Canadian banks proudly tout green finance as a way to nudge the country’s corporate giants toward greater environmental sustainability by linking profits to the fight against climate change.
Enbridge, one of North America’s largest fossil fuel companies, has emerged as an enthusiastic recipient of this eco-funding, signing deals worth $7.3 billion since 2021.
The only problem: the company’s data shows its planet-warming emissions have increased since that time.
In fact, over the past three years, Enbridge has spent far more on expanding its oil and gas pipelines, paying dividends and buying back its own stocks than it has invested in renewable technologies, a joint investigation by the Toronto Star, the Examination and Mississippi Today has found.
Enbridge’s foray into sustainable finance is emblematic of how the green deals allow both banks and corporations to proclaim environmental action while continuing to conduct business as usual.
Terms of sustainability-linked loans ‘mostly secret’
Since emerging around 2017, “sustainability-linked” financing has grown rapidly worldwide and, according to data compiled by Bloomberg, now represents more than $1.3 trillion (U.S.) in financing annually. Hundreds of billions of those dollars have gone to environmentally damaging industries, including fossil fuel extraction, mining and logging, the investigation found.
Enbridge says it’s committed to reducing emissions, and sustainability-linked financing is a way to hold itself accountable.
These loans and bonds play “an important role in supporting the transition to a lower-emissions economy and advancing clean technology and innovation while driving us to meet our (greenhouse gas) emissions reduction goals,” spokesperson Gina Sutherland said in a statement. “If we don’t meet our targets, our borrowing costs go up.”
Canadian banks have been involved in more than $1.7 trillion (U.S.) worth of sustainability-linked financial products — a mix of bonds and loans — since 2018, Bloomberg data shows.
Banks typically offer sustainability-linked financing at discounted rates in exchange for commitments from companies to cut their harmful effects on the climate.
The deals do not require recipients to spend the money on any particular project or part of the business — or on emissions reductions at all. Enbridge’s bonds, for example, are earmarked for “general corporate purposes.”
Most of the deals are also confidential, leaving clients, investors and the public in the dark on the terms of the financing and what metrics are used to gauge their “sustainability.”
The terms of loans are “mostly secret,” said Ryan Riordan, director of research of the Institute for Sustainable Finance at the Smith School of Business at Queen’s University. “If something’s dark, then people do dark things.”
The deals that do become public through regulatory filings sometimes use misleading numbers that make it appear a company is reducing its contribution to climate change as its emissions rise.
While the environmental benefits are hazy at best, green financing does provide clear reputational benefits for both the banks and their clients who publicly celebrate the hundreds of billions of dollars tallied toward their “net zero” goals.
Without transparency, it’s impossible to tell whether these massive financial flows amount to little more than greenwashing.
“The public generally thinks something positive is happening for the environment — and really it’s not,” said Riordan.
Billions in sustainability-linked financing
Enbridge, the largest oil and gas pipeline company in North America, has received at least six separate injections of sustainability-linked financing — a mix of bonds and a loan — facilitated by a who’s who of Canadian and American banks.
While the terms of its $1-billion loan are not public, details of its $6.3 billion in sustainability-linked bonds must be filed with securities regulators.
The bonds provide a financial incentive for climate action by using two interest rates: one if the company hits its sustainability targets and another higher one if it does not.
In response to questions about this financing, Enbridge says the terms of the bonds illustrate “the importance we’ve placed on addressing climate change.”
“Enbridge’s sustainability-linked bonds are explicitly linked to the achievement of material, quantitative and externally-verified performance objectives,” wrote spokesperson Gina Sutherland in an email.
However, Enbridge’s publicly filed documents show its sustainability-linked bonds use targets — called Key Performance Indicators or KPIs — that do not actually require the company to reduce its emissions. Instead, they employ a metric called “GHG intensity” that measures the greenhouse gas emissions per unit of energy delivered.
This means emissions can rise, as long as the volume of oil and gas Enbridge transports goes up faster, and the company’s emissions intensity will still fall. While this does mean the company’s processes are getting more efficient, the earth’s atmosphere does not benefit from efficiency. Only lower emissions will attenuate the pernicious effects of climate change.
According to Enbridge’s publicly reported figures, emissions from its operations and suppliers (called “scope 1” and “scope 2” emissions) have continued to rise each year since it signed its first sustainability-linked loan in 2021, and are higher than they were pre-pandemic in 2019.
Meanwhile, its oil pipelines have delivered “record volumes” and its natural gas business has been expanding, adding nearly 100,000 new customers over the last two years, “while simultaneously growing (liquid natural gas) exports,” according to its last annual report.
These larger fossil fuel volumes allow Enbridge to report a steadily declining emissions intensity while pumping more and more carbon into the atmosphere every year.
It also means that Enbridge can reap the financial benefits of the lower interest rates in its sustainability-linked bonds.
Enbridge says emissions have dropped significantly over the years
Enbridge has set a goal of net zero emissions by 2050 and, in response to questions from the Star, said its emissions have dropped significantly over the last five years.
Thanks to a switch in how the company measures its “scope 2” emissions Enbridge now reports emissions that are 1.2 megatonnes lower than they would be using the old method — the equivalent emissions of more than 400,000 Canadians.
Sutherland explained the switch is the result of a change to the way it calculates emissions from “purchased and imported electricity.” This new “market-based” methodology allows Enbridge to “provide a more accurate reporting” of the emissions produced by its electricity purchases, Sutherland wrote.
Enbridge had used “location-based” emissions since at least 2014 before making the switch in 2022. Both methods of calculating these emissions are “considered acceptable by the GHG Protocol,” voluntary global standards for greenhouse gas accounting.
Using the new methodology, Enbridge calculates that its “actual emissions are down 20 per cent from our 2018 baseline,” which was a record-high year for emissions produced by the company. “We are transparent in our reporting and disclose all emissions data annually in our Sustainability Reports — emissions intensity and actual emissions. Both are on a downward trajectory.”
This switch in methodology means Enbridge has already met the 35-per-cent emissions intensity reduction target set in its sustainability-linked bonds, and starting in 2030 would pay a 0.5 to 0.7 per cent lower interest rate.
That would save the company $33.5 million in annual interest payments on the $6.3 billion in sustainability-linked bonds it has issued. (The terms of the $1 billion sustainability-linked loan are not publicly available.)
According to a complaint filed with the Alberta Securities Commission, Enbridge has used sustainability-linked bonds to mislead investors.
“A reasonable investor reading the Enbridge (sustainability-linked bond) Framework is led to believe that the company is reducing greenhouse gas emissions across all scopes, when in fact most of Enbridge’s business activities involves fossil fuel delivery and use, including significant expansion of these activities, facilitating an increase in overall emissions,” reads the complaint, filed in 2023 by Investors for Paris Compliance, an organization that seeks to hold companies accountable for their net-zero pledges.
Climate scientists and energy experts, including the International Energy Agency, have said new fossil fuel projects imperil global efforts to cut carbon emissions to net zero by 2050, the widely accepted benchmark required to avoid the worst impacts of climate change.
Sutherland highlighted Enbridge’s investments in renewable energy, saying “we estimate an additional $1.5 billion of renewable power investment opportunities per year.”
‘Greenwash your finances’
Over the past decade, Enbridge has spent a total of $1.1 billion on renewable power generation, according to Bloomberg data. In the same time, the company has spent more than $65 billion on oil and gas pipelines and storage facilities.
“(Sustainability-linked finance) does not lead to measurable change in terms of the real issues that we think about when we think about sustainability and climate. They’re really meant to greenwash your finances,” said Richard Brooks, climate finance director at Stand.earth, an environmental NGO.
“The proceeds of these loans and these bond issuances are used to build out new infrastructure, which then locks in two decades of emissions, because you don’t turn a pipeline on and then turn it off five years later,” he added.
Asked if this allocation of resources reflects Enbridge’s commitment to net zero emissions, Sutherland responded: “It is our job to provide people with the energy they want and need to live their lives. That includes both conventional and renewable energy.”
The total amount of capital expenditures Enbridge devoted to renewables is also overshadowed by much larger spending on dividends, debt repayment and stock buybacks. Since the first sustainability-linked loan was issued in 2021, Enbridge has spent $165 on those priorities for every $1 it has invested in renewables, according to financial data compiled by Bloomberg.
Sutherland told the Star that Enbridge “refinances debt maturities with new debt issuance,” and that Enbridge’s total debt has actually grown since the end of 2020. The stock buybacks “did not have any impact on Enbridge’s ability to invest in renewable projects and continue its commitment to reduce emissions,” she added.
Enbridge has also faced criticism that its commitment to net zero emissions does not include the combustion of the fossil fuels it sells (called scope 3 emissions).
And that missing measurement represents the overwhelming majority of Enbridge’s total environmental impact.
Scope 3 emissions make up 98 per cent of Enbridge’s total, according to an estimate the company produced indicating its pipeline operations only comprise 2 per cent.
Enbridge’s Sutherland said it would be “impossible” to accurately track what their customers do with the oil and gas they buy, but that the company remains committed to publicly reporting scope 3 emissions, even if they are not included in the metrics for its financing.
Sustainability loans have drawn concern
Sustainable finance has been hailed as both a climate solution and an investment opportunity. Mark Carney, the UN Special Envoy on Climate Action and Finance and the former governor of the central banks of Canada and England, has spoken extensively about how private finance can provide a multiplier effect on government efforts to transition the world’s economy away from emitting carbon.
But transparency is essential for markets to operate effectively, and in testimony before the Senate Banking Committee in 2024, Carney criticized Canada for lagging behind the rest of the world in requiring companies to disclose their financial risk due to climate change, and providing strict definitions for what kinds of projects can qualify for “net zero” financing.
Carney, an expected front-runner for the leader of the Liberal Party of Canada, is not alone in pointing to the potential for abuse in sustainability finance.
“How often are (loan conditions) being violated?” asks the Institute for Sustainable Finance’s Riordin. “We don’t know. We also don’t know what type of covenant violations, what the repercussions for the covenant violations are. We just don’t know a lot of this stuff. Would I be surprised that there’s some greenwashing going on? Probably not,” he said.
As for the bonds, while there’s transparency via public filings, there are no universally recognized standards of measurement, he said, leaving banks and corporations to write their own rules.
“It is just really easy to write a KPI that is just really meaningless in the sustainability world,” he said. “They’re just sort of silly — I don’t want to say fake — metrics, but you know, not robust science-based metrics.”
Last year, the UK’s Financial Conduct Authority sent a letter to the heads of sustainable finance at the country’s largest banks, warning them that “market intelligence” has raised “integrity concerns” that include “weak incentives, potential conflicts of interest, and suggestions of low ambition and poor design … (that) may lead to accusations of greenwashing.”
Canadian banks big players in sustainable finance
Canadian banks are major players in the global sustainable finance market. The Big Five banks all rank in the top 30 worldwide in the size of their sustainability-linked bonds and loans portfolio since 2018.
According to data compiled by Bloomberg, TD ranks highest, having provided $138 billion in sustainability-linked finance, followed by RBC at $130 billion. BMO supplied $119 billion, Scotiabank $90 billion and CIBC $78 billion (all figures in U.S. dollars).
Often working together, these banks have been involved in more than 3,200 deals in that time.
The Canadian banks all set dollar value goals as an interim goal to achieving net zero emissions by 2050.
This provides an incentive for the banks to sign as many sustainability-linked bonds and loans as possible, said Matt Price, executive director of Investors for Paris Compliance (IP4C).
“Casual observers hear the banks talk about hundreds of billions in ‘sustainable finance’ and may conclude the climate crisis is being solved, but the reality is that this is a business line for the banks to profit … The overall message is quite misleading,” he said.
A complaint Price’s organization filed last year with the Ontario Securities Commission and Quebec’s Autorité des marchés financiers alleges the sustainable finance provided by Canada’s Big Five banks is so riddled with “misleading nomenclature, vague strategy, lack of impact measurement, and conflict of interest” that it constitutes a financial risk to investors.
“There is no necessary relationship between (sustainable finance) and net zero, since there are no quantitative standards for associated instruments, no disclosure of emissions impact, and examples of sustainable finance deals that actually increase emissions,” reads the complaint.
“Greenwashing in the segment is widely acknowledged.”
Two months after the complaint was filed, several Canadian banks added language into their climate reports admitting their sustainable financing does not necessarily lead to emissions reductions.
“The GHG emissions impact of our (sustainable finance) business activities … cannot, however, be reliably measured at this time,” wrote TD in its report.
Scotiabank said that its climate-related projects “may — or may not — lead to reductions in overall emissions.”
CIBC said the companies it provides sustainable finance to “do not necessarily curtail the growth of their absolute emissions.”
The Big Five banks are all involved in Enbridge’s sustainability-linked financing. Scotiabank and TD did not respond to questions regarding the efficacy of these bonds and loans in reducing emissions.
RBC said it was proud of its sustainability-linked finance deals, calling it “a component of our multi-faceted strategy to address climate change,” spokesperson Andrew Block sent in an email.
BMO and CIBC referred the Star to the Canadian Bankers Association.
“Each bank is responsible for defining its own sustainable finance eligibility criteria,” wrote CBA spokesperson Maggie Cheung. “When setting these criteria for sustainable finance projects, banks may reference international standards.”
While there are several international standards for sustainable finance products that Canadian banks could follow, there is no legally enforceable standard here. Efforts to bring about regulations, including new “Climate-Related Disclosure Guidance” from the Canadian Sustainability Standards Board, remain voluntary and include lengthy phase-in periods.
The federal government has said it intends to introduce legal guidelines for sustainable finance based on an existing model in the European Union, but it remains at least one year from implementation.
This investigation is published in partnership with The Examination and Mississippi Today. The Examination’s reporting was supported by the Pulitzer Center’s Rainforest Investigations Network.
Sasha Chavkin of the Examination and Alex Rozier of Mississippi Today contributed reporting. Mago Torres, Fernanda Aguirre, and Rachel Auslander of The Examination contributed data analysis, as did Alex Rozier of Mississippi Today and Kuek Ser Kuang Keng of the Pulitzer Center.
