Our most recent reporting reveals a contradiction in the investing practices of Canada’s largest life and health insurers – Manulife, Sun Life and Great-West Lifeco. This disconnect is a financial and reputational liability. At a time when the science is unequivocal about the harm caused by fossil fuel combustion – from deadly air pollution to worsening wildfires – Canada’s life insurance companies remain out of step with both health science and global expectations for climate-aligned investing.

Fossil fuels directly threaten the people insurers protect

Fossil fuels are not an abstract threat to human health. Their combustion is responsible for millions of premature deaths every year. Air pollution is one of the world’s leading killers, contributing to respiratory disease, cardiovascular conditions and higher mortality from heat and wildfire smoke. Wildfire smoke, now an annual feature of Canadian summers, is up to 10 times more toxic than pollution from burning fossil fuels. One five-day period of wildfire smoke in Ontario in 2023 alone cost more than a billion dollars in healthcare impacts.

Last month saw air pollution caused by fossil fuel combustion in New Delhi reach record highs. Notably, Sun Life and Manulife are expanding their life insurance business in India and across Asia. Delhi’s air quality index maxed out at 500 – 50 is the limit recommended by the World Health Organization. Air quality indexes showed that actual data reached 850. People were warned not to go outside. Hospitals were filled with people struggling to breathe.

For life and health insurers, the implications are direct. Rising illness and mortality drive claims. Climate-fuelled disasters increase volatility and undermine long-term actuarial assumptions. Every dollar invested in fossil fuels is a dollar invested in future morbidity – and future costs.

A gap between pledges and practice

Yet despite this, Canada’s major insurers are lagging in redirecting their general account capital toward solutions good for both health and the climate. BloombergNEF shows that financial institutions should be targeting a low-carbon to fossil-fuel investment ratio of at least 4.8:1 by 2030 if they wish to align their portfolios with a 1.5°C warming future.

According to our recent analysis, based partly on estimates, none are close. Manulife is estimated at 2:1 – ahead of peers, but still far from alignment. Sun Life sits near parity at 0.9:1. Great-West Lifeco is furthest behind at 0.28:1. These ratios reveal that, to date, all three insurers are not yet aligning their investments in the clean-energy future they believe is both necessary and inevitable.

More troubling, none have yet set quantitative targets to increase renewable-energy or climate-solution investments in their general accounts – the portfolios used to protect policyholder liabilities. Manulife and Sun Life don’t fully disclose their fossil fuel exposure, forcing analysts to estimate their holdings.

Meanwhile, European peers AXA and Allianz and Canadian peers RBC and the Co-operators have moved toward clearer “climate solutions,” “low-carbon solutions” or “renewable energy” investment or lending targets that increase credibility and reduce the risk of greenwashing.

The business case for climate-healthy portfolios

Life insurance companies invest their client premiums so they can pay out future claims, which can sometimes be decades in the future. These long-duration insurance liabilities are perfectly suited to corresponding stable, long-term investments in renewable energy, clean infrastructure and climate-resilient assets. These investments reduce exposure to volatile fossil fuel markets and support healthier environments and healthier populations.

Insurers should be natural leaders in health and climate-solution financing. Leading medical institutions, including the Canadian Medical Association and the World Health Organization, describe fossil fuel financing as a direct threat to public health.

Three things insurers can do now

To realign their portfolios with their purpose and reduce risk, Canada’s life insurance companies can take three immediate steps.

1. Bring transparency to the numbers

Insurers can disclose clear, comparable data on fossil fuel exposure and renewable-energy investments within their general accounts. Without transparency, neither policyholders nor markets can assess credibility or progress.

2. Set clear investment targets

Life insurance companies need explicit, quantitative goals – whether framed as targets, envelopes or sleeves – for increasing their exposure to renewable energy and climate solutions. Vague “sustainable finance” labels are no longer enough. Real impact requires real numbers.

3. Integrate climate and health science into underwriting

If air pollution, wildfire smoke and extreme heat are driving mortality and morbidity, insurers should reflect that reality in their actuarial models and disclosures. Failing to account for these rising health risks leaves a critical gap.

Finally, insurers can use their influence to advocate for policy reforms that better align financial incentives with health and climate goals. If markets undervalue climate solutions today, life insurance companies – given their expertise – are well placed to help correct that.

Kyra Bell-Pasht is the director of research and policy at Investors for Paris Compliance.

The post How life insurance companies are undermining their own business model appeared first on Corporate Knights.

This is particularly important with the major gatekeepers of Canadian capital, our big banks, which will make or break Canada’s achievement of net-zero depending on whether they continue to allocate capital to the polluting status quo or else pivot quickly to financing climate solutions.

According to the Transition Pathway Initiative, major Canadian banks fall short when it comes to walking the talk. They continue to finance fossil fuels at a rate far higher than their international peers, and far above the financing they provide for climate solutions. None have provided clear transition plans for how they will get there – an essential and unavoidable step in the shift to a clean economy. Commitments are easy; follow-through requires courageous and skilled leadership.

Most Canadian corporate boards are still made up of people equipped with skills and experience that reflect the economy of yesteryear. All of Canada’s major banks have board members who are senior executives at Canadian oil and gas majors or else do double duty on their boards.

Strong board leadership is necessary to drive real change. If boards don’t evolve with the times, companies will fail to transition their business, and they will fail to thrive in a changing economy.

Scotiabank has a board member who also sits on TC Energy’s board; CIBC has a board member who is also CEO of TC Energy and a board member of the American Petroleum Institute; RBC has a board member who is the ex-CEO of Fortis; BMO has a board member cross-posted at Cheniere and Suncor; and TD has board members cross-posted at AltaGas and Enbridge.

Moreover, most of these same individuals are billed by the banks as ESG (environmental, social and governance) experts, even as they raise the prospect of a systemic conflict of interest between their fossil fuel duties and the banks’ net-zero commitments.

A small but meaningful shift toward better climate governance at TD

Banks recruit board members based on a skills matrix. Three out of five of Canada’s major banks – CIBC, BMO and Scotiabank – include climate-related expertise as an optional element of ESG within their board skills matrix. RBC does not even list climate as part of its ESG skills, of which the “E” for “environmental” is also optional.

Yet, in response to a shareholder proposal that we co-filed at TD, then withdrew for settlement, the bank pledged to improve how it recruits board members, now requiring climate expertise to help navigate the bank’s transition. This essential prerequisite sets a higher standard for other Canadian banks and financial institutions to follow. TD has replaced its previously undefined ESG skills with “environment and social sustainability” skills, which it defines as “understanding of leading practices of corporate responsibility and sustainability, including measures of environmental (including climate-related) and social performance.” [emphasis added]

This means that climate is now a mandatory element of its skills matrix. Further, so that shareholders can better assess board nominees, TD also committed to disclose more biographical information. Finally, the bank committed to review its governance processes to ensure the effective oversight of all its business activities, including its commitment to net-zero.

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These are concessions made in a period of significant shareholder distrust of TD’s governance. Further details continue to come to light regarding lapses in the bank’s risk oversight that enabled gargantuan amounts of money laundering through its U.S. operations. The money-laundering issues are being addressed in a government-ordered governance review. It is this governance review that TD refers to in its shareholder proposal-withdrawal agreement, clarifying that it will be broad enough to include climate-risk oversight.

Admittedly, TD’s climate governance improvements are incremental. Their effectiveness will be measured by the evolving composition of its board and whether it guides the bank to a stronger transition plan and actual changes on the ground.

We were glad to see some positive board renewal at TD in this direction this year, with the shuffling out of a director who sits on the board of oil-sands major Cenovus and the shuffling in of nominee Nathalie Palladitcheff, a professional with climate expertise from experience as CEO of real estate company Ivanhoé Cambridge, which has an ambitious target to reach net-zero by 2040. Two directors with ties to fossil fuel companies still remain.

Strong board leadership is necessary to drive real change. If boards don’t evolve with the times, companies will fail to transition their business, and they will fail to thrive in a changing economy. Canada’s banks have a long way to go to integrate climate expertise into their boards, but we hope that the TD settlement can serve as a starting point for change.

Kyra Bell-Pasht is the director of research and policy and Matt Price is the executive director at Investors for Paris Compliance.

The post Canada’s bank boards need more climate expertise, fewer fossil fuel entanglements appeared first on Corporate Knights.

This issue is not unique to TD. Western banks have spent the last few years setting targets and measuring their financed emissions – that is, the emissions resulting from their lending, investments and underwriting. The numbers are huge, indicating that banks face massive transition risk as the economy decarbonizes and corporate clients adapt, or fail. 

Now comes the hard part. What are they going to do about it? Unfortunately, what we’ve been told so far by the banks doesn’t measure up. TD and other banks produce hundreds of pages of climate reports that talk about governance and processes but don’t tell us how their day-to-day business is going to change. Meanw hile, TD saw the largest jump in fossil fuel financing of any bank in the world in 2022 and ranked dead last in BloombergNEF’s low-carbon energy versus fossil fuel financing ratio out of 100 global banks measured.  

Strip away the rhetoric and banks have four main things they can do to transition: portfolio realignment, client transformation, climate solutions investing, and positive public policy lobbying. Let’s flesh these out, using TD as the test case. 

Portfolio realignment 

Portfolio realignment is the obvious climate response, and the one that banks resist the most. Essentially it comes down to getting out of the business of serving high-carbon clients and into the business of serving low-carbon ones. Banks resist it because they can still make short- and medium-term profits serving fossil fuel companies that are driving the climate crisis, even as this leads to a tragedy of the commons that poses an existential threat to the banks themselves via economic and societal disruption. 

Most banks, including TD, therefore only tinker around the edges of portfolio realignment, making commitments that don’t change their books much, like saying that they won’t fund oil and gas activity in the Arctic or that they won’t take on “new” coal clients (while keeping their existing ones). They won’t even commit to ending financing of oil and gas expansion, which takes the bank in the opposite direction to net-zero. Some banks, though, do make more substantive commitments in this regard; for example, BNP Paribas has set a target to reduce its financing exposure to oil and gas. 

Client transformation  

Client transformation is the next potential strategy. Instead of replacing clients, this involves making them better. The challenge here is that the banks are not in the power position in this conversation, seeking to profit from clients who can go elsewhere. This is why banks call this “client engagement” and resist clarity regarding their assessment of clients’ carbon progress and accountability measures should clients refuse to change.  

This year, TD joins other Canadian banks in articulating the kinds of things it looks for when assessing client climate plans – yet stops short of establishing a clear framework based on the kind of work done by bodies like the U.K.’s Transition Plan Taskforce. It also includes no measures to hold itself or its clients accountable for progress, referring only to vague “discussions” and to “share resources” with those not setting targets. TD peers RBC and BMO at least float the prospect of dropping clients who don’t advance. 

Climate-solutions investing 

Climate-solutions investing is something that TD and most banks claim to be doing at scale. TD has set a $500-billion Sustainable & Decarbonization Finance Target that sounds incredibly impressive and mirrors similar commitments set by the other banks. With so much money being put into green finance, that’s the climate problem sorted, right?  

Unfortunately, as our recent securities complaint on this topic points out, the banks have no way of proving that this financing is “sustainable” or that it is actually “decarbonizing” anything since they don’t report on any emissions impacts. In fact, there are several deals done under this label that have increased emissions instead of reducing them. At its core, sustainable finance is a business segment for the banks designed to profit from ESG concerns in the marketplace. Likely in response to our complaint, three Canadian banks, including TD, admitted in their recent climate disclosures that they cannot say that sustainable finance reduces emissions – though it remains featured as a key pillar of TD’s climate plan. 

An alternative to vague “sustainable finance” is setting more specific financial targets that matter. One example is adopting a target for renewables financing. Another is equity investing by banks in climate solutions, which puts them in a controlling position to ensure positive emissions outcomes. BMO and CIBC have had such funds for a few years, and RBC joined them this year by pledging a billion dollars toward this. To make it real, the banks need to marry these financial commitments with credible impact reporting.  

Lobbying 

Finally, banks can help drive progress to their own net-zero targets by lobbying for public policy that enables this progress. Each says that it relies on factors beyond its control that will shape the emissions profiles of its clients, but few then follow up by saying they will add their considerable lobbying might to influence these factors. Case in point: banks will make little progress decarbonizing their mortgage portfolios without better provincial and municipal building codes. So, are they asking for them? 

TD says that it has created an ESG Advocacy Executive Forum, “to align on advocacy activities and facilitate co-ordination of our engagement efforts,” but it doesn’t say what those advocacy or engagement efforts are. InfluenceMap recently gave TD a D+ on lobbying, noting that the bank has generally limited its overt climate lobbying to financial disclosure issues but that alongside the other big Canadian banks it retains memberships in several industry associations “that have engaged in opposition to real-economy climate policies in Canada and globally.” TD is also a member of the very anti-climate U.S. Chamber of Commerce and makes political donations to dozens of U.S. politicians, including climate denier J.D. Vance.  

Overall, in the four main ways that banks can drive toward net-zero, TD is doing little – and in some cases pushing in the wrong direction. This gives investors no confidence that the bank is on track to meet its own commitment.   

While our shareholder proposal is filed with TD this year, it could equally be filed with any of Canada’s large banks that suffer the same shortcomings. This brings us to a final conclusion. There is a systemic failure in Canada’s banking system to drive toward net-zero, which poses a growing risk that regulators must address. We should not have to rely on shareholder proposals like ours (the results of which will be revealed at TD’s annual general meeting on April 18) to get banks to do more on this front. Other jurisdictions like the United States, the European Union and the United Kingdom are ahead of Canada in requiring more details from their banks, and we need the Office of the Superintendent of Financial Institutions to follow suit. 

Matt Price is executive director of Investors for Paris Compliance and and Kyra Bell-Pasht is its director of research and policy. 

The post Four ways Canadian banks can actually deliver on their climate promises appeared first on Corporate Knights.

Yet both have a contradiction at the heart of their business model. They are also two of Canada’s largest investors in fossil fuels, including dirty coal, investments that adversely affect the health of the clients they’re insuring.  

The German NGO Urgewald just published a global database of fossil fuel investors, companies that own the most stocks and bonds in oil and gas and coal companies. The top five for Canada are Sun Life, RBC, Power Corporation, Manulife and TD, each with billions invested.  

It’s not a surprise to see the big banks on this list, but this represents a particular contradiction for Sun Life and Manulife, whose core business centres on the health of their clients.  

As the climate crisis accelerates, more attention has been focused on the role of the property and casualty insurance industry on the front lines of impacts such as floods, fires and storms. This is already driving increases to Canadians’ home insurance rates.  

But less attention has been focused so far on the role of the health and life insurance industry in the climate crisis, even though it’s not just property that’s negatively affected by climate impacts – it’s people too.  

Last year the Canadian government completed a major assessment of climate and health that concluded that climate change is already negatively affecting the health of Canadians through disease, injury and death, and that health risks will increase with warming.  

It also found that impacts disproportionately fall on vulnerable populations. Perhaps the most dramatic example was the 2021 heat dome, which killed 619 people in B.C., but health impacts are also showing up more quietly, worsening the mental health of young people. A Lakehead University study found that 40% of those aged 18 to 25 say climate anxiety already affects their daily functioning.  

As well, we also know that burning fossil fuels has direct health impacts via air pollution, such as respiratory disorders, strokes and heart attacks. The federal government estimates that coal burning results in hundreds of thousands of premature deaths globally each year.  

Why, then, do life and health insurance companies continue to foster these negative health impacts via their investments? And what are the implications for the insurance policies they issue, and potential claim payouts?  

Sun Life and Manulife grew in part by adding asset management to their business and invested in everything, including fossil fuels. Today, both companies have promised to reach net-zero by 2050 in emissions resulting from their investments but are yet to follow that up with any meaningful policy on fossil fuels. Both are at the early stage of evaluating how the climate crisis will affect their life and health policies and whether they will see a rise in claims, or a shift in qualification criteria. Without more work and more disclosure, this is a concerning risk for investors. 

Our organization, Investors for Paris Compliance, filed a shareholder proposal at Sun Life asking for this disclosure, to be voted on at its annual general meeting on May 11. With Manulife, we are hoping to see progress on these issues in its ESG report that will be released around the same time.  

The insurance industry is on the front lines of the climate crisis. Insurance companies should be leading the charge in fossil-free investment. Their business depends on it.  

Matt Price is the executive director at Investors for Paris Compliance. Kyra Bell-Pasht is the director of research and policy at Investors for Paris Compliance. Investors for Paris Compliance is a shareholder advocacy organization that holds publicly traded Canadian companies accountable to their net-zero commitments. 

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