RBC helped arrange US$5.4B of ‘sustainability-linked’ financing for coal mine operator – National

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Royal Bank of Canada is one of many global lenders who want to show that being green isn’t only about the color of money, but recent revelations about its investment in fossil fuel companies call into question its climate-action bona fides.

Global News has learned — from financial data firm Refintiv — that those arrangements include involvement in two significant credit lines to energy giant RWE, most recently in the news for its expansion of a coal mine in western Germany.

Data compiled in an analysis by environmental NGOs shows that since 2016, RBC is estimated to be the fifth-largest global financier of fossil fuel projects.

The 2022 Banking on Climate Chaos Report, which uses information from financial data provider Bloomberg LP, also estimates that the Toronto-based bank is the 40th largest funder of coal mining and the 25th largest for coal power generation in that period.

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RBC has promised to put $500 billion into so-called sustainable finance investments by 2025.

Police officers carry Swedish climate activist Greta Thunberg away from the edge of the Garzweiler opencast lignite coal mine during a protest by climate activists after the clearance of Lützerath, Germany, on Jan. 17, 2023. (Roberto Pfeil/dpa via AP).

At RBC’s upcoming annual general meeting in Saskatoon, a bloc of US investors is calling on the bank to be more accountable to its own goals.

On April 5, shareholders will vote on a proposal for the bank to set an “absolute” target for reducing the amount of financing it will provide to the oil and gas and power generation sectors by 2030, although not coal mining, specifically.

“Shareholders applauded these banks when they set net zero goals — but it can’t be all talk,” said New York City Comptroller Brad Lander in a press release in January.

“We expect them to take the steps needed now to reduce emissions on the timeline to which they have committed.”

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RBC spokesperson Adam Lister told Global News that it would be improper to comment further on proposals that have yet to be voted on.

An absolute target means RBC would need to establish a concrete amount for reducing these investments, rather than a target that is a percentage of its entire portfolio.

The New York City Comptroller and three of the city’s public retirement funds collectively own around US$28 million in RBC shares.

The bank’s board is recommending that shareholders vote against the proposal, citing caused by fluctuating commodity prices, and a desire to recognize the “global need for essential goods and services produced by high-emitting” sectors.

Ever since 195 countries signed the 2015 Paris Agreement on climate change, banks around the world have wanted to show they’re all about sustainable investment.

Net-zero banking means that any emissions related to investments would be fully offset by initiatives to remove carbon from the atmosphere such as tree planting, purchasing carbon credits or carbon capture technology.

But the Refintiv data, showing RBC’s involvement in the credit lines for Germany-based RWE in 2022, raises complicated questions about how banks reach those climate goals.

The data indicates that the bank is one of 25 investment firms that extended credit lines totaling US$5.4 billion.

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A map showing the area where German energy company RWE is expanding its Garzweiler lignite coal mine in western Germany, requiring the demolition of the villages of Immerath and Lützerath.

Global News / Google Maps / RWE

RWE operates the controversial Garzweiler coal mine, where in January riot police removed hundreds of protesters, including climate activist Greta Thunberg.

The company is expanding its 35-square-kilometer mine, a site that is used to fuel two coal-fired power stations. According to energy think tank Ember, both RWE plants are in the top three of CO2-emitting sources in the European Union’s Emissions Trading System.

But energy companies like RWE are rarely either dirty or clean. They can be both.

In recent years, RWE has invested heavily in wind and solar energy, becoming one of Europe’s largest producers of renewable energy.

But it can also be demonized as a paleo energy dinosaur, mining and burning coal — the most polluting fossil fuel for over a century.

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When Global News asked RWE if it was using any of the money to expand the coal mine, company spokeswoman Regina Wolter said only that the credit lines “are used to finance our green growth and normal working capital needs.”

Since Russia’s 2022 invasion of Ukraine, RWE’s operations have highlighted tensions at the very core of German politics; the everyday need for energy security versus efforts to reduce emissions.

In response to the stoppage of natural gas from Russia, Germany has reopened some lignite coal-fired power generation plants and prolonged the operations of others.

More broadly, though, any RBC involvement with RWE would also symbolize the nuances of ethical investment.

In 2020, RBC pledged the bank would no longer lend money to new coal-fired power generators, thermal coal mines, or coal mines that require mountaintop removal.

But the wording of that policy allows the bank to continue investing in its existing customers who are expanding coal mines, such as RWE.

“You look at all of the policies that the Canadian banks have in regards to coal, and they have so many loopholes in them that you could drive a coal excavator through those loopholes,” said Richard Brooks, climate finance director with Stand.earth, a Canadian-US environmental NGO that campaigns to protect forests and promote renewable energy sources.

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“We should not be trying to reduce our emissions in Canada while increasing emissions in other countries just so we can make some money.”

Richard Brooks, climate finance director with Stand.earth, a Canadian-US environmental NGO, says Canadian banks, such as RBC, are helping Canada go ‘in the wrong direction’ on tackling emissions.

Global News / Kevin Smith

Earlier this year, the London-based Bureau of Investigative Journalism (TBIJ) reported that HSBC bank contributed US$340 million of the financing to RWE, despite HSBC’s commitment in 2021 to phase out coal financing within nine years from that date.

HSBC confirmed to Global News that it, too, was involved, but wouldn’t say how much it contributed.

According to information from financial data firm Refintiv, RBC is the only Canadian bank among the 25 institutions that helped finance the credit lines.

Other banks include Deutsche Bank, Goldman Sachs and HSBC.

The data does not specify how much RBC contributed to the financing, only that the bank is classified as one of the arranging banks.

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“Unfortunately, we do not discuss specific client matters,” RBC said.

Ultimately, unless banks explicitly say they’re financing a green project, there are no assurances about where the money ends up.

Brooks says that once RWE gets the cash, it can do what it wants with it.

“It’s completely a black box,” Brooks said. “There’s no restrictions put in place to ensure that money is going into a climate solution or renewables project.”

Brooks is among six Canadian activists who lodged a complaint with the Canadian Competition Bureau in 2022 over alleged “deceptive marketing practices” related to RBC’s climate claims. The bureau is now conducting an investigation.

“We disagree with the allegations in the complaint and believe the complaint to be unfounded,” said RBC’s Adam Lister.

Sustainability-linked financing

Tariq Fancy, a former head of sustainable investing at the world’s largest asset management firm, BlackRock, has become an outspoken critic of the rules governing sustainable investments.

Global News / Kurt Brownridge

More and more Canadians are opting to put their money into Environmental, Social and Governance (ESG) investments; a sector estimated to be worth more than $3 billion in Canada.

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As part of the ESG boom, the investment arms of banks can opt to finance loans and bonds labeled as: “green,” “social,” “sustainability,” or “sustainability-linked.”

Sustainability-linked financing (SLF) incentivizes companies to meet a set of ESG targets to avoid facing higher interest payments.

According to the Refintiv data, the RWE credit lines involving RBC are classified as SLF.

The financing has three targets, one of which requires the company to increase the share of renewables in its portfolio.

Theoretically, that condition could still allow RWE to increase its fossil fuel emissions, as long as it simultaneously increases its renewables by a larger amount.

What’s more, SLF rules allow RWE to decide its own SLF targets.

Canadian entrepreneur Tariq Fancy is a former head of sustainable investing at the world’s largest asset management firm, BlackRock. Fancy is now a vocal skeptic of SLF transactions.

“If you’re your own referee, you’re not going to penalize yourself or put yourself in a corner, even if it’s in the public interest to reduce exposure to fossil fuels,” Fancy said.

Since leaving his role at BlackRock, Fancy has written about his disillusionment with how the sustainable investment sector currently works, calling it a “dangerous placebo.”

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Fancy maintains that investment banks will only move away from fossil fuels when they are forced to do so.

“Economic history has shown us that if we want that to happen, it has to be government regulation. It has to be mandatory compliance rather than voluntary compliance,” Fancy said.

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