​RBC green bonds may be used to finance oil firm carbon cuts

Image: Joey Podlubny/JWN

Royal Bank of Canada may make loans to oil and gas companies seeking to reduce their environmental impact under its recently created green bond program.

The country’s largest bank isn’t excluding fuel companies, said Lindsay Patrick, RBC’s head of sustainable financing. The loans to oil and gas firms could in the future go to projects such as carbon-capture infrastructure.

Oil and gas firms “aren’t specifically excluded in our framework,” said Patrick, although most of the lender’s green bond funding will go to renewable power and green buildings. This includes RBC’s inaugural green bond, a 500 million euro ($558 million) five-year bond issued last month.

Having a functioning green debt market not only for activities typically identified as green, but also for heavy polluters transitioning to cleaner technologies is key for Canada. That’s because its oil and gas companies account by more than 20% of the country’s exports and are the largest source of greenhouse gas emissions, with 26% of the total, according to the interim version of a report written by panel of experts organized by the Canadian government.

Climate change is also a potential source of vulnerability for the Canadian financial system, the Bank of Canada said in its yearly Financial System Review last week. Insurance companies face larger claims due to extreme weather events -- insured damage to property and infrastructure in Canada averaged about C$1.7 billion ($1.26 billion) per year from 2008 to 2017, up from C$200 million per year from 1983 to 1992.

The changing weather may also impact banks and asset managers that hold investments in carbon-intensive sectors, according to the BOC. That’s because investors and consumers are shifting toward lower-carbon sources, so some fossil fuel assets maybe losing “much of their value,” the central bank said in the report.

RBC is part of a industry-based working group identifying activities that could be covered by a separate asset class known as transitioning bonds, said Patrick. Some examples of bonds considered transitioning bonds are those already issued by companies such as Spanish oil producer Repsol SA and Japan’s Mitsui O.S.K. and Nippon Yusen Kaisha.

“We’re supportive of transition taxonomy that would allow heavy industry or resources to ring fence funding for environmental projects,” said Patrick, whose department helps RBC’s treasury and other companies move ahead with plans for socially responsible financing, including green bonds. “We’re at early stages of sort of crafting that.”

Sales of global green bonds so far this year rose to record $68.3 billion as of Monday, compared with $44.2 billion in the same period a year earlier, according to data compiled by Bloomberg. On Tuesday, the Netherlands priced the first green bond issued by a top-rated nation.

© 2019 Bloomberg L.P

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