The Royal Bank of Canada is standing by its decision to abandon its sustainable finance goals and stop public disclosures on its updated climate strategy, citing potential liability under federal anti-greenwashing rules-despite a chorus of sustainable finance experts saying the bank should be able to report progress as long as it is telling the truth.
In its 2024 sustainability report released in late April, the bank stated that "we have reviewed our methodology and have concluded that it may not have appropriately measured certain of our sustainable finance activities as presented on a cumulative basis."
So the sustainability report "provided a methodology to calculate its energy supply ratio, the ratio of financing for low-carbon energy projects compared with their financing for fossil fuel projects, but was unable to disclose the number," CP reported. The bank will no longer publicly report the actual ratio, making it far more difficult for independent observers to track the bank's climate performance.
RBC also announced it was abandoning its 2021 pledge to add $500 billion to its sustainable funds by 2025, after hitting an initial target of $100 billion the previous year. It blamed its decisions on amendments to the federal Competition Act last year that require companies to prove their environmental claims, The Canadian Press reported.
The bank remains "committed to sustainable finance and to supporting our clients in this space," Senior Director of Communications Andrew Block told The Energy Mix in an email, adding that sustainable finance as a category ranges beyond climate action to include areas like affordable housing. "Notwithstanding that we retired our sustainable finance target, we remain committed to this business," he wrote.
Block took issue with critics' suggestions that reporting standards published by the Canadian Sustainability Standards Board (CSSB) and the International Sustainability Standard Board (ISSB) are sufficient guidance for companies that want to publish truthful accounts of their progress toward climate goals. While those standards provide guidance on "the types of content to report, they are not methodologies for calculating climate metrics," based on the internationally recognized methodologies the Competition Act requires.
"We have unfortunately had to limit our disclosures in cases where such 'internationally recognized methodologies' do not exist," Block wrote. But "it would be inaccurate to imply that the changes to our disclosures relate to the provisions for accurate and truthful statements." RBC's statements and disclosures "are accurate and truthful," and "we are disappointed not to share all our climate-related metrics externally."
Competition lawyer Julien Beaulieu, a longstanding supporter of the anti-greenwashing measures who teaches at the University of Sherbrooke, said no methodology will support sustainable finance promises based on "generic and speculative claims," rather than specific commitments. He acknowledged that the federal Competition Bureau has issued draft guidelines but not a firm definition ofan "adequate and proper test" for companies that want to avoid greenwashing concerns.
"It could be helpful for the government to adopt regulation under the Competition Act to provide some clarity on the concept" of internationally recognized methodologies (IRMs), he told The Mix in an email.
But that didn't mean RBC was out of options, he added. "A large number of commonly used methods are likely to qualify as IRMs," he wrote, adding that methods developed by the Science Based Targets initiative (SBTi), the IISB. and the Greenhouse Gas Protocol "are all likely to qualify, if they are used properly."
Ecojustice finance lawyer Tanya Jemec said the appropriate methodology would depend on the green claim involved and the business making the claim-like the European Union taxonomy for sustainable activities, or the UN High Level Expert Group if a firm wanted to advertise its climate commitments.
But the common denominator is that "any green commitments that are not credible should not be advertised, and this may mean that many companies need to change course," Jemec wrote in an email. "Of course companies shouldn't be allowed to profit and gain market share from misleading green advertising, especially as greenwashing damages consumers, the public, future generations, and the environment."
In practice, Beaulieu said RBC would have been covered if it had made best efforts to issue accurate statements in good faith.
"If a company makes reasonable compliance efforts and uses a methodology that it genuinely thought was good, but ends up not meeting the IRM standard, the practical consequences could be limited," he wrote, citing Competition Bureau guidelines that support a due diligence defence against both administrative penalties and private lawsuits. "I don't see the Bureau wasting its scarce resources taking enforcement action against firms that made serious compliance efforts, even if their methodology is not perfect."
"In the end, specific claims that are based on numbers, clear time frames, measurable goals and actions, are less likely to raise issues," he said. "Generic and speculative claims that are hard to understand and verify (like a general commitment to 'sustainability') are more likely to raise issues, because there will probably never be methodologies appropriate for these claims."
Jemec added that "RBC's refusal to disclose its energy financing ratio suggests a lack of confidence in its own in-house methodology. If the bank adopted a standard, like BloombergNEF's, it might be able to meet the greenwashing requirements-but doing so could expose its poor performance."
Block maintained that "the goal of RBC's climate strategy is to be the bank of choice in the transition to a low-carbon and resilient economy with an action plan that is centred on engaging and supporting our clients across sectors in the transition. For example, in the energy sector, we are allocating more capital to help scale renewable and low-carbon energy and, at the same time, we continue to engage with our conventional energy clients, who are supplying the traditional sources of energy that our economies use today."
In 2023, the annual Banking on Climate Chaos report identified RBC as the world's biggest fossil fuel financier in 2022, the year after it issued its $500-billion sustainable finance pledge.
With investors increasingly demanding climate and environmental data to guide their decisions, RBC drew sharp criticism for its decision to withdraw its sustainable finance pledge and keep its data reporting in-house.
"Walking away from a climate commitment when asked to prove its credibility raises serious concerns about the integrity of that commitment in the first place," Sen. Rosa Galvez, who worked to introduce and pass a Climate-Aligned Finance Act (CAFA) in the last Parliament, said in a release. "Moreover, by abandoning its claims, RBC has demonstrated that the provisions of the Competition Act that intend to address greenwashing are in fact serving their purpose."
Suggesting that "this likely would not have happened" if CAFA had passed, Galvez said RBC's decision "risks setting a dangerous precedent among Canadian banks at a time when we need more accountability and ambition in sustainable finance, not less," and "confirms that voluntary commitments are not enough" to align finance with the country's climate commitments.
"Investors and stakeholders are concerned about the ripple effects this action will have on the rest of the Canadian banks because we know they tend to move in lockstep with one another," Claire Trottier, a board member of the Trottier Family Foundation, told Corporate Knights in an email. [Disclosure: Energy Mix Productions is grateful and proud to receive financial support from the Trottier Family Foundation.] Stand.earth Climate Finance Director Richard Brooks expressed the same concern to The Energy Mix.
"The banks move as a pack," he warned. "When they first started quitting [the Net-Zero Banking Alliance] they were tripping over each other to get out the door. So I'm sure the other banks are very much looking at what RBC has done and are considering doing the same." He called that trend an "infection" could extend beyond Canada given RBC's global profile among the world's top ten financiers of fossil energy projects.
But Investors for Paris Compliance welcomed RBC's withdrawal of its $500-billion promise as "a positive step away from misleading environmental or climate claims," Corporate Knights notes. The previous target "included many financial activities that were not quantitatively linked to achieving net-zero emissions - and in fact, in some cases, actually increased emissions," wrote Director of Research and Policy Kyra Bell-Pasht. "We're happy to see them step away from it and acknowledge that it's not fit for purpose."
Dominique Barker, chief financial officer and chief sustainability officer at Lithium Capital Corporation, was one of several experts who said the Competition Act amendments were never meant to address companies' disclosure requirements for investors.
"People misunderstand the point of Bill C-59," she told The Mix. "Banks were touting themselves as green in order to attract deposits. It was false advertising based on what consumers expected when you called yourself green. That consumer needs protection. But investors don't need that kind of protection...investors are protected by [the Ontario Securities Commission]. As long as disclosure is truthful, companies should put out info about their business and risks."
But the Globe and Mail reports that line may be crossed if it uses investor disclosures for marketing purposes. "If the information in those materials is then used by a business in promotional materials, the bureau would consider them as marketing claims," spokesperson Anna Maiorino told the Globe in an email.
Source: The Energy Mix
