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OpEd: Enabling the Energy Transition

Sustainable Finance January 14, 2022
Sustainable Finance January 14, 2022

 

As the narrative around the global energy transition evolves, momentum is building quickly across government, corporate and social strata to define the roles of different sectors as we work to mitigate climate change.

With an estimated US$2 trillion in annual investment required to finance the transition to a low-carbon economy, the role of banks is clear: to do what we do best and enable change by banking the entire economy.

I had the honour to be in Glasgow in November as representatives from nearly 200 countries gathered for what has been described as the most important global climate conference of our times (COP26). Despite some marches and protests in city streets to demand action, rather than chaos inside and outside the official COP26 zones, we saw productive, realistic conversations about what is needed to accelerate change and develop balanced solutions.

Most encouraging of all was the universal recognition that change won’t happen unless it comes as an inclusive movement for all, from the common person, to governments and corporations. This year’s climate conference saw the largest private sector attendance of any previous COP meeting, testifying to how climate change has rocketed to the top of the agenda for business; it is now a part of almost every conversation we have as a bank. As stated by many in Glasgow, while the energy transition is not just a business matter, it certainly cannot happen without business being at the table.

From our perspective at BMO, we are facing a revolution in how energy is produced and consumed across all facets of society, and that means that every company we support and finance will have to do things differently. As banks and allocators of capital, our role will be critical because in supporting our clients we impact economies every day.

It’s for this reason that I am convinced that the energy transition cannot be a binary one that splits old and new.

I’ve said it before, but it bears repeating, this is not an either/or conversation - we need to get to the AND. We need to provide energy alternatives, change the demand system, AND we need to reduce our emissions across existing energy sources. The fact is as a global community we will not be able to elevate the standard of living of billions around the world without reasonably priced access to energy, AND none of this matters if we don’t have an environment that supports human life.  We at BMO do not believe these are mutually exclusive objectives, however, accomplishing them will require change, and real and effective change will occur faster by turning to a philosophy of incentives that drive companies to reduce carbon footprints, rather than penalties and divestment that minimize change and strand the assets and workforces of the “old” economy .

NZBA and GFANZ

BMO Financial Group, the 8th largest bank by assets in North America, recently became a proud signatory of the Net Zero Banking Alliance (NZBA), joining nearly 500 firms globally in the Glasgow Financial Alliance for Net Zero (GFANZ) in committing USD $130 trillion of combined capital in the lead up to COP26 to help meet net zero targets by the middle of the century.

As a full-economy bank in Canada, home to companies producing about 10 percent of the world’s oil output, BMO is committed to being a lead partner in our clients’ transition to a low-carbon economy, and we view the NZBA as an advancement of our goals to combat climate change in an inclusive way, in partnership with the broad  spectrum of companies that we bank as they pursue their energy transition and net zero journeys. Building on our membership in the NZBA, in November BMO became the first bank to pre-purchase direct air capture carbon removals using carbon engineering technology.

The NZBA underscores our focus on engagement and on helping clients develop and implement their own solutions for a net-zero planet. Our goal is to bring deep expertise and balance sheets to help drive sustainable solutions, hand in hand with our clients.

Working with oil and gas firms, rather than divestment, will get all of us to net zero faster, and the work has already begun:

In June, we witnessed Canada’s six largest oil sands producers lay out a three-phase plan to achieve net zero greenhouse gas emissions from oil sands operations by 2050 by reducing emissions by 68 Mt of CO2 per year, as discussed in Canada’s Oil Sands Pathway to Net Zero.

Enabling Change and the Energy Transition Group

It bears underscoring that, as a bank, our role is to be an enabler of change responding to the needs of our clients, rather than as a regulator, and our focus must be on building the infrastructure for the market of the future.

In March of last year we launched the BMO Climate Institute to harness the combined scientific and analytics expertise of the bank and its partners to better understand and manage the financial risks and opportunities of the transition and climate change, for ourselves and for our clients. We also committed to deploy $300 billion in capital to clients pursuing sustainable outcomes through green, social and sustainable lending, underwriting, advisory services, and investment by 2025.

In June we created the Energy Transition Group to partner with companies dedicated to transitioning Canada to a lower-carbon future by providing knowledge, tools and support, including research from the BMO Climate Institute; it was imperative that the group include experts across all sectors and industry groups to advise clients on energy transition developments and opportunities.

With this group, we are not creating something radically different, rather we are building an example and a resource; this is about investing and working with clients that we believe will make a real impact on climate change, in the energy sector and beyond.

Even as we assist clients in their efforts to reduce carbon footprints in the near term, we are looking at how we can finance innovation and work with the technologies that will help us all get to net zero by 2050.

That means helping clients invest in decarbonization with projects that target within-reach, lower-cost solutions for near-term impact. As we’ve seen in recent months with energy blackouts and brownouts from China to Europe, until there are reliable, viable, democratic and widely available commercial alternatives to fully replace fossil fuels, we will need hydrocarbons to fuel or supplement our energy needs, mitigate dislocation and maintain populations’ standards of living.

Being Bold While Our Customers are Bold

At BMO our pledge is to remain laser-focused on our Purpose, to Boldly Grow the Good in business and life, and that must include being bold when our clients are being bold, whether in transitioning existing energy systems or driving new green energy innovations.

In December 2019 we helped lead Canada’s first-ever sustainability-linked loan and two years on we have helped clients to achieve ‘firsts’ in industries ranging from mining to packaging and dairy to adopt these instruments. Among others, in 2021 we provided the first labelled green loan in Canadian history and, in November, launched the world’s first green finance framework with nuclear use of proceeds.

The gauntlet has been thrown down to all of us to be a part of the global battle against climate change. It will take, quite literally, every single one of us – as people, governments and companies – to do things differently and arrive at a better energy equation.

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Dan Barclay Chief Executive Officer & Group Head, BMO Capital Markets

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