Aligning climate targets with a 1.5°C future, aiming to at least halve absolute emissions by 2030, and issuing annual reports on the climate impacts of investments are among the best practices put forward for Canada’s five biggest banks in a report issued yesterday by Investors for Paris Compliance.

“Canada’s banks play a huge role allocating capital to clean or dirty economic activities and as such will help determine whether Canada meets its emissions targets or stays wedded to fossil fuels,” Matt Price, I4PC’s director of corporate engagement, said in a release. “Net-zero pledges were the first step for Canada’s banks,” he added, but “now we need to see concrete and rapid steps towards implementation.”

The report shows the country’s five biggest banks—RBC, TD, Scotiabank, BMO, and CIBC—with a lot of ground to cover to put substance behind their promises. They “all rank among the top 25 fossil fuel lenders in the world, collectively lending well over half a trillion dollars to fossil fuels since the Paris agreement was signed, including hundreds of billions into fossil fuel expansion,” the release states.

“Part of the duty of Canada’s banks is to manage risk, yet their activities are driving up investor risk by enabling massive Scope 3 emissions,” the 22-page report adds. “These activities clash with the emerging nature of fiduciary duty in a world facing a climate crisis. If banks are to act in the interests of their beneficiaries, then they should act in ways that reduce risk rather than increase it,” at a time when climate impacts are “material to investors and are set to become even more so.”

Moreover, investors “stand to gain shareholder value with a transition to a clean economy,” I4PC adds. “The Global Commission on the Economy and Climate found that bold action on climate change could lead to economic gains of US$26 trillion between 2018 and 2030.”

The report sets out best practices for Canadian banks in five areas: setting Paris-aligned net-zero targets, addressing high-carbon sectors while protecting “special places”, sustainable finance, just transition and Indigenous rights, and a new approach to governance, client engagement, and advocacy. Greatest hits include:

• Aiming to cut emissions by at least half by 2030, with 2025 targets “to motivate immediate action”;

• Issuing annual reports on “the full extent of bank business with climate impacts, including lending, underwriting, and investments”;

• Setting 1.5°C-compliant targets that limit reliance on negative emission technologies and carbon offsets;

• Immediately ending any efforts to enable new fossil fuel production, while strengthening coal phaseout policies, reducing exposure to tar sands/oil sands investments, and expanding investment bans to “special places” beyond the Arctic;

• Developing a sustainable finance classification system, or taxonomy, that avoids carbon lock-in;

• Holding clients accountable for their performance on the just transition off fossil fuel dependency;

• Strengthening efforts on reconciliation with First Peoples and the practice of Free, Prior and Informed Consent;

• Reorienting banks’ governance, compensation, and client engagement to support the drive to net-zero.

The report arrives at a moment when Canadian banks are choosing to engage on net-zero strategy with fossil fuel clients and other high-emitting sectors, rather than heeding calls to withdraw their investments. In October, the Royal Bank issued a widely-cited white paper that called for $2 trillion in new investment for net-zero strategies that leaned heavily on the carbon capture technologies that I4PC and many other groups see the need to minimize.

In an email Wednesday, Price said banks won’t achieve their climate goals or fulfill their duty to help drive decarbonization without a more informed, harder-edged approach.

“Engagement without the possibility of divestment is like raising a toddler without consequences,” he told The Energy Mix. “Yes, as a first strategy, work with clients on their net-zero strategies, but know that not all of them will get there, particularly if nobody holds them accountable. Other banks like Citigroup and Credit Suisse are more honest about the need to drop clients who don’t come along.”

To make that shift in strategy work, “major banks and pension funds need a crash course on the concept of carbon lock-in,” he said. “Technologies like [carbon capture and storage] may well be appropriate for sectors like steel and cement, but only address 20 to 30% of emissions in oil and gas given most emissions result when the end product is burned. The $50 billion that the oil sands companies are asking for by way of further public subsidies for CCS is a dead end that just locks in production and emissions,” so it’s “better to invest that money in actual transition.”