Banking alliance distances itself from UN campaign over emissions targets

The rupture between a marquee global financial coalition and a United Nations campaign over net zero targets creates an opening for Canadian leadership on decarbonization, environmental groups say.

But it’s unclear whether any of Canada’s Big Six banks are ready to seize the initiative after the Glasgow Financial Alliance for Net Zero (GFANZ) apparently watered down its expectations for emissions reduction targets in a parting of ways from Race to Zero (RtZ), the UN’s decarbonization campaign.

“At some point, being well positioned for net zero is going to be seen as an opportunity for some banks, even the Canadian ones,” said Matt Price, director of corporate engagement at environmental advocacy group Investors for Paris Compliance. “Right now, the general sense is that it’s a threat, and none of them seems to want to leave any money on the table as far as oil and gas companies are concerned.”

In October 2021, Canada’s largest banks signed on to the Net-Zero Banking Alliance (NZBA), a subsidiary of GFANZ, which is led by Mark Carney, former head of both Canada’s and England’s central banks.

Signatories to the NZBA were given 18 months to set interim decarbonization targets for 2030, with a focus on clients in carbon-intensive sectors, and required to publish emissions data annually tracking progress toward net zero emissions by 2050, in line with criteria set by RtZ.

However, when RtZ produced a more stringent set of updated criteria this past summer, news reports suggested leading American banks were considering leaving the NZBA as a result of the increased legal risk.

Anonymous representatives of some Canadian banks also expressed their misgivings to the Globe and Mail before an NZBA statement clarified that “RtZ does not have the ability to impose requirements either on the NZBA as a whole or on individual members.”

Distancing itself from the UN criteria has damaged the NZBA’s credibility with climate advocacy groups, Price said: “It’s disappointing, but also entirely expected. This was always going to be a club of the lowest common denominator, and there are some pretty low denominators in there.”

Keith Stewart, Greenpeace Canada’s senior energy strategist, said Canadian banks may have had little choice but to leave the NZBA had it stuck with RtZ’s more ambitious criteria, which include a requirement that members commit to “phase down and out” support for unabated fossil fuels.

Stewart pointed out that major Canadian banks have actually increased their annual level of fossil fuel financing since the landmark 2015 Paris Agreement, when almost 200 national governments committed to keeping global warming below 2 degrees Celsius this century.

“It’ll be interesting to see if, in the next few years, one of them decides to break ranks and rebrand itself as the ‘green’ bank,” he said. “They all kind of claim that now, but if one of them shifts and can meet the UN criteria, they could possibly get a first-mover advantage in the market.”

Michael Torrance, BMO’s chief sustainability officer, played down the NZBA episode, describing the bank’s relationship with the alliance as unchanged and noting that BMO never had any direct relationship with RtZ.

“The basic framework has been consistent, and I think is far more nuanced and granular than any one sort of debate that may be happening,” he said. “Fundamentally, there is still — to a great extent — convergence in terms of how the industry and key stakeholders in the financial industry are thinking about this topic, and that’s not a small thing.”

“Even two years ago, there was no real discussion around this idea of net zero or financed emissions. Now this is a pretty mainstream idea,” Torrance added.

In a statement, Jennifer Livingstone, RBC’s vice-president, climate, said it had made its net-zero pledge prior to joining the NZBA and remained “focused on achieving that commitment.”

“We are taking a client-by-client approach, working with them on their sustainability plans and pathways to net-zero. We believe this provides an effective path to achieving climate goals, leveraging our relationships and bringing advice and perspective to clients in higher emitting sectors as they make the transition,” she said.

Last month, RBC released its interim targets in carbon-intensive sectors, including its aim for an 11%-27% cut by 2030 to emissions linked to its oil and gas lending portfolio, also known as Scope 3 or financed emissions.

In its own NZBA target report, BMO revealed its aim to cut greenhouse gas emissions directly tied to its own operations by one-third by 2030. In addition, the bank wants to see a 24% reduction in Scope 3 emissions in the oil and gas sector.

The bank’s environmental targets also played a role as BMO recently came out on top of the World Benchmarking Alliance’s new sustainability index.

BMO ranked first of 400 financial institutions in WBA’s Financial System Benchmark, scoring 52.5 out of 100 on a points system based on performance in line with the UN’s Sustainable Development Goals.

“It’s always great to have your efforts recognized, but I think we are really just focused on improving as much as we can in terms of how we identify, assess and monitor our progress on sustainability topics,” Torrance said.

Conor Chell, an environmental and regulatory compliance lawyer with MLT Aikins in Calgary, said he was not surprised to see some NZBA members hitting the brakes on their net-zero commitments, and said there could be further disruption economy-wide as a first wave of ESG marketing and promotion crashes up against a second wave of enforcement by competition and securities regulators.

“I think the trepidation of banks relative to legal risk is very well founded,” Chell says. “They’re all creating fairly sophisticated methodologies to assess risk in their portfolios, but without mandatory reporting, you can’t get to 100% or even 50% certainty as to whether an investment is sustainable or not.”