Canada’s five biggest banks undermined their own net-zero commitments in 2022 while maintaining higher exposure to the fossil fuel industry than their U.S. and European counterparts, a new report concludes.

“There are no leaders in the Canadian banking sector,” writes InfluenceMap, through its financial sector analysis platform FinanceMap, in a report analyzing Canada’s five largest banks.

“Although the Big Five banks appear to have integrated climate considerations into their reporting on governance processes and risk management, they do not show evidence of robust climate strategies and are lagging in the metrics and targets used to assess and manage material climate risks and opportunities.”

The report analyzes the Royal Bank of Canada (RBC), Toronto-Dominion Bank, Scotiabank, Bank of Montreal, and the Canadian Imperial Bank of Commerce, based on metrics linked to the banks’ portfolios, climate governance, and policy engagement. All five are signatories to the global Net Zero Banking Alliance (NZBA), members of which have announced a commitment to finance climate action to shift the economy to net zero by 2050.

Despite their commitments in the NZBA, the report found the banks’ fossil fuel financing activities are not aligned with the net-zero pathways laid out by the International Energy Agency and the Intergovernmental Panel on Climate. While the banks have set interim 2030 climate targets in line with the NZBA, most of them have notable shortcomings, such as relying on relative rather than absolute targets for fossil fuel emission reductions. RBC’s 2022 net-zero report, for example, states that while the “ultimate goal of net-zero emissions in our lending activities by 2050 will require reductions in absolute emissions,” the bank chooses “to set our interim targets using a physical emissions intensity metric.”

The focus on emissions intensity means a fossil fuel producer can reduce its emissions per unit of oil, gas, or coal it extracts, but still increase its overall climate pollution if its production grows faster than its emissions intensity declines. Last week, leading oilsands producer Cenovus Energy announced plans to increase production 19% over the next five years.

The InfluenceMap report says many of the banks’ targets also fail to cover emissions facilitated by their capital market activities, or to disclose key activities and assumptions relevant to the targets. And “lastly, the banks’ target-setting needs to be complemented with sector policies designed to steer targets,” it states.

All the banks have started disclosing financed emissions, with varying degrees of robustness.

Overall, however, the five banks have increased their fossil fuel financing exposure in recent years, from an average of 15.5% in 2020 to 18.4% in 2022, and none of them have committed to stop financing thermal coal or publicly advocated for ambitious climate-related policy in Canada. The banks belong to industry associations that are instead working to block or dilute such policy measures. The Canadian Chamber of Commerce, of which all five banks are members, has promoted policies to extend the role of high-emission fuel sources in the energy mix and opposed Canada’s proposed oil and gas emissions cap, the report says.

“The Big Five banks hold significant economic and political influence in Canada, yet they are delaying action that is essential to respond to the climate crisis, while retaining strong financing links to the country’s fossil fuel sector,” said FinanceMap Program Manager Daan Van Acker.

The lack of robust financing exclusion policies across the five banks leaves the door open to substantial investments in companies in the fossil fuel value chain, totaling US$275 billion between 2020-2022, the report says. Some 68% of the banks’ total oil and gas financing was domestic, with Canadian oil and gas giants Enbridge, Cenovus, and TC Energyespecially benefitting over the three-year span.

The data in the report only extends through 2022, and Canadian Bankers Association spokesperson  Mathieu Labreche told the Financial Post it missed the banks’ recent progress on climate goals.

 “Upcoming disclosures will provide additional insight into [environmental, social, and governance) initiatives and climate efforts,” he said.

The report still found the net-zero policies of Canada’s Big Five fell short compared to banks in the United States and Europe, with a significantly higher ratio of financing for fossil fuel companies versus green businesses. Canadian banks were also 1.9 times more exposed to fossil fuels than the largest European banks, and 2.8 times more exposed than U.S. banks.

InfluenceMap also concluded that the Canadian banks were comparatively less engaged in national sustainable finance policy, with less robust policy and less transparency around their federal lobbying activities.