Royal Bank of Canada Chief Executive Officer David McKay said any shift to a more climate-friendly economy still depends on fossil fuels.
“We have a longer-term transition as we change the energy source, we move to a greener economy, but it is a transition,” McKay said Thursday during a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland. “You need fossil-based fuels to make that transition — they’re not going away overnight.”
Making such a shift requires a strong economy with a tax base and cash flows that include contributions from the traditional energy sector, according to McKay. The CEO of Canada’s largest lender by assets said a lot of the anger and calls for an immediate end to fossil-fuel investment stems from a lack of a clear path to reaching global climate-change goals from the Paris agreement and attaining carbon neutrality by 2050.
“What we’re missing is an articulation of a plan to replace your fossil fuels,” McKay said. In the meantime, “we have to invest. Otherwise you’re going to see US$150 oil prices plus and that’s more destabilizing to our global economy and slower on growth than you would expect.”
Royal Bank of Canada had $8.15 billion (US$6.2 billion) in loans to the oil-and-gas sector as of Oct. 31, representing about 1.3 per cent of overall loans for the Toronto-based bank, according to financial statements.
The focus on making the shift to green energy has created angst in the fossil-fuel industry, mostly among smaller companies, according to McKay.
“There’s a lot of mixed signalling from capital markets and investors into the energy sector,” he said. “You’re seeing some mid-size and smaller firms start to hoard cash because they’re not sure they’re going to have access to capital to drill.”
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