Published on May 22, 2024
This year, once again, the climate crisis and energy transition issue was a priority in our dialogues with companies, especially those from the fossil fuel industry and financial services sector.
As a reminder, 2023 was the warmest year on record for our planet (with July being the warmest month since temperature recordings began in 1880). This warming has already brought a significant increase in the number and severity of extreme weather events, including heatwaves, forest fires, drought, flooding and hurricanes. This has had major socioeconomic repercussions. It is estimated that global warming caused USD1.5 trillion in economic losses between 2010 and 2019.
In terms of regulation, the American SEC unveiled new climate risk disclosure standards, covering GHG direct emissions, climate governance and business model risks. However, it is disappointing that these new requirements omit indirect (Scope 3) emissions which, in the case of numerous industries, are many times higher than direct (Scope 1 and 2) emissions. In other news, the Canadian Sustainability Standards Board (CSSB) published a project on Canadian Sustainability Disclosure Standards. These were inspired by the new standards from the International Sustainability Standards Board (ISSB), published in 2023.
While all sectors are exposed to climate risks, oil and gas producers play a particularly important role in GHG emissions reduction. We have been asking oil and gas companies not only to reduce their direct emissions but also modify their business model to help cut emissions related to their products (Scope 3) and take into account the ongoing energy transition. We are also asking them to support public policies that seek to reduce emissions and accelerate the transition; or, at the very least, to demonstrate transparency in their opposition to them.
Furthermore, we have been asking Canadian banks to be more demanding of their clients to get the latter to cut their GHG emissions. With the publication of its Client Engagement Approach on Climate, RBC has indicated that it is possible to describe their expectations through a credible transition plan. We are encouraging other banks to adopt a similar approach and clarify the means used to ensure they are progressing quickly enough toward getting their clients to adopt truly credible transition plans.
Banks and energy transition
Æquo has been conducting a dialogue with banks regarding their client engagement approach on climate. We have been asking them to properly communicate how they assess the credibility of their clients’ transition plans and to describe the incentives in place to encourage real strategic alignment by their clients with the Paris Agreement objective. Our dialogues have been successful, especially in the case of CIBC, which disclosed the main points of the bank’s analysis of its clients’ transition plans. Nonetheless, a major development in 2023 was the publication by RBC of its Client Engagement Approach on Climate: Energy Sector, which describes the criteria used in evaluating energy transition plans and states that one of their clients, which has no transition plan, may be dropped.
While the other banks have also improved their approach, they have not clarified their expectations of their clients in terms of transition. The next steps will be to get the banks to properly describe what they deem to be a credible transition plan and, above all, to strongly encourage their clients to develop such plans, within a short time frame; otherwise, an escalation process will need to be initiated, which could even lead to terminating business relationships with clients who have made no progress or are not doing so quickly enough. We identified a number of best practices, particularly related to several European and Australian banks, which have clear and consistent expectations when it comes to their clients.
François Meloche, Head of Corporate Engagement