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Royal Bank of Canada is targeting cuts in the concentration of emissions from parts of its lending portfolio this decade, while shying away from the stronger, absolute-emissions reductions that other global banks have promised.
The Toronto-based company set a goal of lowering the intensity of emissions that its oil and gas clients generate from their operations -- known as Scope 1 and 2 emissions -- by 35 per cent by 2030, relative to 2019 levels, according to a statement Wednesday. It's also planning to reduce the intensity of emissions from the burning of the fuels those companies sell -- Scope 3 emissions -- by 11 per cent to 27 per cent in that time frame.
The lender also is targeting a 54 per cent reduction in the intensity of Scope 1 emissions from its power-generation clients and a 47 per cent cut in all three scopes of emissions intensity in automotive lending.
Royal Bank's emissions-intensity metric measures the amount of carbon emitted by the companies relative to their total production. Using that yardstick allows Royal Bank to increase lending to high-emitting sectors and lets companies in its portfolio emit more total carbon through increased production as long as their operations are becoming more efficient.
Large global banks such as Citigroup Inc., Deutsche Bank AG and Barclays Plc have committed to cutting the absolute emissions from parts of their lending portfolios. Among Canada's five largest banks, only Bank of Montreal has set a target for absolute-emissions reductions.
Royal Bank chose emissions-intensity targets because that measure is less volatile and allows for better comparability among clients, said Jennifer Livingstone, vice president of climate. The bank will continue to measure and disclose its absolute financed emissions and revisit the metrics it's using in its targets as data quality, technology, public policy and stakeholder expectations evolve, she said.
“We understand that our ultimate goal will require absolute-emissions-reductions targets,” Livingstone said in an interview. “However, at this time we feel that physical-emissions-intensity targets are the right choice.”
The bank also will continue updating its targets to include other high-emitting sectors, she said, without specifying which industries those might be.
Strong interim targets for absolute emissions are important because the scientific consensus is that global carbon-dioxide emissions need to fall by about 45 per cent from 2010 levels by 2030 to limit global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit), according to the Intergovernmental Panel on Climate Change.
Royal Bank took “a big step in the right direction” by setting a target for Scope 3 emissions for its oil and gas portfolio, said Kyra Bell-Pasht, director of research and policy for Investors for Paris Compliance, which works to hold public companies accountable to their net-zero pledges. The move is important because Scope three typically accounts for about 80 per cent of the sector's emissions, and it's surprising because Royal Bank had previously indicated that it wouldn't set such a goal, she said.
On the downside, the bank's use of emissions intensity, rather than absolute emissions, falls short of what's needed to limit global warming to 1.5 degrees Celsius, she said.
“Unfortunately the target is set as an intensity metric, and a weak one at that, which could well allow real emissions to grow,” Bell-Pasht said in an emailed statement. “We are disappointed that after having the benefit of time to learn from the mistakes of other banks setting weak interim portfolio targets, RBC did not do better.”
Royal Bank said in its Net-Zero Report that intensity-based targets allow it to continue working with clients in high-emitting sectors as they work to decarbonize their operations while still providing the goods and services the world needs.
A company's emissions are one measure that is weighed -- along with factors like its strategic plan and growth trajectory -- in the bank's broader financial and risk analysis of its clients, said Lindsay Patrick, head of strategic initiatives and environmental, social and governance at RBC Capital Markets. She declined to say whether Royal Bank would be willing to cease lending to certain clients to meet its emissions goals.
“If we had a client whose business did not align to net zero, would we bank them or not? In absence of any more data, I'm unable to comment on that,” Patrick said.