This article originally appeared in the Financial Post.
In 2021, Canada’s Big Five banks — TD, CIBC, BMO, Scotiabank and RBC — all signed on to the Global Financial Alliance (GFANZ) and the Net Zero Banking Alliance (NZBA).
The UN-sponsored, Mark Carney-led GFANZ was launched in April of that year. Self-described as a sector-wide coalition, its goal is to accelerate the transition to decarbonization and a net-zero global economy.
The NZBA is a subgroup of the GFANZ. A prerequisite for joining is the signature of a bank’s CEO on the organization’s “commitment statement.“ Much of the statement and its “principles for responsible banking” is unobjectionable, even anodyne. “Banks play a key role in society,” and “Our success and ability to remain profitable and relevant is (sic) intrinsically dependent on the long-term prosperity of the societies we serve.” Who could disagree?
But the document quickly takes a sharp ideological turn. The NZBA commits its members to: align their lending and investment portfolios with net-zero carbon emissions by mid-century or sooner; use decarbonization scenarios in lending and investment decisions; and focus on higher-emitting sectors first and foremost. These ideological commitments do not instil prosperity-building confidence.
What does a “net-zero global economy” mean in practice? It means drastically reducing oil and gas production and use over a short time. For a country like Canada, whose economy is extremely reliant on natural resources, especially oil and gas, a net-zero global economy would be a catastrophe. Already we are beginning to feel the impact of dogged pursuit of “net zero by 2050”: carbon taxes, soaring energy prices, emissions caps (production caps, really) for oil and gas, deindustrialization and widely felt economic hardship.
By joining the NZBA, the Big Five banks have agreed to divest from oil and gas, eliminating projects and companies from their investment pool simply because they are oil and gas companies. But such divestment poses a serious threat to Canadian, not to mention global, energy security.
More narrowly but equally crucially, it threatens shareholder returns. Maximizing long-term total returns for clients and shareholders — traditional goals of banks, other financial institutions and most private businesses — is not in the NZBA pledge. In fact, the word “shareholder” does not appear once in the statement.
Why have our banks signed up for divestment? Did the bank CEOs read the commitment statement before signing it? Do they understand that GFANZ and NZBA want to decarbonize the economy? Were they just trying to appease activists? Or do they really believe GFANZ and the United Nations have Canada’s and Canadians’ best interests at heart?
The real-world effect of decarbonization is to eliminate oil and gas, one of Canada’s most important sectors. The commitment statement completely ignores: Canada’s role as an ethical supplier of relatively clean oil and natural gas; the energy reality that coal, oil, and gas together still make up about 80 per cent of the global energy mix; and the fact that demand for oil and gas keeps growing. The singular focus on decarbonization and net zero ignores the fact that Canada’s prosperity depends on a strong oil and gas sector.
This year, InvestNow, the not-for-profit of which I’m executive director, has submitted shareholder proposals to the Big Five banks asking them to exit both the NZBA and the GFANZ. In pledging to comply with NZBA and GFANZ rules and deny our energy companies the loans, investments and underwriting they need in order to operate and thrive, Canadian banks are doing great harm, not just to their shareholders, but to the country at large and, ultimately, to the global community.
As a stable, responsible, democratic country with abundant energy resources, Canada is uniquely positioned to meet more and more of the world’s demand for oil and gas. We produce and export energy now and have enormous capacity to do more of both, meaning the industry can play a key role in maintaining both Canadian and global energy security.
Canadian banks should not be pursuing social, political or ideological goals at the expense of fiduciary ones. As essential institutions, modern banks must be held to a standard of strict political neutrality. The whims of a select group of unelected and unaccountable individuals working through a supra-national organization should not guide this country’s banking policy. The best interests of Canada and Canadians should.
Gina Pappano, executive director of InvestNow, was head of market intelligence at the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV.)
