The Royal Bank of Canada’s announcement late last week that it will restrict investments in some fossil fuel projects was a “baby step” and just the first of many it will have to take to “move into a zero-carbon future,” two veteran climate analysts told The Energy Mix yesterday.
On Friday, RBC unveiled a new investment policy that bars direct financial support for fossil exploration or development projects in the environmentally fragile Arctic National Wildlife Refuge in northwestern Alaska, and ends financing for new clients that draw more than 60% of their revenue from coal mining, or more than 60% of power generation from coal plants. “It will provide financing to new clients that operate some assets below those thresholds, so long as the client can provide clear evidence that they are reducing their use of coal, lowering their emissions, or converting to technologies that will lower their emissions,” the Globe and Mail writes.
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“We are committed to finding ways to balance the transition to a low-carbon economy while supporting efforts to meet global energy needs and our energy clients,” the country’s biggest chartered bank said in a statement. “Due to its particular ecological and social significance and vulnerability, RBC will not provide direct financing for any project or transaction that involves exploration or development in the Arctic National Wildlife Refuge.”
The announcement drew praise from the Vuntut Gwitchin First Nation in Yukon and the Gwich’in Tribal Council in the Northwest Territories, which “have been at the forefront of efforts to compel Canada’s big banks to acknowledge the environmental effects and financial risks associated with drilling in the refuge,” the Globe says.
“It is promising to see a leading Canadian chartered bank developing environmentally conscious policies, and we are hopeful that other Canadian financial institutions will follow their lead,” said Gwich’in Grand Chief Ken Smith.
Ryan Riordan, director of research at the Queen’s University Institute for Sustainable Finance, agreed the RBC’s example could prompt other Canadian financial institutions in the same direction. “This is an important step towards financing a transition from high-carbon to low-carbon operations in the coal industry,” he said, and “the explicit recognition of the importance of protecting the Arctic represents a meaningful change for the better.”
But RBC’s shift was a faint echo of commitments from other financial institutions in the United States and Europe over the couple of years, most of them setting coal thresholds around 20% and curtailing investments in all Arctic oil and gas development, the Alberta tar sands/oil sands, and sometimes in fossil pipelines. Credible decarbonization scenarios pretty much universally show that coal operations must be eliminated to hit a 1.5°C threshold on average global warming, not just shifted from higher to lower emissions.
“It’s good to see a Canadian bank has finally looked up and noticed global financial trends that are increasingly shifting away from fossil fuels and toward climate-safe investments,” Climate Action Network-Canada Executive Director Catherine Abreu told The Energy Mix. “But RBC remains one of the five largest financiers of fossil fuels in the world, so this is the first step of many it will have to take in order to move into a zero-carbon future.”
“It’s essentially the least they could do when it comes to responsibly restricting finance for fossil fuels,” Shift:Action Director Adam Scott agreed in an email Sunday evening. “Any move towards restricting lending and investment for oil, gas, and coal is a step in the right direction, but these measures are far too little, too late.”
In what he called a “baby step”, Scott said RBC “has finally acknowledged their responsibility to actively restrict lending to fossil fuels, something the Canadian banks have all but ignored until now.” The deeper problem, he added, is that “Canada’s financial sector is dangerously entangled with fossil fuels, and oil and gas in particular. This is a problem both for the boardroom and on the balance sheet. These links cloud judgement and hold institutions back from managing the serious financial risks from the climate emergency, and it’s already costing them money.”
Scott elaborated on that entanglement in a feature interview last week. “Canada’s finance base is small, with a relatively limited number of banks, institutional investors, large companies, and even governments,” he explained. “There’s a revolving door among those elite positions in the country, and everyone sees it as in their best interest to not attack or denigrate fossil fuels, for fear of the impact on their own employability. It’s actually really impolite in Canadian financial circles to say anything critical of fossil fuels. That entanglement is a real cultural problem in Canada.”
“We believe our policy strikes an appropriate balance,” responded RBC spokesperson Andrew Block. “We continue to support our clients and are working with them on a long-term transition to a low-carbon economy. This transition will take time and the world continues to need energy supply to meet demand.”
On the same day the RBC made its announcement, Politico Morning Energy reported that members of the Rockefeller family, whose fortune traces back to ancestor John D. Rockefeller’s Standard Oil Co., are wielding their wealth and working their connections to “pressure major U.S. banks to stop investing in fossil fuels that are driving climate change.” No indication that the U.S. advocates are considering a free pass for Canadian fossil assets.
The Rockefellers’ project, dubbed BankFWD, is “still in its early stages, is built on the premise that the younger Rockefeller generations and their wealthy contemporaries who control tremendous amounts of capital want to put their money behind environmentally and socially conscious companies,” Politico writes. “It aims to convince wealthy individuals to sign a pledge that they will press their banks to phase out fossil fuel investments and commit to businesses that seek to keep global temperatures from increasing 1.5°C above pre-industrial levels—or they will ultimately ‘transfer assets away from banks that fail to show sufficient progress’.”
“The biggest lever at the end of the day is reputational risk—that it’s about not only the current dollars, but the long-term impact of reputational damage to clients leaving the bank over time, to not becoming the trusted bank of choice for the next generation,” said Danny Growald, who co-chairs the effort along with family members Valerie Rockefeller and Peter Gill Case.
