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RBC caught up in Texas laws defending gun and fossil fuel industries

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TORONTO — Royal Bank of Canada has become caught up in efforts by Texas to limit action by banks against gun manufacturers and fossil fuel companies as attention intensifies on the divisive issues.

Texas passed laws last year that bar state contracts, including in its sizable municipal bond market, from going to banks and other financial institutions that either boycott energy companies or “discriminate” against a firearm entity or trade association.

RBC says it is in compliance with state laws, even as Texas officials are reviewing the bank’s policy. Meanwhile, the bank faces questions from environmentalists asking how the bank can comply both with the laws and its climate change commitments.

The state defines a boycott broadly. In Senate Bill 13, it includes any action by banks to limit commercial relations with an oil and gas company because it does not go beyond minimum environmental requirements. The language used in the firearms law includes refusing a business relation solely because they are a firearm entity or trade association.

RBC submitted a standing letter to the state last fall attesting that it meets those requirements, while also confirming it is aligned with a state requirement that it does not take any action against companies operating in Israel or an Israeli-controlled territory.

The Texas Comptroller, however, has recently been seeking further information from financial institutions such as RBC on their energy policies, including on any mutual funds or ETFs in their portfolios that prohibit or limit investment in fossil fuels.

“We know some of these companies hold investments in oil and gas today, but what about the future? Are they selling the hope of a ‘green’ tomorrow with promises to divest or reduce their fossil fuel exposure?” said Comptroller Glenn Hegar in a March statement announcing the increased scrutiny.

“On one hand, they push net-zero,” said Hegar. “Then these same firms tell Texas and other energy states that they’re committed to the fossil fuel sector. It is time for these companies to come clean, stop the big lie and realize they can’t have it both ways.”

While the state is still working to determine which companies aren’t in compliance, the uncertainty has already led RBC, along with Barclays and Morgan Stanley, to be removed from a US$190 million bond deal in May from the Texas Department of Housing and Community Affairs, confirmed spokesman Michael Lyttle.

“The removal was because of the uncertainty over whether RBC (and the others) were in compliance with Senate Bill 13,” he said by email.

RBC has committed, along with other Canadian banks, to reach net zero carbon emissions across its lending portfolio by 2050 and offers ETF products that exclude both fossil fuels and gun manufacturers, but the bank has also made clear it intends to keep working with the oil and gas sector and has pushed back against calls for divestment.

The bank’s willingness to adhere to the broad Texas law seems to put it at odds with its environmental commitments and the choices banks need to make about clients and their emissions targets, said Matt Price, director of corporate engagement at Investors for Paris Compliance.

“Either you’re going to miss your targets by continuing to have them as clients, or you’re going to have to move away from them as clients, right? There’s a punch line at the end of there, that all the banks need to wrap their heads around, which is you’ll need to make choices ultimately if you’re serious about Net Zero.”

RBC spokeswoman Elisa Barsotti said in a statement that the bank uses a range of measures to judge clients and that its business practices are guided by its climate blueprint.

“RBC relies on our environmental and social expertise as well as sound business judgment when evaluating client opportunities, and we can confirm that we do not currently have any firearm manufacturing clients.”

The showdown in Texas comes as Canada’s Big Five banks have all said they’re looking to expand their U.S. operations, while pushback by some states against the net-zero targets that all five have committed to also rises.

Texas was just one of sixteen states that signed an open letter last fall saying they will be taking collective action in response to the “ongoing and growing economic boycott of traditional energy.”

The Texas laws have already shaken up the state’s bond market, with major players like Bank of America and JPMorgan Chase absent from most bond deals in the state since the gun law came into effect last September, according to Bloomberg reports. After the Parkland school shooting in Florida in 2018, both banks said they were making changes to their lending practices towards the firearms industry.

Last week’s school shooting in Uvalde, Texas has drawn renewed focus on both the Texas law and bank policies toward the firearms industry, but so far U.S. banks have not been as vocal on proposed changes.

For Price at Investor for Paris Compliance, the Texas laws raise questions about how far banks are willing to go for access to certain markets.

“There’s a bigger picture question here, which is, you know, are banks like RBC signalling, never walk away from any business, even if it means more gun deaths, and more climate chaos?”

This report by The Canadian Press was first published June 2, 2022.

Companies in this story: (TSX:RY)

Ian Bickis, The Canadian Press

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Alberta

Alberta extends electricity rebate program until December at a cost of about $600M

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Edmonton – The Alberta government says it will extend its electricity rebates until the end of the year as the cost of living continues to rise.

Dale Nally, who’s the associate minister of natural gas and electricity, says the United Conservative government is doubling the rebate to help reduce the financial burden on Albertans.

The government says the electricity rebate program will now offer about $600 million in relief through 2022.

It says the program will provide nearly two million homes, farms and small businesses with a monthly $50 bill credit each month from July until December.

The government says it will also provide a natural gas rebate to millions of Albertans starting in October, which will continue until March 2023 if prices remain high.

Last week, Finance Minister Jason Nixon announced a $3.9-billion surplus for the 2021-22 fiscal year ending March 31.

This report by The Canadian Press was first published July 6, 2022.

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Canadian Energy Companies Benefiting From Global Turbulence

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The world is going through a lot of chaos right now. From a war in Ukraine to a looming recession back home, people are struggling to live as normal. But through this all, the biggest Canadian energy stocks are getting stronger. Why is this and should you invest?

Before getting into the specifics of the stock market and why commodities are benefiting, it is important to go through every global event that is having a major impact.

The glut of global turbulence

Russia’s Invasion of Ukraine

To start with, Russia’s invasion of Ukraine is the most obvious factor in global turbulence at the moment. The world was not ready to deal with such an invasion. Negotiations were expected to keep Russia from choosing this approach, considering what they would have to lose. Massive sanctions would cripple Russia’s economy, and a war would not seem worth it.

However, they went ahead and global sanctions went into place. Unfortunately, these sanctions do not only affect Russia. Rather, they impact just about every other country as well. Russia bears the biggest brunt, but without the resources they provide to other
countries, the world is struggling to cope.

This is hurting developing countries more than any other, as they do not have the resources to spend on low supplies of energy in high demand. Locals are paying the price, with costs rising dramatically. However, developed nations are struggling as well, including the US and Canada. We’re seeing record high inflation that is making life difficult for everyone. We may face shortages if this war continues for much longer.

China’s COVID Lockdowns

While it has started to feel like COVID is finally over, China has been implementing new lockdowns to control another wave. This has led to a low supply of goods coming from China, impacting trade around the world at a time in which supply of almost every
commodity is low.

It’s not just the lack of production on Chinese shores that is impacting the rest of the world. The reality they are going through is causing a lot of unease. The pandemic started there, after all, and their inability to contain it led to the events of the past two and a half years. Fears that they will trigger a new wave with disastrous consequences are not unfounded.

Supply-chain issues caused by the pandemic around the world have still not returned to normal. If lockdowns go into place globally, these issues will get worse once again and it will be even more difficult to recover.

Global Recession

The threat of a global recession that rivals the Great Recession is looming over us. In the US, out-of-control inflation in spite of high interest rates, along with highly overvalued properties, are driving fears.

Whether a recession will occur and how bad it will be is impossible to determine at this point. But the potential is causing people to make decisions with huge financial consequences. This leaves us all the more at risk of chaos.

In this context, why are the biggest Canadian energy companies benefiting? What does this mean for stock traders?

Energy is in high demand

The above events have all impacted the supply of many commodities. Whether it is due to sanctions or lockdowns in China, it is becoming extremely difficult to get hold of just about any consumables. However, there is nothing in higher demand than energy.

Energy is by far Russia’s biggest export. Russia is also one of the biggest exporters of energy in the world, especially when it comes to crude oil. For this reason, sanctions are not all-encompassing. Many European countries simply cannot function without importing Russian energy.

The same is not true for the US, who have been able to cut off all energy imports from Russia. But it is still not comfortable, and all kinds of energy are in high demand.

This is particularly good for the biggest Canadian energy companies. One of the reasons the US can survive without importing Russian energy is due to the supply of energy from Canada. With such high demand, and supply that is limited to an extent, the price of
Canadian energy has risen rapidly.

The strength of the US dollar

With all of that being said, you may be wondering why Canadian energy companies are benefiting so much while US companies are not having as much luck. This has a lot to do with the strength of the US dollar.

The US dollar is considered a safe haven currency. It tends to stay strong regardless of what is happening in the world. This becomes a self-fulfilling property, as currency traders flock to buy US dollars in times of trouble, causing it to strengthen in spite of economic downturns.

China’s difficulties also boost the US currency, as traders turn to the US to import goods unavailable during China’s lockdowns.

The strength of the US dollar is, at least in the short term, great for Canadian energy companies. With demand for their energy in the US higher than ever, they are receiving US dollars that are particularly strong and have more buying power in Canada. The biggest Canadian energy companies are therefore flying higher than their US counterparts, who are earning the same dollars which, due to high inflation, have lower buying power than before.

Of course, this is a double-edged sword. Right now, the strength of the US dollar is great for Canadian energy companies. But over time it will start to impact the cost of all imports from the US, increasing the expenses these companies face and cancelling out any benefits.

Should you invest in Canadian energy stocks?

Bringing this back to the buying and selling of commodities on the stock market, is this the perfect time to invest in the biggest Canadian energy stocks? While it may seem so, the answer is a little more complicated than you might think.

The problem with the current strength of Canadian energy companies is that it is caused by factors that are supposed to be temporary. Sanctions on Russia are not meant as a punishment for their crimes. Rather, they are in place to put pressure on Russia to end the war before their economy collapses and they are bereft of necessary resources.

It is either that or the rest of the world capitulates due to an inability to cope with the rebound effects of the sanctions. Either way, Russian energy exports go back to normal and the price of Canadian energy stocks drops significantly.

The same is true when it comes to China and its COVID lockdowns. They may be driving up the price of the US dollar right now, but things will soon get back to normal. China’s approach of implementing harsh lockdowns ensures that they last the minimum amount of time. This is already happening, with China’s economy just experiencing its best month since February.

This is not to say that Canadian energy stocks are a bad investment. But, if you are to invest in these stocks, you need to be prepared to watch the market carefully. Things can change in an instant, and you can see your investment lose its value.

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