Canadian and international investors are pushing Canada’s big banks to disclose how much of their lending goes to low-carbon energy versus high-emitting sources as a gauge of the financial institutions’ preparedness to deal with climate-related risks.
PFA Pension, Denmark’s biggest retirement fund, has joined the Shareholder Association for Research and Education, or SHARE, in launching shareholder proposals at four of the major banks to get them to report the metrics, known as energy finance ratios. Their resolutions have the support of the United Church of Canada Pension Plan and Trottier Family Foundation.
The shareholder proposals target Bank of Nova Scotia BNS-T, Canadian Imperial Bank of Commerce CM-T, Bank of Montreal BMO-T and Toronto-Dominion Bank TD-T. Royal Bank of Canada previously committed to disclosing the data beginning this year. National Bank of Canada also reports those details.
SHARE has met with the banks over the past year, in hopes they would commit to reporting the ratios, as JP Morgan Chase & Co. and Citigroup Inc. have in the United States, said Amanda Carr, the group’s associate director of climate advocacy. Third-party providers, notably Bloomberg NEF, publish some data, but do so without having access to all the information the banks compile internally.
The resolutions call for descriptions of the methods the banks use to calculate the energy supply ratios, including what constitutes low-carbon and fossil-fuel energy. Without divulging confidential information, the ratio should include lending, they say.
“These ratios are specifically focused on giving investors a sense of how the bank is future-proofing in relation to the energy transition,” Ms. Carr said.
The data allow dollar-for-dollar comparison, so it will also help investors navigate Canada’s new anti-greenwashing legislation, which puts the onus on companies to back their environmental claims using scientific standards, she said.
CIBC and TD are urging their shareholders to reject the resolution.
European investors look upon the Canadian banking sector as stable and well-regulated, but the lenders’ approaches to financing the low-carbon transition lack clarity, Rasmus Bessing, PFA Pension’s managing director of ESG investments, said in a statement. The Danish pension plan has assets of more than US$115-billion.
The investors are launching the proposals at a delicate time for the banks, as they deal with growing cross-border risks with President Donald Trump back in the White House. They have followed U.S. lenders in withdrawing from a United Nations-supported coalition of financial institutions aimed at advancing the shift to net zero, raising questions about their commitment to meeting climate goals. In response, each has said it remains committed to helping their clients lower emissions by providing financing and technical know-how.
In its resolutions, SHARE cites research saying the Canadian banks remain among the top funders of fossil fuel operations around the world. However, the threat of a trade war with the United States has shown growing support within Canada for energy self-sufficiency, including reviving long-dormant pipeline proposals.
Over the past two months, SHARE has offered the lenders opportunities to come to agreements that would lead it to withdraw the proxy proposals, but they have not taken that step. However, there could still be agreements announced in the coming days as the banks publish their management proxy circulars, Ms. Carr said.
In its newly released proxy circular, CIBC said there is no consistent approach to determining the ratio, and that diminishes its value. In addition, classifying energy sources as either high- or low-carbon may be oversimplifying the bank’s lending activities, by ignoring carbon intensity or clients’ transition plans, it said.
TD said it publishes several metrics that show how the bank is supporting the transition to a low-carbon economy, including those within the framework of the Task Force on Climate-Related Financial Disclosures.
Both banks said they are preparing for upcoming regulatory requirements that will necessitate more rigorous data-gathering and reporting, which will enable comparability.
The other lenders are slated to release their proxy circulars in the coming days.