The oil and gas sector makes up more than 10 per cent of the Canadian economy, and abolishing it, gradually or otherwise, would take its toll. Canadian banks that have committed to supporting this policy are shooting themselves in the foot and dragging shareholders and the financial system down with them.
Canada is home to 88 banks employing more than 280,000 citizens and serving around three million self-employed and small and medium enterprises. Women constitute 38 per cent of senior managers in Canadian banks and more than half of the six largest banks’ workforce.
In 2019, banks and their subsidiaries paid $30 billion in salaries and benefits, and the six largest banks alone paid $12.7 billion in taxes. The dividend income paid to shareholders was $21.3 billion.
Contributing approximately 3.5 per cent to Canada’s annual gross domestic product (GDP), banks are pivotal for the Canadian economy. They’ve aligned with the net-zero emissions policy and they’re planning how to achieve such an ambitious goal.
Thus far this year, the Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD) and Bank of Montreal have announced plans to achieve net-zero emissions. Criticism didn’t take long to arrive since the financial institutions lacked details in their declarations. They haven’t explained their divesting and their interim reduction targets.
Banks aren’t the only ones struggling to walk the talk. The Bank of Canada is still assessing its implications for economic growth and inflation, as well as developing a roadmap.
In late 2020, the Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) launched a pilot project to evaluate scenarios and identify risks associated with changing conditions. They expect to publish a report by the end of 2021 with further details, assumptions and key sensitives to help financial institutions transition to the new economic model.
Bank of Canada governor Tiff Macklem acknowledged transition risks might be underappreciated. “By filling in that knowledge gap, we could save billions in damage and eliminate an existential threat to Canada’s financial stability,” he asserted.
In a 2020 report, the Rainforest Action Network revealed the biggest fossil-fuel financiers globally. Canadian banks RBC, TD and the Bank of Nova Scotia were among the world’s 12 largest lenders to fossil-fuel companies between 2016 and 2020.
The report also identified 33 banks that had increased fossil-fuel financing in the same period. No Canadian bank appears on the list.
In contrast, banks from China, Japan, India, Australia, the United Kingdom, the United States and other countries were financing more fossil-fuel producers during the last four years. Some of these banks have already committed to achieving environmentally conscious goals, but they struggle with the lack of accurate climate metrics and climate-friendly investing opportunities.
The moral hypocrisy behind the anti-fossil fuel movement by Gwyn Morgan
Not all markets and countries are ready to transition to a net-zero emissions economy, and financial institutions respond to supply and demand forces.
Jonathan Macey, a professor of corporate law at Yale University, explains, “finance is both global and local. Where local banks see or predict fossil-fuel consumption increasing in local markets, they increase lending. Where local banks envision a drop in demand, they curb lending.”
It appears Canadian banks are reducing lending as demand for fossil fuels declines and public opinion tilts toward renewable sources. However, one can’t turn a blind eye to the fact that the oil and gas sector is crucial for the Canadian economy, particularly in times of financial crisis.
The Great White North is the fifth largest producer of oil and natural gas and has the third-largest oil reserves in the world. Moreover, the energy sector employs over 800,000 workers nationwide.
An unbridled transition threatens 450,000 of those jobs, according to a report released by economic intelligence consultancy TD Economics. Managing director Francis Fong told Reuters: “We shouldn’t just assume that the transition for workers moving from carbon-intensive industries to the clean energy sector is going to be smooth.”
The TD Economics report stresses the impact that a transition to a green economy will produce in small, energy-reliant communities. For instance, in Albertan cities Fort McMurray and Cold Lake, the oil and gas sector accounts for 25 and 30 per cent of employment, respectively.
The 2050 goal to achieve net-zero emissions might look good on paper, but it requires harm to investors, companies, employees and households. To rub salt in the wound, social engineers moralize and insult those who continue to engage with fossil-fuel producers.
Canada’s soaring deficits and high unemployment rates are no laughing matter. Hamstringing one of the country’s growth engines is not only risky; it’s also misguided.
Instead of promoting pie-in-the-sky proclamations, officials should ensure a favourable business and financial climate to encourage the proliferation of market solutions.
Banks can finance these innovations, facilitating a smooth transition to a greener economy. Market-driven demand for alternative energy sources is the way to go.
Paz Gómez is a research associate with the Frontier Centre for Public Policy.
Paz is a Troy Media contributor. For interview requests, click here.
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