We are now in the “find out” phase of climate change: 2024 was a record year for insurance claims in Canada at about $9.1 billion, driven by extreme weather, and a fraction of the more than $24 billion in uninsured damages.

The industry’s response to such claims is to increase premiums and reduce coverage to remain profitable. On average, Canadians’ home insurance costs rose 76% over the past decade, no matter whether they have made claims, and insurers expect increases greater than inflation this year too. Where there have been disasters, such as a suburban Calgary hailstorm last year, rates have spiked much higher.

It’s not fair to expect either a policy holder or a taxpayer to foot the bill for damages being caused by companies making a profit by putting emissions into our atmosphere.

– Kiera Taylor and Matt Price, Investors for Paris Compliance

Unlike in the United States, home insurance rates in Canada are not regulated. Our provincial market-conduct authorities do not even publish information regarding rates or regional coverage withdrawals. Nor will you see panels on insurance affordability at the annual conference. The industry is content to quietly pass along rising costs as long as it is able. Insurance companies like Intact and Definity are even raising shareholder dividends while doing so.

Unfortunately, this is now an established cycle of damages, claims and rate increases. The global reinsurer Swiss Re estimates that because of climate change, insured losses will rise by an annual rate of 5% to 7%, which, if we take the midpoint, amounts to a doubling in 12 years and a tripling in 19 years.

Where does this end? Logically, it ends in system buckling as people’s ability to pay higher rates diminishes. We see signs of this in places like Florida and California, which are ahead of us in extreme weather impacts. That’s a pretty big elephant to ignore, not just for the industry but also for the provincial and federal regulators that are supposed to safeguard the system. And, the knock-on effects include real estate devaluations, mortgage defaults and possible contagion into the broader financial system.

The industry’s plan for climate damages

To be sure, the insurance industry acknowledges the role of climate change in driving extreme weather and higher claims. Its response can be summarized in one word: adaptation. Homeowners are being asked to flood- and fireproof homes, and the industry is advocating that new homes not be built in risky areas, which is still ongoing. This is all worthwhile.

The industry is also advocating for taxpayer dollars both for infrastructure preparedness and for directly assuming some of the risk of flood-prone homes. The problem with that advocacy is not the content, but rather the fact that the industry does not have “clean hands” in making the case. Companies like TD Insurance – particularly via its parent – invest heavily in fossil fuels, while other insurance companies like Fairfax profit by insuring fossil fuel projects around the world. This activity fuels climate change and the damages that the industry is expecting the taxpayer to cover.

Some Canadian insurance companies have made net-zero commitments and are leaders in the space, such as Cooperators. But others like Fairfax have not, and the Insurance Bureau of Canada has no stream of work encouraging net-zero by its members, nor does it advocate for emission-reduction policies. Until this changes, politicians would be right in challenging the industry to put its own house in order before granting an audience.

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Ultimately, the industry needs to acknowledge that adaptation will go only so far. As a board member of the German insurer Allianz recently said, “The damage at 3C will be so great that governments will be unable to provide financial bailouts and it will be impossible to adapt to many climate impacts.” Property and casualty insurers should be front and centre making the case for strong climate policy, both to safeguard their own industry and to protect their policy holders.

And, since we are already experiencing the financial costs of climate damages, we need to have a bigger conversation about who pays. It’s not fair to expect either a policy holder or a taxpayer – often the same person – to foot the bill for damages being caused by companies making a profit by putting emissions into our atmosphere. Some U.S. states have started to seek cost recovery from polluters. Canadian insurers and legislators should be looking at the same.

Kiera Taylor is a senior analyst and Matt Price is executive director of Investors for Paris Compliance, a shareholder advocacy organization holding Canadian companies accountable to their net-zero commitments. 

The post Canadian insurers need to get real about climate damages 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.

Let’s name the elephant in the room: Bay Street and Calgary are on a collision course on net-zero. Large Canadian banks, insurance companies and pensions have declared they will reach net-zero in financed emissions in their portfolios by 2050. Fearing loss of investment, Canada’s major oil and gas companies declared that they too are committed to net-zero. But, any rudimentary analysis shows that simply isn’t true.

The reaction of major Canadian oil and gas companies to new federal anti-greenwashing rules has been telling. They not only complained loudly, but took the unprecedented step of removing many of their corporate climate disclosures from their websites, unlike any other industry in the country subject to the same rules. They say that it’s the uncertainty of the standards that’s causing them to react this way, but it’s basic math that exposes their doublespeak.

The companies’ shorter-term climate targets have never added up to their reaching net-zero by 2050. They game the numbers, like Suncor failing to provide a baseline for its 2030 target so we don’t know what level it’s reducing from, or like Enbridge expressing its targets in “intensity” terms – emissions per unit of production – as opposed to absolute terms, so that they can continue to expand fossil fuel operations, thereby making the climate crisis worse.

The industry has proposed carbon capture and storage as the solution, but only if taxpayers foot the bill while it continues to make billions. Scaling the technology poses massive challenges and has underperformed nearly everywhere else in the world. And the kicker is that even if it works perfectly, it will address only a fraction of the emissions and not touch the much larger “downstream” emissions that show up in the net-zero accounting of financial institutions.

Over the past few years we’ve filed shareholder proposals at companies like Enbridge, Suncor and Cenovus to expose the risks that their failure to transition pose to investors in those companies, which includes most large Bay Street actors like RBC Global Asset Management and TD Asset Management, which act on behalf of millions of Canadians.

Nearly all of these major investors say that they are “engaging” with high-carbon investees in their portfolios in order to advance net-zero, setting this up as a binary choice against divestment. Some of them voted for our proposals, the bare minimum to live up to their commitments. Some didn’t, calling into question their seriousness.

But, with a few exceptions like BCI, we’ve yet to see any large Canadian investors take meaningful steps to themselves press oil and gas companies on net-zero. Some support Climate Engagement Canada, whose assessments show the industry to be off course, but there is little evidence they are acting on that information in ways that will remedy the situation.

Our U.K. colleagues have an expression for this style of weak engagement: they call it “tea and biscuits,” equivalent to having a nice quiet chat with the target company with no results. It’s contrasted with adopting an escalation strategy, where investors use their clout by going public with concerns, filing their own shareholder proposals, holding directors accountable and ultimately divesting if a company fails to transition. In this way, engagement and divestment are not binary choices but complementary steps along a continuum, designed to be effective.

Legal and General Investment Management (LGIM) is a good example of this more robust approach. With about CDN $2 trillion in assets under management, LGIM publishes its climate expectations for investees, follows up with letters and meetings, exercises its voting rights by both filing shareholder proposals and voting against directors, and ultimately puts recalcitrant companies in its divestment list.

This is the kind of approach we need from major Canadian investors like the asset management arms of our big banks, insurance companies (like Manulife and Sun Life) and the “Maple Eight” pensions. The more of them that do this, the more that heavy emitters in Canada will need to change course.

We decided that our oil and gas work was providing these investors with an excuse to not do their own. As long as “somebody else” was stepping up, they could stay on the sidelines. The result is that our oil and gas companies continue to go in the opposite direction to net-zero.

So we quit. Kind of. We’ll stop filing proposals with oil and gas companies but will continue to track whether investors are living up to their climate commitments, including their promises to transform their high-carbon investees. A secure economy, and a decent return on investment, depends on it.

Matt Price is executive director of Investors for Paris Compliance, a shareholder advocacy organization holding Canadian companies accountable to their net-zero commitments.

The post Why this investor advocate quit filing oil and gas shareholder proposals 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.

The joke is a good reminder of the limitations of the climate-scenario exercise about to be conducted by Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI). All federally regulated financial institutions, including banks and insurance companies, will be required to participate during 2024 in an echo of a pilot project conducted with similar methodology last year with a handful of financial institutions volunteering.

Scenario analysis is a structured way of asking “What if?” based on possible versions of the future so that risks can be assessed and managed. In the climate context, possible future scenarios centre on physical risk, transition risk or both. Physical risk is the tangible impacts of climate change, like fires and flooding, while transition risk is the impact that climate policy has on the economy, technology and consumer demand.

The good news is that OSFI’s exercise will help to bolster acceptance of climate risk within Canadian financial institutions as a counterbalance to the sector’s prevailing focus on short-term profit. Last year’s pilot project arrived at some remarkable conclusions about the potential loss of value of carbon-intensive assets like oil and gas and the significant rise in the probability of debt default in those companies. Canada has a polluting, high-carbon economy, so it’s no surprise that the economic institutions that finance and facilitate these sectors face high transition risk.

The bad news is that to run the exercise, OSFI is assuming a can opener. In part, this is inevitable since all scenario analysis will assume away large amounts of complexity to have a workable model. As the analysts say, “All scenarios are wrong, but some are useful.” The question is whether the particular assumptions OSFI is making in its exercise lead to a result that enlightens more than it obscures.

One major choice OSFI is making is to essentially ignore physical risk. While its model assesses real-estate exposure to physical risk, it doesn’t actually assign a financial cost to that exposure. In other words, this means that climate change itself is assumed away. Only the implications of economic policy response will be factored into the possible future impacts on asset prices and credit risk.

This effectively bypasses the raging debate in the climate-scenario community about the pace and scale of climate impacts on the economy. Mainstream economists have generally pegged these impacts as relatively small and manageable, ignoring both the litany of climate catastrophes – this year was the worst on record for billion-dollar climate disasters in the U.S. alone – and  the increasingly dire findings of climate scientists. Should the world breach climate tipping points or experience so-called second-order impacts such as mass migration or wars, the impact on the economy could be catastrophic.

That’s a lot to leave out and strains the plausibility of the model on its face. Dig deeper, and we see that physical risk also affects the assumptions that go into a pure transition risk model, such as macroeconomic factors like growth, or sector-specific pathways like for agriculture, which will be significantly affected by floods and drought, or for the power sector hit by water availability.

Moreover, OSFI’s transition scenarios are bloodless narratives that don’t sound much like the real world. For example, one says we keep current policies constant, while another says we reach compliance with under 2°C of warming after initial foot-dragging. But none talks about the whiplash of policy that we see because of things like the war in Ukraine or conservative politicians resisting change. The International Monetary Fund just published a paper analyzing how the “polycrisis”  – the simultaneous experience of multiple global disruptions like inflation and armed conflict – challenges transition scenarios. Overall, transition scenarios need to place more emphasis on extreme volatility and explore how that will affect financial institutions.

OSFI is accepting feedback on its proposed exercise until December 22. We’ll never have perfect climate scenarios, and odds are OSFI will press ahead with the model it has proposed without much revision. It’s important to keep its limitations front and centre and to keep asking about what it includes, and what it doesn’t.

Ultimately, though, we need to ask what the climate-scenario exercise will actually accomplish. OSFI seems to believe that better information will mitigate climate risk. It won’t by itself. While the exercise can be useful, the history of financial crises shows that the financial sector won’t properly manage risk unless it is regulated to do so. OSFI has stronger tools than climate-scenario analysis in its toolbox once that realization hits home. The safety and soundness of the financial system in the face of climate change depends on their use.

Matt Price is executive director of Investors for Paris Compliance, a shareholder advocacy organization holding Canadian companies accountable to their net-zero commitments.

The post Canada isn’t challenging banks enough to prepare for climate chaos appeared first on Corporate Knights.

At Investors for Paris Compliance, we just reviewed our major banks’ net zero progress to assess whether they may have it covered. They say they are committed to net zero, and between them, they have pledged about $2 trillion of what they call “sustainable finance” by 2030. Coincidentally, that figure corresponds to the amount of investment RBC estimates is needed to get the whole of Canada to net zero by 2050.  

Unfortunately, this isn’t what the banks mean. They in fact have no common yardstick to measure “sustainable” and are instead responding to general environmental and social concerns in the market with a range of instruments such as green bonds and sustainability-linked loans that pay a bit of lip service to these issues while making money for the banks. It’s a new profit centre, which is why they’ve set large targets for this business segment, but with no necessary relationship to reducing their financed emissions.  

This becomes apparent in the many examples of “sustainable finance” that result in emissions going up, not down. All the banks do this, whether it’s Scotiabank financing a company expanding airports in Mexico, RBC financing a company expanding an oil pipeline in Minnesota, or BMO and CIBC financing a company expanding metallurgical coal exports from BC. They rationalize this by saying the companies are getting more efficient at their business, but the net result is more emissions driving the climate crisis – the opposite of “sustainable.”  

To date, our regulators have been tolerant of this greenwashing, but that stands to change. Canadian securities regulators are signaling that ESG disclosure is still disclosure, subject to the same rules of veracity as financial disclosure. The Office of the Superintendent of Financial Institutions has new climate risk guidance that requires banks to have climate transition plans, while banks claim sustainable finance is a key pillar of that. And the Competition Bureau is already processing a complaint regarding greenwashing at RBC, which includes its sustainable finance practices.  

Moreover, Canada is developing a taxonomy to categorize which investments are sustainable and which aren’t. This has been held up by foot dragging at the Ministry of Finance, but given other countries are forging ahead with their taxonomies, it’s inevitable we’ll soon need to catch up with our own version.  

Ultimately, though, we won’t get the infusion of capital we need to make the transition without realigning incentives. As long as banks can profit from increasing emissions, they will – even if it contradicts their own net-zero promises. Last year, RBC became the largest fossil fuel financier on the planet, while TD logged the biggest jump in fossil financing of any global bank. This is why an escalating carbon price is necessary, but it’s not the only tool that regulators have.  

The greatest power we give banks is the ability to create money. Banks don’t print currency like the Royal Canadian Mint does, although they once did. Instead, we grant them the ability to lend out greater amounts than they hold in deposits, thereby increasing the money supply. We believe this is in the public interest since it fosters economic activity, but our banks also profit handsomely from the arrangement.  

Regulators do weigh in by adjusting capital requirements the amount banks must hold in reserve, varying this by the level of risk in the economy, which could cause liquidity pressure on the banks or, in extreme cases, bank runs.  

With our country on fire, we can now conclude that it is no longer in the public interest to let our banks create money to lend to activities that throw on more gasoline. In so doing, banks drive up risk to the financial system via climate disruption to the economy, as well as risk in delaying the transition by locking in high carbon assets.   

Regulators should address these financial risks with differentiated capital requirements. High carbon lending should require larger reserves, and low carbon lending the opposite. This would encourage money creation for activities that reduce emissions and curtail it for activities that increase them. The incentive structure would thereby better align bank financing with net zero and with reducing climate risk to the system.  

Canada is a rich country with the necessary capital to finance the energy transition, but we won’t get there without changing the incentive structure for banks and other financial institutions. Regulators have more tools in their toolbox to make this happen – it’s past time to use them.  

Matt Price is executive director of Investors for Paris Compliance, an advocacy group working to hold publicly-traded companies accountable to their net-zero promises. It just released its 2023 Canadian banks net-zero report card. 

The post Canada can’t finance the energy transition without getting tough on banks 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. 

The post Canada’s life insurers have a fossil fuel problem appeared first on Corporate Knights.

But what does it really mean to join this voluntary initiative, and how will investors and the public know whether Canada’s banks are serious about tackling climate change? Drawing on experience around the world, Investors for Paris Compliance just published a net-zero best practices guide for Canadian banks. This will help clarify what’s expected of banks and help investors and the public hold banks accountable to their commitments.

There’s a lot of catching up to do for Canada’s banks, which have plenty of carbon on their balance sheets. The big five – RBC, TD, Scotiabank, BMO and CIBC – all rank in the top 25 lenders in the world to the fossil fuel industry. They have collectively lent well over half a trillion dollars to fossil fuel activities since the Paris Agreement, with their underwriting and investing facilitating even more carbon in our atmosphere. 

In joining the Net-Zero Banking Alliance, Canada’s banks committed to align their lending and investing – but so far not underwriting – with net-zero by 2050, consistent with limiting average warming to 1.5°C by 2100. Importantly, they will also set interim targets to cut their financed emissions by 2030. Carney is pushing for these targets to be up to a 50% reduction in financed emissions.

This is a key point. 2050 is a long way off and unlikely to motivate changes in business practices today. But if banks accept their responsibility to halve their financed emissions by 2030, that changes their choices right now. One way to assess their seriousness will be to see how quickly they adopt 2030 targets, and whether those targets are in line with climate science. They will also need to involve absolute reductions, not just reductions in emission intensity. 

Another way to assess their seriousness will be in how Canada’s banks deal with their fossil fuel clients. This fall, the International Energy Agency found “there is no need for investment in new fossil fuel supply” because “no new oil and gas fields are required beyond those already approved for development.” We already have enough developed fossil fuel reserves to blow not only the carbon budget for 1.5°C of warming, but 2°C as well. 

This finding is being ignored by bank clients in Canada’s oil and gas industry who are planning to expand production by 30% by 2030. They too have begun to portray themselves as on track to reach net-zero through carbon capture and storage, but even if they convince governments to shell out the $50 billion in subsidies they’re requesting for this purpose, it would not decarbonize the end product where more than 70% of the emissions lie. The only true way that energy clients will fit into banks’ net-zero balance sheets will be for them to transition out of fossil fuels and into renewables. 

How banks manage these client relationships will determine success. In the U.S., Citigroup CEO Jane Fraser said she expects to shed clients who are not making the transition. In Canada, our banks so far are saying publicly they will “work with” their clients rather than drop them. That’s a setback for accountability, signalling to the laggards they have no reason to worry. This will boomerang responsibility back onto the banks when their high-carbon clients cause them to miss their targets. Competitors of the big banks, such as Vancouver City Savings Credit (Vancity) and Laurentian Bank Financial Group, have taken a cleaner approach by just getting out of financing fossil fuels entirely. 

How will we know if the banks are on track? The good news is that Canada’s major banks have now joined the Partnership for Carbon Accounting Financials, a global initiative to standardize reporting on emissions associated with loans and investments – but again doesn’t apply to underwriting. In 2022, we can expect baseline assessments from Canada’s banks, with annual reporting thereafter to assess progress. 

This alone won’t be enough disclosure to give investors and the public a clear picture. Credit Suisse, for example, goes further and publishes how many of its commercial clients are in categories between “unaware” and “green,” with a commitment to phase out the former. Or, since the banks have pledged hundreds of billions of dollars in “sustainable finance,” but with lax definitions and the potential for greenwashing, we need robust reporting on where that money goes and quantification of associated emissions reductions. 

Overall, 2021 was the year of net-zero pledges. 2022 will be the year when we begin to see if they are real. Investors, customers and civil society will be watching closely. 

Matt Price is the director of corporate engagement for Investors for Paris Compliance, a shareholder advocacy organization active with publicly traded companies in Canada.

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