Wednesday, March 12, 2008

Green Issues Move Up the Agenda at Banks

The Globe and Mail, Tara Perkins, 12 March 2008

Following a showdown with Ethical Funds Co., Bank of Montreal plans to detail its procedures for evaluating credit risk associated with climate change by April. It's one of a number of recent examples of the increasing environmental pressure banks are facing, and changes they're making as a result.

Examples of the banks going greener are not hard to come by. BMO is starting to replace its company service vehicles with hybrid sedans. Royal Bank of Canada executives have recently committed to schlep to the cooler rather than drink bottled water, a small part of RBC's broader water initiative. Bank of Nova Scotia announced last month that it was launching a fund aimed at investors looking for environmentally responsible companies, as a number of the banks push forward with environmentally conscious funds.

The country's largest banks are even considering working together on a carbon statement, said James Evans, a senior manager in RBC's environmental risk group.

Much of the pressure they are feeling is aimed not at internal changes but at the broader impact they can have by influencing customers through their lending practices.

Today, Ethical Funds will be releasing a report that ranks the Big Five banks based on their climate-related credit risk procedures. Toronto-Dominion Bank jumped to the top of the list and tied with Royal Bank. They were followed by Canadian Imperial Bank of Commerce, Scotiabank and BMO.

Prior to the recent round of bank annual meetings, Ethical Funds submitted shareholder proposals asking Scotiabank and BMO to disclose their procedures. It withdrew them after receiving assurances they would do so this year.

BMO had been working on the issue prior to the proposal, which brought it further into the light, said Jim Johnston, the bank's director of environmental sustainability.

Banks are being pushed to make some tough decisions. For instance, Ethical Funds says Scotiabank lags on the issue of biodiversity and boreal forest protection, but "we understand they are holding off on implementation in light of the accumulating challenges facing the forestry industry."

Corporate Knights editor Toby Heaps said he's not surprised RBC received top marks. The bank is probably the No. 1 player in the Western world when it comes to helping arrange financing for renewable energy wind projects, he said.
Financial Post, Gordon Hamilton, 12 March 2008

Canada's Big Five banks have woken up to the impact their financing has on climate change, according to a report released Wednesday by The Ethical Funds Company.

But some are doing better than others, says the report, by the socially responsible mutual fund.

TD Bank and Royal Bank come out on top of the ratings, with policies and practices on lending that address climate change. Bank of Montreal is at the bottom, offering little evidence it considers the environment in its lending portfolio.

In the middle are third-place Canadian Imperial Bank of Commerce, described as "climbing the ladder," and fourth-place Bank of Nova Scotia, improving, but slow to address climate change risk in its lending.

Robert Walker, vice-president of sustainability at Ethical Funds, said in an interview that banks play a crucial role in tackling climate change as they are the key lenders of capital to companies that create environmental impacts.

Like socially responsible funds, banks are now asking their clients questions about carbon emissions as part of their risk assessments, he said.

"It's one thing for Ethical Funds to be asking those questions. But if big banks are also asking those questions, that will have a large role to play in helping these emitters get carbon emissions down."

The report looks at three Canadian environmental issues: carbon-emissions management, efforts to preserve biodiversity and the role of Canada's boreal forest in reducing atmospheric carbon.

Walker said Ethical Funds undertook the survey because their own investors are concerned about climate-change issues and there are also broader risks to investors over carbon emissions.

"There is going to be some kind of price associated to emitting carbon down the road," Walker said. "But there are companies, that in some cases are large emitters, that do not incorporate any kind of cost of carbon into their present investment decisions."

TD Bank, which tied in the ratings with Royal Bank, is singled out for its progress in addressing climate change in lending policies.

"Once viewed as a laggard on environmental risk assessment, TD Bank now occupies a lead position," the report states.

TD was one of the first banks to be targeted by Canadian environmental protesters. In 2006 banners were draped from its Toronto head office, part of the battles over logging in mountain caribou habitat. At that time TD Bank president Ed Clark said imposing standards on clients is "a dangerous road" for a financial institution.

Today, TD is committed to carbon audits and assessment of climate risks faced by their clients, the report states.

Royal Bank is described as the leader on environmental issues for over a decade. It is singled out for not funding unsustainable forestry operations and encouraging companies to become eco-certified.

Sandra Odendahl, the bank's director of corporate environmental affairs, said Royal has taken a lead on climate change because a broad spectrum of stakeholders have urged it.

"As a large corporation we must absolutely pay attention to what they are telling us," she said from Vancouver, where she is moderating a panel at the Globe 2008 Conference on Business and the Environment.

Further, future government policies could be costly to carbon emitters.

"That very fact drives us to need to look at what those new costs will mean for sectors, for specific borrowers and in specific transactions, where before, it didn't cost anything to emit carbon dioxide."

CIBC is slightly behind. It has conducted a carbon audit of its lending portfolio and is improving its policies and disclosures.

Bank of Nova Scotia lags the top three but is drafting policies on how it will address climate change in its lending portfolio.

Bank of Montreal, at the bottom, has undertaken measures to manage its carbon footprint but so far has not seen the need to undertake a carbon-risk audit of its lending portfolio, the report states.

Jim Johnston, director of environmental sustainability at the bank, said in an interview that the bank is now in the process of revising its lending practices around climate change.

He said the bank will be making a statement at the end of April.

"It will be a statement of the revised way in which we look at our lending practices and the additional steps we will be taking," he said.