Listen to daily commentary from program director Murray Wood
Every Friday, Murray Wood takes a look at the week's news and decides who's hot and who's not. This week's list includes...
TORONTO — When Canada’s big banks left the Net Zero Banking Alliance earlier this year, they assured they could push on reducing emissions without the help of the international climate coalition launched in 2021 by Mark Carney, now Canada’s prime minister.
But as hostility towards climate action ramps up in the U.S. — even as temperatures keep breaking new records — sustainability-focused investors are pressing the banks to more clearly show how they’re making progress.
One increasingly popular measurement, while cutting through the noise of so much arcane climate reporting, is a simple comparison of how much financing is going to low-carbon energy versus high-carbon.
Called the Energy Supply Ratio, or ESR, it basically measures how much money banks are directing to renewables versus oil and gas.
Pioneered three years ago by the BloombergNEF research group, the ESR aims to look more at how much banks are seizing the investment opportunities of the energy transition, rather than just criticizing them for funding still-needed fossil fuels, said Katrina White, the group’s senior associate of sustainable finance.
“There’s a lot of appetite for talking about climate solutions, so I think a lot of appetite for moving beyond just a kind of name-and-shame and negative framing of the climate problem.”
The measure puts more focus on growing renewable funding than cutting back, she said.
“Financial institutions, and private sector actors as a whole, are never going to get super excited about shrinking.”
By dramatically ramping up low-carbon energy supplies before cutting back on heavy emitters, it avoids concerns about shortages, said White.
“If we actually do want to see a world in which we’re able to phase out fossil fuels sustainably, and not be in an energy crisis, and not be in a world in which we’re asking certain regions to go without, we need to rapidly scale the alternative.”
The clear line of sight the ratio offers is why SHARE, which advocates for responsible investing, along with Denmark’s largest pension fund, has proposed through shareholder resolutions this year that Scotiabank, BMO, TD and CIBC adopt the measure.
“The ratios are becoming a focal point in part because they’re really a dollar-to-dollar comparison that allows the bank to articulate how they’re moving in the energy transition,” said Amanda Carr, SHARE’s associate director of climate advocacy.
While BloombergNEF already reports its own calculations, there’s data that only the banks have like some direct loans or private credit, she said.
Banks can also use their data to make more up-to-date and forward-looking measures, like JPMorganChase did by looking at company capital expenditures when it became the first bank to release its own findings last November, said White.
RBC should soon also become among the first banks globally to report its own calculation, after agreeing last year to report it following pressure from the New York City pension fund system.
And Scotiabank has committed to releasing its ratio before June 1, 2026, and helping create standardization, after dialogue with SHARE, leading the group to withdraw its proposal.
Other banks are still not convinced.
In urging shareholders to reject the proposal, they’ve said in proxy filings that they already report numerous climate measures, and that the ESR is of limited use because there’s no standardized way to calculate it.
“The Energy Supply Ratio sought in this proposal would not provide useful additional insight into BMO’s approach,” the bank said, adding that the renewable and oil and gas sectors are not suitable for comparison.
CIBC said dividing between high and low carbon energy supply could be an oversimplification that doesn’t factor in the emissions intensity of projects, the energy being generated and the transition efforts of clients in the high-carbon category.
TD said the ratio could help provide some transparency, but the lack of established methodology makes it of little value.
There’s already growing momentum on standardization.
Last week, BloombergNEF put out guidance, while last September the Institute of International Finance, the global trade group for the industry, released a white paper on what banks should consider when calculating their own ratio.
“It is a new disclosure, but it has momentum, it has direction from the banking sector itself, and we think we can get to standardization over the course of the next year or two,” said Carr.
Canadian banks might also not be so keen on the measure because it lays bare their weighting towards fossil fuels.
In BloombergNEF’s latest calculations out in January, BMO came in worst of all the big global banks with a ratio of 23 cents going to low-carbon energy for every dollar going to fossil fuels in 2023.
Other Canadian banks did a little better, with TD at 41 cents, Scotiabank at 43 cents, RBC at 47 cents and CIBC at 72 cents for every dollar going to high-carbon energy.
However they all brought down the global average among banks that came in at 89 cents going to low carbon for every dollar to high carbon.
Meanwhile, BloombergNEF figures that to limit global warming to 1.5 degrees, the overall ratio needs to see $4 going to low carbon energy for every $1 going to fossil fuels by 2030.
Banks have also noted they reflect the wider economy, which in Canada has a significant chunk in fossil fuels, but some are showing what more is possible.
National Bank was the only of the Big Six to have its low carbon energy financing surpass fossil fuels with a ratio of $1.66 to low carbon for every dollar to high carbon.
It’s also pushing on with its low-carbon efforts, recently announcing a $20 billion renewables funding target by 2030 to surpass the $15 billion target set by RBC last year, a bank almost five times its size.
Carr said the growing momentum on clean energy, especially in places like Europe and China, means the transition can’t be held back.
“We’re beyond, in some ways, the point of no return. It’s just a question of how fast and how far, but it’s not a question of ‘will we do it?’”
This report by The Canadian Press was first published March 23, 2025.
Companies in this story: (TSX:RY; TSX:TD; TSX:CM: TSX;BNS; TSX:NA; TSX:BMO)
Ian Bickis, The Canadian Press
