National Bank does not want to cut ties with the oil and gas industry. It is better to support companies that have an “aggressive” plan to reduce their carbon intensity than to avoid the sector completely, believes its president and CEO, Laurent Ferreira.
“There are still 80% of the world economy that uses coal, oil and gas, explains the banker in an interview on Friday, on the sidelines of the annual meeting of shareholders. We, what we want to do in the energy transition, for oil and gas producers, is to support those who have a serious and very clear decarbonization plan. »
The National wants its efforts to reduce the carbon intensity of its loans to the oil and gas sector by 31% by 2030 compared to the reference year 2019, Mr. Ferreira announced during the assembly. This target covers emissions from scopes one, two and three, which means that the target also takes into account the combustion of oil by end users, such as households and businesses.
During the shareholders’ meeting, the director of the Movement for Education and Defense of Shareholders (MEDAC), Willie Gagnon, welcomed the fact that the National Bank has set targets. “Obviously we would have liked the targets to be more ambitious, but we can see that this is a commendable effort. »
If it leaves the door open to the oil and gas industry, the financial institution had already adopted several guidelines, insists Mr. Ferreira in an interview. “We have already made important decisions. We are no longer in thermal coal. There will be no drilling in the Arctic. We are not in the oil sands. »
At the end of October, claims in non-renewable energy represented 3.5% of National Bank’s loan portfolio. This weighting was 7.1% at the start of the 2014 financial year. On the other hand, the share of the loan portfolio devoted to renewable energies fell from 1.6% to 3% during the same period.
Last fall, the six major Canadian banks, including National, joined the Net Zero Banking Alliance as part of the United Nations Climate Change Conference (COP26). The goal of the cluster is to encourage the achievement of carbon neutrality by 2050. Financial institutions had 18 months to identify a first industry where they would measure scope one, two and three emissions.
National Bank has decided to prioritize the oil and gas sector. “It is sure that we will work on the others [industries]but for the moment, it’s only oil and gas”, specifies Mr. Ferreira.
The Montreal bank had already made known its intentions to reduce its greenhouse gas emissions by 25% by 2025 with a view to achieving carbon neutrality by 2050. These objectives were also included in the evaluation criteria of the company’s top executives last November.
Banks under pressure
The major Canadian banks are in the crosshairs of environmentalists and investors, who question the financing of oil activities. The sector represents 10% of the Canadian economy and the country’s banks are major lenders to the industry.
A sign of investor interest, MEDAC’s proposal to adopt an advisory vote on National Bank’s environmental policy won the support of 23% of shareholders at the meeting. This is a relatively high support rate for a proposal from an activist shareholder. In comparison, the two other MEDAC proposals, one of which concerns the French language, obtained support of 3% and 1%.
The board of directors had recommended to the shareholders to reject the adoption of the advisory vote, considering that a dialogue with the shareholders was more effective. “It’s not two opposing ideas,” says Mr. Gagnon. There is a way to combine the two: an advisory vote and dialogue. »
Economic risks increase
On the economy, Mr. Ferreira admits that he would not like to find himself in the shoes of the central bankers who must lead the war against inflation. In a context where inflation seems exacerbated by the conflict in Ukraine, he wonders whether the rise in interest rates will be sufficient to contain the rise in prices. “Will rising interest rates have an impact on inflation? We all think so, but there are triggers that are beyond our control. There’s a lot of uncertainty around all of this. »
The tightening of monetary policy is increasing the likelihood of a recession, but the banker believes that the Quebec economy remains strong. “We still have a solid economy in Canada and Quebec. There is still ample liquidity among consumers, which suggests that they will be able to absorb the shock of interest rates and the shock of inflation when renewing their mortgage. »