A shareholder vote will decide whether the Royal Bank of Canada should tighten up its standards for sustainable finance, after a deal last year in which it helped Calgary-based Enbridge issue a sustainability-linked loan and bond while building a new section of its controversial Line 3 pipeline.
A resolution from Investors for Paris Compliance calls on RBC to “update its criteria for ‘sustainable finance’” so that future investments in that category “preclude fossil fuel activity and projects facing significant opposition from Indigenous peoples,” BNN Bloomberg reports.
“We are watching sustainable banking explode around the world, and on the one hand it’s encouraging that it could be part of the transition, but it could, on the other hand, be a whole lot of greenwash,” said Matt Price, the group’s director of corporate engagement for the finance sector.
“There are very few standards or accepted definitions, and that allows the actors to put a green coat of paint on business-as-usual.”
Bloomberg describes sustainability-linked bonds (SLBs) as a “new, growing and controversial subset” of a market for environmental, social, and governance (ESG) financing valued at US$4 trillion.
“In contrast with green bond proceeds, which are earmarked for specific projects, the money raised by SLBs can be used for anything, as long as the borrower pledges to meet a self-defined ESG target,” the news agency explains. “This might be cutting carbon emissions, for example, or increasing boardroom diversity.”
The big penalty for missing a target is that the borrower pays a higher interest rate.
From a standing start in 2017, SLBs grew to $11 billion in 2020 and $108 billion last year.
But with fossil pipelines a flashpoint and companies like Enbridge getting the funds, SLBs are “even more of a greenwashing instrument than green bonds,” allowing a company to set weak climate targets that don’t align with a net-zero goal but still issue an SLB, said Lara Cuvelier, sustainable investments campaigner at Reclaim Finance.
RBC has pledged to assemble C$500 billion in sustainable finance by 2025, but a spokesperson said the bank won’t be able to comment on the shareholder resolution until next month, when it issues a detailed response.
Last March, RBC Revealed singled out the bank for the “dubious honour of punching above its weight” after an international study identified 60 of the world’s biggest financial institutions that had invested US$3.8 trillion in fossil fuels since the 2015 Paris Agreement. The organization said RBC was promising “a bright future for local communities” while “making climate chaos worse” with its investments in carbon-heavy projects like the Coastal GasLink pipeline and Line 3. It also placed as the world’s 12th-largest funder of coal, with C$14 billion invested.