Banks play a critical role in the economic transition to a low-carbon economy. Companies focused on developing clean energy solutions and those seeking to transform their carbon-intensive operations for long-term viability rely on bank financing. That is why we are concerned that many lenders, particularly in the U.S. and Canada, have been leaving net-zero alliances, and in at least one prominent case, abandoning emissions reduction targets. What does it mean that such an important industry is signaling that it may not be as committed to achieving net-zero emissions as it once was?

We sent letters in early March to the CEOs of Canada’s Big Six banks, as well as JPMorgan Chase and Bank of America, which represent our largest portfolio exposure in the banking sector. The letters stressed how critical it is that banks maintain their efforts to address climate risks in their lending, financing, and investment activities given the material risks they are exposed to and impacts on financial stability more broadly, despite their departures from the Net Zero Banking Alliance (NZBA) in the past few months. As of this writing, we have met with BMO, CIBC, RBC, and JPMorgan.

What we sought to learn was whether and how those firms intend to continue fulfilling their climate strategies after leaving the NZBA and given the evolving regulatory and political environment. The answer, so far, is yes. The firms we spoke with all reaffirmed their climate commitments and targets. They expect to continue publishing their emissions data every year in line with industry best practices, and to report on progress against interim targets—though they pointed out that targets are reviewed regularly and subject to change. They also remain committed to working with clients on their transition plans, with priority given to emissions-intensive sectors.

The banks no longer see the same value in participating in NZBA. Since joining the initiative, they have developed in-house expertise on target setting to the point where they now believe they are able to manage their strategy and progress independently. JPMorgan in particular continues to see “commercial opportunity” in the energy transition and wants to be the bank of choice for clients striving to decarbonize.

Meanwhile, Wells Fargo has abandoned its net-zero targets. In a statement, the lender cited conditions outside their control that have not moved at the necessary pace, such as “public policy, consumer behaviour, and technology changes that would enable our clients to move quickly to lower-emitting operating models.” To our knowledge, Wells Fargo is the only large U.S. bank to take this step publicly. We have yet to meet with the bank to discuss their intentions for their climate strategy.

The disclosure regime in Canada has also shifted the Canadian banks’ focus. Domestic banks are subject to a new reporting obligation under the Office of the Superintendent of Financial Institutions (OSFI) called Guideline B-15 on climate risk management. The rule requires a significant level of climate-related reporting that U.S. firms are not required to undertake, and may not be for some time, given the pullback of ESG disclosure efforts at the U.S. Securities and Exchange Commission. Guideline B-15 requires more specificity and has a different set of expectations compared to the NZBA guidance.

Canadian banks are progressing on efforts to understand and integrate client transition readiness. BMO has done a pilot that they intend to expand on this year, and we encouraged them to disclose the results and to set client engagement targets. TD and RBC are more advanced in this area, though CIBC is also making progress with a recently developed assessment of transition readiness for their oil and gas clients.

A financial metric that has been rising to prominence in recent years is the “energy supply financing ratio,” also known as “energy supply banking ratio” (ESBR). The ratio measures the proportion of financing going to clean energy initiatives versus traditional fossil fuels, though there is not yet a standard methodology for calculating it. The ratio is intended to provide an indication of the scale and pace at which a bank shifts capital toward the energy transition. JPMorgan was the first to publish its ratio and methodology in November 2024, whereas Citigroup, RBC, and Scotiabank have committed to disclosing theirs. The other Canadian banks saw the request brought to a vote at this year’s annual general meetings thanks to shareholder proposals. Investor support for disclosure of the metric ranged from roughly 32 to 38%—a significant result that shows investors have high demand for the data. For context, BloombergNEF reported in January that the global ESBR in 2023 was 0.89:1, meaning that for every dollar put toward financing traditional fossil fuels, 89 cents went to clean energy.

One significant risk to the Canadian energy transition that we are monitoring closely is the upheaval of trade relations with the U.S. In order to achieve greater energy independence at home, oil and gas firms are making the case to increase investment and development of traditional fossil fuels. If that comes to fruition, where will it leave companies’ and the government’s decarbonization plans? This has implications for targets and commitments across the entire economy, and banks will be squeezed in the middle.

Next steps: We will continue to meet with Canadian and U.S. banks and to review their climate reports for evidence that they are maintaining their net-zero targets and tracking progress toward them.

* As this article was going to publication, we learned from RBC’s latest sustainability report that the firm will not move ahead with disclosing its energy supply financing ratio as it had previously committed, due to legislative uncertainties surrounding recent changes to the Competition Act. However, the extensive methodology section in the report demonstrates to us that RBC has put great effort into developing the metric, which the bank says it will continue to track internally. The sustainability report also says RBC is retiring its sustainable finance commitment. We will continue to monitor all banks for their intentions to disclose climate-related information in this uncertain regulatory and political environment.

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