Canada's five biggest banks make misleading 'sustainable finance' claims: securities complaint

Canada's big five banks are potentially misleading investors with their use of terms like sustainable finance, according to a complaint to securities regulators by a climate advocacy group.

Banks are using the term "sustainable finance" too broadly and not backing up the claims with data, Investors for Paris Compliance said in its submission Tuesday to the Ontario Securities Commission and the Autorité des marchés financiers of Québec.

Canadian banks including RBC, TD, BMO, CIBC and Scotiabank have all made pledges on sustainable finance that together total $2 trillion by 2030.

Sustainable finance covers a range of lending activities aimed at advancing mostly environmental and social causes. The financing can be anything from green bonds funding a specific renewable energy project to loans that go to general corporate use but are tied to sustainability-linked performance targets.

The commitments form a key part of their sustainability efforts, but banks are providing little to back up their effectiveness, said Matt Price, executive director of Investors for Paris Compliance.

"They're putting this in the window as one of their core responses to climate change and net zero, when they're not rationalizing or justifying or providing any evidence or proof about that.”

The advocacy group is concerned not only with the overall lack of disclosure, but that some of the deals that have been disclosed have been with oil and gas companies whose emissions are on the rise.

In 2021, RBC, CIBC and Scotiabank were all involved in sustainable finance deals with Enbridge Inc. as the company was expanding its oil export capacity, while BMO helped structure a sustainability-linked credit facility for Gibson Energy that has been increasing its oil exposure.

That same year, TD Bank served as a co-sustainability structuring agent for a US$4 billion sustainability-linked loan with Occidental Petroleum. The oil company announced in late 2023 that it was spending about US$12 billion to buy shale driller CrownRock.

Price said there should be a higher bar for what's considered sustainable financing, and that companies working to expand oil and gas production shouldn't qualify.

"It's a pretty basic question, right?" he said.

Banks didn't provide direct responses for comment, directing requests instead to the Canadian Bankers Association.

Spokeswoman Maggie Cheung said the industry's statement is that Canadian banks follow North American market standards on environmental, social and governance disclosure, comply with applicable disclosure rules and regulations and continue to work with industry and regulators to advance sustainability reporting standards.

"Banks in Canada understand the important role that the financial sector has in an orderly transition to a low-carbon future," said Cheung.

"Sustainable finance is one tool for helping companies mobilize capital toward this effort and a range of other environmental and social goals."

Investors for Paris Compliance wants regulators to investigate and assess how adequate and accurate banks are in their disclosures around sustainable finance.

The group also wants regulators to require banks to disclose the emissions impacts of their sustainable finance business, or clarify areas where they can't and instead disclose that the segments don't specifically advance their net-zero goals.

This report by The Canadian Press was first published Jan. 9, 2024.

Companies in this story: (TSX:RBC; TSX:TD; TSX:BNS; TSX:BMO; TSX:CM)