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HSBC cuts Canadian unit out of climate pledge ahead of RBC deal

Oil refinery in Edmonton Alberta, Canada
Oil refinery in Edmonton Alberta, Canada (Don White via Getty Images)

British banking giant HSBC Holdings' decision to abandon new lending or capital markets financing for new oil and gas fields will not extend to HSBC Canada, a unit set to be sold to Royal Bank of Canada (RY.TO)(RY) in a $13.5 billion deal.

Critics have slammed major financial institutions for bankrolling the fossil fuel industry, despite positioning themselves as leaders in a transition to a clean energy future. In October, UK-based Lloyds made a similar move to abandon new oil and gas financing.

HSBC says the decision announced Wednesday also extends to lending and capital markets finance for infrastructure, when the primary use is in conjunction with new fields.

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The bank specifies the policy does not apply to HSBC Canada and its subsidiaries, the only unit of the bank to be exempted.

Last month, RBC announced a deal to acquire HSBC Canada for $13.5 billion in cash, bolstering the reach of Canada's largest domestic lender. The transaction has yet to be approved by regulators.

"During the sale process, HSBC is precluded from applying policy changes that would alter the way we manage HSBC Bank Canada's business," the bank stated in its policy document. "We have limited oil sands exposure in Canada. We have no direct exposure outside of Canada, and will update this policy following completion of the sale of HSBC Bank Canada."

RBC is known as a major financial player in Canada's oil and gas industry. In October, the Competition Bureau of Canada launched an investigation into allegations of deceptive advertising related to the bank's climate action. No claims have been proven, and no charges have been laid.

Royal Bank says it "strongly disagrees" with the allegations in the complaint, calling them "unfounded and not in line with Canada's climate plan."

According to the non-profit environmental law organization Ecojustice, RBC financing of fossil fuel companies in 2021 topped $34.4 billion in loans and underwriting, and included $50.4 billion in investments.

Richard Brooks, climate finance director at North American environmental organization Stand.earth, says HSBC's pledge demonstrates that phasing out fossil fuel is feasible for major financial institutions.

"Here's looking at RBC and other Canadian banks to follow suit," he said in an emailed statement on Wednesday. "It's particularly telling that RBC doesn't want to be saddled with a more rigorous policy, and had the Canadian unit of HSBC exempted."

Yahoo Finance Canada asked RBC to clarify its stance on new oil and gas business in October, when the bank released its interim 2030 targets to cut carbon emissions.

"We are taking a consistent approach with existing and prospective clients in evaluating projects and initiatives, factoring in a number of considerations including the emissions related to the project and our own net-zero commitments," RBC spokesperson Andrew Block wrote in an email on Oct. 26.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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