The Royal Bank of Canada shareholders will vote on whether the bank should tighten its standards for sustainable finance, action inspired by a 2021 pipeline financing deal that was criticized for greenwashing and general concern over lax standards for so-called sustainability-linked debt.
Investors for Paris Compliance, a shareholder advocacy group set up last year to hold Canadian companies accountable for their net zero commitments, filed a resolution calling on Canada’s biggest bank to “update its criteria for ‘sustainable finance.’” Debt with that label should “preclude fossil fuel activity and projects facing significant opposition from indigenous peoples,” the group said.
The resolution was prompted in part by RBC’s role helping pipeline company Enbridge Inc. issue a sustainability-linked loan and sustainability-linked bond (SLB) last year, said Matt Price, Investors for Paris Compliance’s director of corporate engagement for the finance sector. At the time, Enbridge was building a new section of its Line 3 oil sands pipeline, a project that would, by some estimates, add as much CO₂ to the atmosphere each year as Argentina. It was also vehemently opposed by indigenous peoples in Minnesota who feared the desecration of their lands and waters.
SLBs are “even more of a greenwashing instrument than green bonds,” says Lara Cuvelier, sustainable investments campaigner at Reclaim Finance. A company might have a climate strategy that is incompatible with net zero and still issue an SLB with weak targets, she said. An RBC spokesperson said the bank wasn’t in a position to comment on shareholder proposals until March, when it will publish a detailed response to I4PC’s proposal.
RBC ranked 17th among global arrangers of SLBs last year year, having underwritten $1.9 billion of debt, according to data compiled by Bloomberg. JP Morgan was the biggest arranger in 2021 with $6.6 billion of deals, followed by BNP Paribas SA and HSBC. RBC also played a role in underwriting about $41 billion of bonds for oil, gas and coal companies since the Paris climate agreement at the end of 2015, more than any Canadian bank, according to data compiled by Bloomberg.
RBC has said it will mobilize C$500 billion ($394 billion) in sustainable finance by 2025, up from an initial commitment of C$100 billion in 2020. However, the pledge lacks clear definitions and doesn’t prohibit financing to deals that actually increase emissions, said I4PC.