Reining in Canada's Big Banks: Aligning Finance with Climate Action

In a rare move, the chief executives of Canada's five largest banks were summoned to testify before Parliament about their climate commitments. Their testimonies revealed a stark disconnect between the banks' lofty promises and their continued financing of fossil fuels, underscoring the urgent need for new rules to shift the financial system towards sustainable investments.

Holding Canada's Banking Giants Accountable for Climate Action

Confronting the Chasm Between Promises and Actions

The parliamentary hearings exposed the credibility gap between the Big Five banks' net-zero emissions pledges and their actual investment practices. While the banks have all committed to reaching net-zero by 2050, they have yet to publish concrete plans detailing how they will achieve these goals. In fact, research shows that the Canadian banks are overinvesting in oil and gas while underinvesting in clean climate solutions, compared to their global peers.Parliamentarians grilled the bank executives on this disconnect, with NDP MP Matthew Green directly challenging RBC CEO Dave McKay, "When will you stop the greenwashing and double speak with climate plans when really you're the companies pouring fuel on the fire?" This pointed question highlighted the urgent need for the banks to align their actions with their stated climate commitments.

Defining a Credible Climate Transition Framework

To address this chasm between promises and actions, other jurisdictions have moved to introduce rules or guidance for climate transition plans that require banks to demonstrate how they are decarbonizing their investments. Canada, however, has been slow to modernize its financial regulations to address the climate crisis.The federal government's efforts to develop a taxonomy, or framework, to define which investments are aligned with science-based climate action have been contentious. Rumours suggest that the Ministry of Finance is attempting to include fossil fuels, such as so-called "natural" gas, within the climate-aligned label, despite the significant greenhouse gas emissions associated with these energy sources.Environmental groups have strongly opposed this move, emphasizing that any credible taxonomy must exclude fossil fuel investments if it is to align with the goal of limiting global warming to 1.5°C. The government's apparent willingness to greenwash fossil fuels raises concerns that it is paving the way for the Big Five banks to continue their harmful business as usual.

Financing the Fossil Fuel Frenzy

The parliamentary hearings revealed the extent of the Big Five banks' involvement in the fossil fuel industry. Last year, these banks provided 0 billion in financing to the sector, accounting for more than 13% of all global fossil fuel financing by banks. This level of investment is at odds with the International Energy Agency's finding that any expansion of oil, gas, or coal is inconsistent with a scenario of keeping warming below 1.5°C.Climate experts have emphasized the need for a managed yet urgent phaseout of existing fossil fuels, particularly in Canada given the country's high historical contribution to global emissions. However, the banks' continued financing of the fossil fuel industry suggests they are more interested in preserving their profits than aligning their practices with the urgent need for climate action.

Parliamentarians' Call to Action

The parliamentary hearings have made it clear that the link between Canada's financial system and the worsening climate crisis must be addressed. Parliamentarians should recommend credible climate transition plans across the economy, and most urgently, that any government sustainable-investment label exclude oil and gas.By holding the Big Five banks accountable and pushing for robust climate-aligned finance regulations, Canada can take a significant step towards aligning its financial system with the urgent need to mitigate the climate crisis. The future of the planet and the well-being of Canadians depend on the government's willingness to take decisive action in this regard.