Canada’s biggest banks behind latest $2-billion loan to Trans Mountain

Canada’s largest banks continue to pump billions of dollars into the beleaguered Trans Mountain pipeline expansion project after the federal government promised taxpayers would cover the costs if the Crown corporation couldn’t.

Finance Canada quietly helped co-ordinate multibillion-dollar loans in April 2022 by guaranteeing the government would pick up the tab should anything go wrong and since then, has continued backstopping further loans that now total $18 billion.

The latest round of financing was a $2-billion loan provided to TMX in late November, which as previously reported by Canada’s National Observer was secured to help the oilsands pipeline megaproject finish construction as it heads into the home stretch.

The banks behind the latest loan include RBC, Scotiabank, TD, BMO, CIBC, National Bank, ATB Financial, and Goldman Sachs Canada, according to financial data reviewed by Canada’s National Observer. It is not known how much each bank contributed but if split equally, would represent $250 million per bank.

The latest tranche marks Goldman Sachs' first time lending to the project, while the other seven banks have participated in previous loans.

None of the banks returned a request for comment by deadline.

“It’s a great example of two irresponsible parties involved here,” said Stand.earth climate finance director Richard Brooks. “[Finance Canada] said, ‘No, we're not going to put more public money into this, but we’re certainly going to use our power to ensure this pipeline gets finished by backstopping private sector loans to TMX.’

“Now at $18 billion from private banks being sent to this project, the cost of the project has now surpassed $35 billion.”

The second group of irresponsible parties are the banks themselves, Brooks said. They are increasing their own risks as the world transitions to clean energy and making the climate crisis worse by financing a fossil fuel project, he added. The International Energy Agency has repeatedly said there is no room for any new fossil fuel infrastructure if the world is going to meet the planet-warming greenhouse gas emission reduction targets necessary to avoid the worst impacts of climate change.

“If this were a private company and it wasn’t owned by the government — all of us — then there’s no way any bank would extend them this money,” he said. “The only reason this project has been able to move forward is because of loan guarantees.

“Virtually all other banks outside of Canada have very much walked away from the tarsands,” Brooks said. That’s because the oilsands are heavily polluting, and for banks attempting to shift their financing into cleaner alternatives, the oilsands stand out as a poor investment choice. Now, 80 per cent of financing to oilsands-related companies comes from Canadian banks, Brooks said.

“So there’s a real disproportionate and over-concentration of risk and responsibility held by Canadian banks,” he said.

Canadian banks increasingly highlight their climate commitments. They have all signed voluntary global alliances to align their portfolios with what climate science says is required to avoid catastrophic warming. Nonetheless, they have collectively provided more than $1 trillion to coal, oil and gas companies since the Paris Agreement was signed. Actions speak louder than words, Brooks said.

“The banks are saying they're taking climate action, but they're also sinking another $2 billion into what is perhaps the worst fossil fuel project in the history of Canada,” he said.

In particular, the country’s largest bank and top fossil fuel financier RBC published a new energy client engagement strategy in November that outlines how the bank intends to work with oil and gas sector clients as part of its climate strategy. RBC also launched a climate institute last year. Brooks said those statements can’t be squared with investments in new fossil fuel infrastructure.

Two years ago it may have been sufficient to sign onto voluntary net-zero alliances, and a year ago it may have been enough to launch a climate institute to advance conversations about climate change, he said. But “now the expectation is you've got to dig a little deeper, and if you're not digging deeper than investors, the public and regulators are going to do what's within their power and make changes.

“Investors will pull out, the attuned public may not bank with you or switch bank accounts, [and] the financial regulators will have even more incentive to step in and impose regulations, which for the most part banks do not want,” he said.

Experts have repeatedly said taxpayers will almost certainly be on the hook for Trans Mountain’s debt because the company cannot turn profits given the massive cost overruns from an initial price tag of $5.4 billion estimated by Kinder Morgan to now more than $35 billion. Given the federal government insists it wants to sell the project once it’s complete, experts say the extreme debt will need to be dealt with before any prospective buyer is willing to take it on.

Finance Canada continues to use its talking points from more than a year ago despite the skyrocketing costs. It did not answer if it was considering debt forgiveness, but instead repeated its position that Ottawa “does not intend to be the long-term owner of the project and will launch a divestment process in due course.”

“The loan guarantees do not provide any new public financing to the Trans Mountain Corporation,” a Finance Canada official said. “This is in line with the commitment the government made to Canadians in 2022 that no additional public money will be invested in this project.”

— With files from Natasha Bulowski