UN calls bankers’ bluff on climate: What does it mean for Canadian banks?

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UN calls bankers’ bluff on climate: What does it mean for Canadian banks?

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With Canadian banks increasing fossil fuel funding by 70% in 2021, their membership in the UN’s Net Zero Banking Alliance is in serious question.

Note: A version of this story first appeared in iPolitics.

You’d expect bank CEOs to read the fine print before signing a contract, but apparently, that’s too much to expect when it comes to committing to net zero greenhouse gas emissions. That oversight may get Canadian banks kicked out of the UN’s climate club.

Scientists tell us that reaching net zero emissions by mid-century can limit global warming to 1.5 degrees Celsius. Still, it requires moving our economy off fossil fuels and ending deforestation. According to the Intergovernmental Panel on Climate Change, that is possible but “would require rapid, far-reaching and unprecedented changes in all aspects of society.” 

Canadian banks seemed to have missed that last bit. 

The big five Canadian banks – RBC, CIBC, BMO Financial Group, TD and Scotiabanksigned on to the UN-organized Net Zero Banking Alliance in October 2021. They probably considered it an easy, high-profile way to showcase how much they want us to think they care about climate change. 

They said all the right words, but if you follow the money – as detailed in the new report I contributed to from Greenpeace Canada – a different story emerges. In 2021, Canadian banks increased funding to fossil fuel companies by 70% (to USD 131 billion – or CAD 167 billion). They moved up in the global rankings so that all five are now in the top 20 global financiers of fossil fuels causing climate change.

The UN, however, wasn’t fooled. Its “Race to Zero” initiative sets the criteria for the Net Zero Banking Alliance and a range of other actors like pension funds and asset managers involved in the Glasgow Financial Alliance for Net Zero. Last June, the initiative issued a clarification regarding what is required to stay in its net zero clubs. 

This move is a body blow to Canadian bankers, who argued that they could sign on but keep funding fossil fuels. The update can be read as something like, “this should go without saying, but we’re going to say it because you clearly don’t want to understand.” First, the UN states it was “making explicit the requirement for members to phase down and out all unabated fossil fuels as part of a just transition, something which was previously implicit.” 

The banks now have a choice: Waste precious time and political capital lobbying against the new criteria or publish a credible climate plan by June 23, 2023. 

Secondly, the UN clarified how fast this should happen. The year 2050 is a long way off, so there is a requirement for member banks to set ambitious but achievable interim targets. Four of the five Canadian banks have published 2030 targets, promising to reduce emissions intensity (e.g., tonnes of GHGs per barrel of oil) in the 24 to 35% range. That’s not good enough. 

To be aligned with net zero by 2050, the UN says banks must cut financed emissions in half by 2030. And these should be absolute reduction targets, where the total emissions from bank loans and investments drop by 50%, not just emissions per barrel, because intensity targets mean total emissions can go up if banks finance more barrels.

The UN raised the stakes further by also requiring banks to align their lobbying and advocacy activities with net zero. Canadian banks have a long history of lobbying arm-in-arm with oil companies, so this will be interesting to watch. In the face of strong criticism, Scotiabank did announce earlier this year it was ending its membership in the Canadian Association of Petroleum Producers, which has an extensive track record of lobbying to block, water down and delay climate policies. Yet overall, Canadian banks still vigorously advocate for fossil fuel expansion projects, including those facing fierce Indigenous-led resistance like the Coastal GasLink and Trans Mountain Expansion pipelines.

Having lost patience with corporate greenwash, the UN is establishing a process for kicking climate laggards out of its net zero club.  

The banks now have a choice: Waste precious time and political capital lobbying against the new criteria or publish a credible climate plan by June 23, 2023. 

Greenpeace Canada believes such a plan should include: an immediate end to all support for new fossil fuel projects as mandated to keep global warming to a liveable level by the International Energy Agency (IEA); a minimum 50% cut in financed emissions by 2030; the upholding, affirmation of and respect for Indigenous rights; and strategies to protect and restore biodiversity.

Over to you, bank CEOs. 

Written by

Keith Stewart

Keith Stewart is a senior energy strategist with Greenpeace Canada and a part-time instructor at the University of Toronto. He has a Ph.D. in political science from York University and has worked as a climate policy researcher and advocate for 19 years.