘The money saved by Albertans for retirement belongs to them, not to you!’” (Nov. 20) . The unions state: “we’re worried that what you’re attempting to do is use other people’s money to create a huge slush fund to finance an agenda that has not yet been articulated to the public – and which most people would not feel comfortable using their life savings to support.” And in December 2019, those worries seem to come true as AIMCo announced  its participation in a consortium to buy a 65% equity interest in the controversial LNG Coastal GasLink Pipeline Project from TC Energy Corporation. Rabble.ca reported on the demonstrations at AIMCo’s Toronto offices regarding the Coastal Gas project in January .

On January 8, the Toronto Star published  “Toronto asks pension provider: How green are our investments?” – revealing that the city has asked for more details from the Ontario Municipal Employees Retirement fund (OMERS). OMERS, with assets of over $100 billion, manages the pension savings of a variety of Ontario public employees, including City of Toronto and Toronto Police, Fire, and Paramedics. On January 8, OMERS announced the latest consolidation of Toronto pension plans with its consolidation of the Metropolitan Toronto Pension. Its Sustainable Investment Policy statement is here .

What are the climate plans for Canada’s private Banks?  

The 10th annual edition of Banking on Climate Change: the Fossil Fuel Finance Report Card was released in October 2019 by Banktrac, Rainforest Alliance Network and others . It states that $1.9 trillion has been invested in fossil fuels by the world’s private banks since the Paris Agreement, led by JPMorgan Chase, Wells Fargo, Citi and Bank of America. Canadian banks also rank high in the world: RBC (5th), TD (8th), Scotiabank ( 9th), and Bank of Montreal (15th).  Also in October, the World Resources Institute green-targets2published Unpacking Green Targets: A Framework for Interpreting Private Sector Banks’ Sustainable Finance Commitments , which includes Canadian banks in its global analysis and provides guidance on how to understand banks’ public documents.  “How Are Banks Doing on Sustainable Finance Commitments? Not Good Enough”  is the WRI blog which summarizes the findings.

Since then….

On September 14, the Canadian Imperial Bank of Commerce announced the release of their first climate-related disclosure report aligned with the Task Force on Climate-Related Financial Disclosures. Building a Sustainable Future highlights the CIBC’s governance, strategy, and risk management approach to climate related issues. It provides specific metrics and targets, especially for its own operational footprint, but also a commitment: “to a $150 billion environmental and sustainable finance goal over 10 years (2018-2027).”

Scotiabank also announced climate-related changes in November, including “that it would “mobilize $100 billion by 2025 to support the transition to a lower-carbon and more resilient economy”; ensure robust climate-related governance and reporting; enhance integration of climate risk assessments in lending, financing and investing activities; deploy innovative solutions to decarbonize operations; and establish a Climate Change Centre of Excellence “to provide our employees with the tools and knowledge to empower them to act in support of our climate commitments. This includes training and education, promoting internal collaboration, and knowledge and information sharing.”  Their 4-page statement on climate commitment  is here. Their  2018 Sustainable Business Report (latest available) includes detailed metrics and description of the bank’s own operations, including that they use an Internal Carbon Price of CAD$15/tonne CO2, to be reviewed every two years.

RBC, ranked Canada’s worst fossil-fueling bank in the 2019 edition of Banking on Climate Change , released a 1-page statement of their Commitment to Sustainable Finance (April 2019)  and an undated Climate Blueprint  with a target of $100 billion in sustainable financing by 2025.  However, in their new research report,  Navigating the 2020’s: How Canada can thrive in a decade of change , the bank characterizes the coming decade as “Greener, Greyer, Smarter, Slower”, but offers little hope of a change in direction. For example, the report states “ Canada’s natural gas exports can also play a role in reducing emissions intensity abroad. LNG shipments to emerging economies in Asia, where energy demand is growing much faster than in Canada, can help replace coal in electricity production, just as natural gas is doing here in Canada. …As climate concerns mount, Canada’s challenge will be to better sell ourselves as a responsible, cleaner energy producer.”

Calls for public banks to finance a Green New Deal and Just Transition

Two new reports in September call for a greater role for public banks to finance a Green New Deal and just transition.

A US Green Investment Bank for All: Democratized finance for a Just Transition   was published by the Next System Project in September, proposing  a new, democratically- managed  structure for financial institutions so that they function in the public interest to achieve a green and just transition.  From the report: “Of the $454 billion in climate finance invested in 2016, the private investment sector, which controls 80 percent of all banking assets, contributed $230 billion, while the public sector contributed $224 billion. That is, with only 20 percent of total assets, public banks invest nearly as much as all private banks combined. The short-term, return-maximizing horizons of private finance have failed, utterly, to drive anything like a green transition. The future of climate finance must look to the public sphere, not the private.” ….  “ The key political-economic decision in the design is the balance between concessionary lending (nonprofit and loss-making operations) and non-concessionary lending (that is, for-profit). The answers must follow from the bank’s public interest mandate and triple bottom line.” The full report is summarized in “We need a democratized Green Infrastructure Bank  for a Just Transition ” in Open Democracy.

A second report also cites the failures of the international global market-based financial system.  The 2019 Trade and Development Report: Financing a Global Green New Deal  was released by the  United Nations Conference on Trade and Development (UNCTAD) on September 25,  and states: “We can meet the UN Sustainable Development Goals (SDGs) by 2030, but only if we find the political will to change the rules of the international economic game and adopt policies that scale up the resources needed for a big investment push led by the public sector and set the global economy on an expansionary course.”

UNCTAD economists project that a net increase in global employment of at least 170 million jobs, with an overall reduction in carbon emissions by 2030, if total green investment were increased annually  by around US$1.7 trillion, which they estimate at one third of what is currently spent by governments on subsidizing fossil fuels.  Although each country will require a unique policy mix, the report calls for changes for all to include fiscal stimulus, public investment in infrastructure and green energy, and measures to boost wages. The report also contends that the 2030 Agenda goals  to eradicate poverty and meet nutrition, health and education goals will impose unsustainable financial burdens on many developing countries, also requiring reforms to the international trade, financial and monetary system.

Canadian banks still investing in yesterday’s economy – fossil fuels

offshore oil rigBanking on Climate Change – Fossil Fuel Finance Report Card 2019 , the 10th annual report by BankTrack and a coalition of advocacy groups, has been expanded to include coal and gas investors, as well as oil, as it ranks and exposes the  investment practices of 33 of the world’s largest banks. The newly-released report for this year reveals that $1.9 trillion has been invested in these fossil fuels since the Paris Agreement, with the four biggest investors  all U.S. banks – JPMorgan Chase, Wells Fargo, Citi and Bank of America. But Canadian banks rank high: RBC ranks fifth, TD ranks 8th, Scotiabank ranks 9th, and Bank of Montreal ranks 15th.  Among those investing in tar sands oil : “five of the top six tar sands bankers between 2016 and 2018 are Canadian, with RBC and TD by far the two worst.”

In addition to the investment tallies, the report  analyzes the banks’ performance on human rights, particularly Indigenous rights, as it relates to the impacts of specific fossil fuel projects, and climate change in general.  The report also describes key themes, such as tar sands investment, Arctic oil, and fracking.

In response to the Banking on Climate Change report, SumofUs has mounted an online petition It’s time for TD, RBC and Scotiabank stop funding climate chaos.    An Opinion piece in The Tyee,  “How Citizens can stop the big five ” calls for a citizens strike on Canadian banks – particularly by young people and future mortgage investors, and points out the alternatives: credit unions, non-bank mortgage brokers, and ethical investment funds, (such as Genus Capital of Vancouver ).  But while individual Canadians can make ethical choices, that doesn’t seem to be the path of our public pension plan, the Canada Pension Plan Investment Board, which manages $356.1 billion of our savings.  On March 19, Reuters reported that the CPPIB  will invest $1.34 billion to obtain a 35% share in  a $3.8 billion joint venture with U.S. energy firm Williams to finance gas pipeline assets in the Marcellus and Utica shale basins.

Investment attitudes are shifting away from fossils:  The Norwegian Sovereign Wealth Fund continues to lead the way: In March, it announced it would divest almost $8 billion in investments in 134 companies that explore for oil and gas; in April, it  announced it will  invest in renewable energy projects that are not listed on stock markets – a huge marekt and a significant signal to the investment community, as described in   “Historic breakthrough’: Norway’s giant oil fund dives into renewables” in The Guardian (April 5) .

In Canada, with the Expert Panel on Sustainable Finance   scheduled to report shortly, the Bank of Canada announced on March 27 that it has joined the  Central Banks’ and Supervisors’ Network for Greening the Financial System (NGFS), an international body established in December 2017 to promote best practices in climate risk management for the financial sector.  (This is despite the fact that Bank of Canada Governor Stephen Poloz discussed the vulnerabilities and risks in Canada’s financial system in his year-end progress report in December  2018   – without ever mentioning climate change. )  In the U.S., on March 25, the head of the  Federal Reserve Bank of San Francisco released Climate Change and the Federal Reserve  , which states: “In this century, three key forces are transforming the economy: a demographic shift toward an older population, rapid advances in technology, and climate change.”  A discussion of both these developments appears in “Bank of Canada commits to probing climate liabilities” in The National Observer (March 27) .

And if we needed more proof that coal is a dying industry:  The Institute for Energy Economics and Financial Analysis released Over 100 Global Financial Institutions Are Exiting Coal, With More to Come  in February, drawing on the ongoing and growing  list of banks which have stopped investing in new coal development, as maintained by BankTrack.   The detailed IEEFA report states that “34 coal divestment/restriction policy announcements have been made by globally significant financial institutions since the start of 2018. In the first nine weeks of 2019, there have been five new announcements of banks and insurers divesting from coal. Global capital is fleeing the thermal coal sector.”  Proof: global mining giant Glencore announced on February 20 that it would cap its coal production at current levels in  “Furthering Our Commitment to the Transition to a Low-Carbon Economy. “

Quebec Pension fund leads the way in low-carbon investing in Canada

The  Caisse de dépôt et placement du Québec (CDPQ) is Canada’s second largest pension fund, with $286.5 billion under management for the  public and parapublic pension plans of  Quebec workers. On October 18, the Caisse burnished its existing reputation as a responsible investor by releasing  “Our Investment Strategy to address Climate Change”,    a detailed strategy document which pledges to factor climate change into every investment decision.   The CDPQ will increase its low-carbon investments by 50% by 2020, and reduce the carbon intensity of its portfolio by 25% by 2025 across all asset classes.   According to an article in the Montreal Gazette , “the Caisse is the first fund in North America, and only the second in the world — after the New Zealand Superannuation Fund — to adopt this type of approach.” That article also notes that investment managers’ compensation will be tied to the emissions performance of their investments:  investment teams will be given fixed carbon budgets, “and their performance will be evaluated and remuneration linked to how well they stick to these budgets.” The announcement was also covered by the Globe and Mail  .

In contrast, the Canada Pension Plan Investment Board , entrusted with the funds to support the public pensions of 20 million Canadians (the CPP), continues to invest in oil and gas ventures – and according to Bloomberg Research , is currently involved in a bidding process for an Australian coal operation owned by Rio Tinto .  Friends of the Earth Canada is advocating against the bid as part of its ongoing campaign, Time to Climate-Risk-Proof the CPP  .  The CPPIB describes its investment strategy regarding climate change here  .

It is worth noting that the Labor Convergence on Climate event  organized by the Labor Network for Sustainability in September included a discussion of how union leaders and rank and file members can work through their pension funds to join the movement to divest from fossil fuels and make green investments .

The role of the banking and investment community is important in policy development also; the case is most recently made in  “Three suggestions for for B.C.’s Climate Solutions and Clean Growth Advisory Council” in the National Observer (Oct. 26). The article concludes:  “If the Advisory Council wants to see money move to support its policy aspirations they will have to find genuinely committed allies in the asset management and banking community. Action on climate change is great economic opportunity for British Columbia and Canada, and the financial sector must be brought into the discussion in order to accelerate the transition to a low-carbon energy system.”

How receptive is the Canadian investment community to considering and disclosing climate change risks and stranded assets? Two reports  by the UN-affiliated Principles for Responsible Investment ( PRI )   are relevant to this question. Fiduciary duty in the 21st century: Canada roadmap (Jan. 2017) makes recommendations for how Canadian pension fund and investment managers can catch up with the international community and implement the recommendations of the Taskforce on Climate Related Financial Disclosures (TCFD) . The PRI Canada country review (June 2017) describes the current regulatory framework for environmental and social governance disclosure .  The Responsible Investment Association has  also published the 2016 Canadian Responsible Investment Trends Report .

Actors within Canada include the Canadian Securities Administrators , which began their own  review on climate-related financial disclosure practices in March 2017 , but have not yet reported.   A group of Canadian Chief Financial Officers launched  the CFO Leadership Network in March 2017, to focus on the role CFO’s play in integrating environmental and social issues into financial decision making. The Canadian CFO Leadership Network is the Canadian Chapter of The Prince of Wales’s Accounting for Sustainability (A4S) CFO Leadership Network; in Canada, it operates in partnership with Chartered Professional Accountants of Canada , with support from The Prince’s Charities Canada.

Finally, SHARE (Shareholder Association for Research & Education), is a Vancouver-based organization which actively promotes sustainable and responsible investing. On October 12, it announced  that it is participating in an investor-led initiative which has written to the CEO’s of sixty of the world’s largest banks, including six Canadian banks, calling on them to adopt the landmark recommendations of the Taskforce on Climate Related Financial Disclosures (TCFD), released by the Financial Stability Board in December 2016 .  Specifically, they call for disclosure in four key areas: climate-relevant strategy and implementation, climate-related risk assessments and management, low-carbon banking products and services, and banks’ public policy engagements and collaboration.