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As financial institutions face increasing pressure from the public to take action against climate change by reducing funding to the fossil fuel industry, some leading financial executives argue that net zero goals are unachievable without support from the oil and gas sector.
Green technology has been on the up and up in recent years, thanks in large part to global financial institutions that support the scaling up of major projects using innovative financing methods, such as green bonds. However, there’s growing recognition within the field that some of these innovative tools aren’t just necessary for cleantech: they need to be used to support more conventional industries as well.
“There's a very strong view that green investments themselves aren't going to be enough to get us to the full transition we need to achieve by 2050, and they don't support the decarbonization of many heavy industry sectors that have an important role to play,'' said Lindsay Patrick, head of ESG and strategic initiatives for RBC Capital Markets.
80% of global energy supply still comes from non-renewable resources and so Patrick asserts that all sectors need to be involved in finding a solution if national pledges and emissions reduction targets, such as limiting global temperature increases below 1.5 degrees Celsius per the Paris Climate Agreement, are to be met.
“The new idea is to support companies that aren't 100% green, but that have specific projects that are aligned with a 1.5 degree scenario,'' Patrick added, noting there may be opportunities for banks to invest in emission reduction projects in oil and gas, industrial manufacturing, metals and mining, transportation, and other heavy emitting industries.
RBC is Canada's largest bank by market capitalization, and has been singled out in the past by environmental groups for financing the fossil fuel sector.
In 2021, a report from the Rainforest Action Network revealed that RBC invested $201 billion between 2016 and 2021 in lending to and underwriting fossil fuel companies, making the Canadian bank the fifth highest on Rainforest's ranking of 60 global financial institutions' fossil fuel exposure.
However, RBC Capital Markets CEO Derek Neldner said it could cost upwards of $2 trillion to get Canada to its committed target of net zero emissions by 2050. In order to minimize the social and economic consequences of such a massive shift, investments will have to be made not just in renewable technology, but also in improving the environmental performance of every other industry.
“As we think about transitioning our energy supply, we really do need to look at all sources,'' emphasized Neldner. “There are pockets of innovation and advancement going on everywhere.''
In recent months, the Canadian oil and gas sector has rolled out a flurry of announcements of proposed projects, from hydrogen plants and renewable diesel facilities to carbon capture and storage, aimed at lowering the industry's emissions profile. The largest of these is the massive project proposed by the Pathways Alliance, which aims to capture CO2 emissions from oil sands facilities and transport it to a storage facility near Cold Lake, Alberta, resulting in an estimated 10 million tonnes of emissions reductions per year.
The downside? Neither the Pathways project nor any of the other major climate projects proposed by oil and gas companies have received a green light yet.
“For companies and investors to mobilize capital, they have to have a certain level of clarity and certainty on what the environment is going to look like and right now there's just a lot of uncertainty on the economic environment, on commodity prices, on where the economic transition is going,'' Neldner clarified.
He added he believes government also has an important role to play in helping to finance some of these projects.
“There may be some technologies and sources of energy that, stand-alone, aren't economic today, and so they won't attract the capital from corporations that are still making sound risk-return decisions,'' he said. “And that's where government incentive mechanisms can be very useful.''
