Big banks are starting to show policy differences on climate change

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Banks make staggered progress, with grades ranging from a maximum of B- to a minimum of D

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Policy differences are emerging among Canadian banks when it comes to their net zero liabilities, according to an advocacy group that has marked the progress of the six largest banks on factors such as reduction targets carbon dioxide emission they finance by loans and subscriptions.

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Investors for Paris Compliance, which claims to represent high net worth individuals and foundations and sometimes buys shares in companies to engage with them to ‘improve accountability’, planned to release a bulletin on Wednesday showing that banks are making progress in a staggered fashion. , with grades ranging from a maximum of B- to a minimum of D in various categories.

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The advocacy group gave the Toronto-Dominion Bank a B- rating for funded emissions reduction targets, the highest among major banks in this or any other category. Bank of Montreal, meanwhile, earned the highest rating in the group for its transition plan to reduce high-carbon financing, particularly fossil fuels, with a C+ rating.

The report card, which also assessed the interim emission reduction targets of the six largest banks for oil and gas and for energy, acknowledged that achieving top marks would require more than what is required by regulators or defined by industry groups such as the Partnership for Carbon Accounting Financials (PCAF), an international consortium formed to help banks measure funded emissions to “manage risks and identify opportunities” associated with greenhouse gas emissions.

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For example, the PCAF requires financial institutions to report end-use emissions resulting from their lending activity to the oil and gas sector, known as scope 3 emissions, but this will not be required for additional sectors before 2024 or later.

Matt Price, director of corporate engagement at Investors for Paris Compliance, said banks make decisions about what to include in calculating their overall emissions exposure, and noted that TD exceeds the criteria. CFP in some areas, for example by including fully committed loans rather than just those that have been drawn.

“TD reports that it has funded issuances associated with its total committed lending and underwriting activities,” the report said. “In doing so, TD reports on more fundraising activity than any of its peers.”

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Once exposure to emissions through financing activities is established, banks look to reduce that exposure, which triggers “a bunch of decisions about how to set those targets,” Price said.

To earn an A in Investor-Funded Emissions for Paris Compliance, banks should track and report full emissions from all their portfolios and geographies – and report them in absolute terms rather than intensity, the latter can be reduced. even if global emissions increase. A full score would only be awarded if all committed lending and underwriting activities were included, and disclosure and reduction targets covered financing activities across and beyond the power and energy portfolios of the bank.

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“At a minimum, emissions reporting should align with the Partnership for Carbon Accounting Financials (PCAF) methodologies,” the advocacy group said in its report, noting that capital markets activity – including subscription of shares and bonds and the financing of projects – should be included. the road.

The uneven nature of progress across the Canadian financial sector is perhaps unsurprising, since the chief bank regulator, the Office of the Superintendent of Financial Institutions, does not expect to finalize guidelines on management and disclosure of risks related to climate change until next year — including those related to financed carbon emissions.

Nonetheless, OSFI noted last summer, banks have begun to quantify and manage certain risks.

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In addition to the expectation of regulatory clarity, the lack of comparable, universally accepted data to monitor risks and set targets has forced banks to roll out step-by-step “decarbonization” approaches, said Michael Torrance, chief sustainability officer. of BMO, in an interview. last summer. He noted that BMO chose to focus on power generation and transmission in the first phase, while other banks took different approaches.

Asked about third-party assessments such as that carried out by Investors for Paris Compliance, a Bank of Montreal spokesperson said the bank’s policy was not to comment on a single analysis.

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“While we don’t wish to comment on individual organizations, we appreciate engaging with groups of investors in sharing insights on these important topics,” Kelly Hechler said.

A Bank of Nova Scotia spokesperson said the bank is committed to “defined and measurable emission reduction targets” and is working alongside other financial institutions through groups such as the Net -Zero Banking Alliance to securecredible and robust targets for funded emissions associated with lending and investing activities.

Our approach to assisting our customers in their transition to a low carbon economy is in line with the guidance provided by the NZBA,” said Katie Raskina.

Royal Bank referred its comments on the Investors for Paris compliance bulletin to the Canadian Bankers Association, which said members of the industry group ‘recognize that firm commitments are needed’ to meet Canada’s target of a net zero economy.

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“That’s why banks in Canada have begun implementing climate action plans that set specific targets, including emission reduction targets, to meet the demands of this global challenge,” the statement said. ABC in an emailed statement. “It is certain that the banks will continue to work with their customers in all sectors to help them make the transition to a more sustainable future.”

A spokesperson for National Bank of Canada declined to comment on the bulletin, and officials at TD and the Canadian Imperial Bank of Commerce did not immediately respond to requests for comment from the Financial Post.

Investors for Paris Compliance, which made climate-related shareholder proposals last year at annual meetings of RBC and Enbridge Inc., has received funding from foundations such as The Trottier Family Foundation and Sunrise Project, a Australian-based network committed to the transition from fossil fuels to clean energy.

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