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Why Royal Bank is still reticent about ramping up cleantech investment

A sign for the Royal Bank of Canada in Toronto, Ontario, Canada December 13, 2021.  REUTERS/Carlos Osorio
A sign for the Royal Bank of Canada in Toronto, Ontario, Canada December 13, 2021. REUTERS/Carlos Osorio (Carlos Osorio / reuters)

Bankers will be bankers. That's the crux of Peter McArthur’s explanation of why Canada’s largest lenders aren’t bigger players in the world of climate-focused venture capitalism.

The national cleantech lead at RBCx, Royal Bank’s (RY.TO)(RY) in-house shop for providing banking services and capital to tech companies, joined a panel discussion last week to discuss corporate participation in Canada’s innovation ecosystem.

For the big banks, McArthur says, investing in new technologies is still largely out of their wheelhouse.

"The Canadian banks have investing expertise, but this expertise is generally focused on established businesses and technologies. That’s not venture investing,” he told an audience at the MaRS Climate Impact event in Toronto.

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“Almost all the Canadian banks had VC arms in the 1990s. Almost none of them did by the 2000s. Those were not successful initiatives,” McArthur added. “Investing in cleantech is particularly tough. It’s often highly technical, relying on engineering and chemical expertise. These are not core competencies for bankers.”

In addition to shying away from unproven technologies, a report published early this year shows renewable energy financing as a whole has been dwarfed by fossil fuel activities at big banks, including RBC. According to environmental groups including the Sierra Club and Fair Finance International, renewable energy has taken just seven per cent of a total US$2.5 trillion in bank loans and bond underwriting for energy activities since 2016.

In 2021, RBC estimated that Canada will need about $2 trillion to reach the federal government's net-zero by 2050 target.

RBCx says on its website that it has placed 10 VC fund investments in “Canadian software, life sciences, and climate funds, among other areas.” It also notes more than seven direct investments in top Canadian entrepreneurs. A spokesperson says RBCx cannot disclose the specifics of its investments.

“I would like to think we’re going to see additional investment by the financial sector in climate work,” McArthur said. “It’s so relevant to all the communities that financial institutions serve.”

He sees the growing market for carbon offsets as one climate-related arena where banks like RBC can leverage their expertise.

Among Canada’s big banks, Royal Bank has been a primary target for environmental groups over its financial ties to the fossil fuel industry, as well as allegations of "greenwashing" in its advertising.

A coalition of anti-monopoly, environmental and Indigenous groups has launched a campaign calling on Canada’s Competition Bureau to block RBC’s proposed acquisition of HSBC Canada.

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

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