While these measures are a step forward, they don’t give Indigenous communities a say over the financing of particular projects or exclude new fossil fuel financing – two key demands of the bank’s critics. But these concessions do open the door to dialogue with communities and investors on these critical issues.

The compromises came after weeks of negotiation with investors who supported Indigenous and Black leaders and their allies assembled at the bank’s annual general meeting in April, the largest showing of these community members at an RBC AGM.

Under an investor agreement with the British Columbia General Employees Union, the bank will appoint an independent auditor to conduct an Indigenous and racial equity audit to determine whether the bank’s business practices are consistent with human rights policies. Of critical importance to Indigenous communities is the right to free, prior and informed consent (FPIC) of projects it finances.

“A credible Indigenous rights policy must include the right to say ‘no’ and to have that ‘no’ respected,” said Grand Chief Stewart Phillip of the Union of British Columbia Indian Chiefs (UBCIC) in an email after the meeting. He noted that RBC has already acknowledged this principle in a thought leadership brief. “Reports and slogans are nice, but what really matters is action, and specifically whether the bank continues to fund projects that do not have the FPIC of impacted communities.”

The audit is part of a package of commitments made by the bank that include respect for FPIC responsibilities under the United Nations Declaration on the Rights of Indigenous Peoples. It also includes enhancement of social and environmental due diligence on client activities on Indigenous lands and communities for transactions above a certain threshold.

RBC also took a step forward on climate change disclosure under pressure from shareholder New York City Pension Fund and agreed to publish its ratio of renewable energy financing to fossil fuel financing.

The ratio – called the energy supply ratio – is an important metric that will give investors better understanding of how well aligned RBC is with goals to limit global temperature increases to 1.5ºC. It will significantly simplify how critics hold the bank to account, and how investors measure its performance.

According to BloombergNEF, global financial institutions must achieve an energy supply ratio of 4:1 low-carbon energy to fossil fuel financing this decade to keep global warming within 1.5°C. A recent report estimated RBC’s current energy supply ratio at just 0.4 to 1. The United States megabanks Citigroup and JP Morgan also agreed to disclose the same information.  As three of the largest banks financing fossil fuels in the world, this disclosure is expected to have major impact.

“As leading public investors, we expect that energy supply ratio disclosure will become a new standard for the banking sector,” says Brad Lander, the New York City comptroller, who oversees the city’s public pension funds.

Further to these changes, RBC agreed earlier this year to triple its renewable energy financing to $15 billion by 030.

As Canada’s biggest bank and the eighth largest in the world, RBC co-finances a broad range of projects and companies in pipelines and petrochemicals, two of the largest fossil fuel sectors. Many of these projects have galvanized local and international opposition because they have been built without community consent, or threaten to accelerate carbon dioxide emissions, air and water pollution and damage to forests, waterways and wildlife.

At its annual meeting last year, the bank required Chiefs and other Indigenous community members to watch and participate from a separate room, prompting accusations of ‘segregation.’ This year, community members who represented shareholders or who held proxies for investors were allowed to participate in the same room as management and directors but their comments were restricted to one minute, a limit that community members found disrespectful and insulting.

A credible Indigenous rights policy must include the right to say ‘no’ and to have that ‘no’ respected.

 

– Grand Chief Stewart Phillip of the Union of British Columbia Indian Chiefs

“You travel all that way to look them in the eye, tell them your truth, make sure they understand exactly what their money is doing to us, to the democracy of this country, and to climate change,” says Chief Na’Moks, a hereditary chief of the Wet’suwet’en First Nation in northwest British Columbia, in an interview after the meeting. “And then they give you 60 seconds to speak on it.”

RBC led a syndicate of banks in 2019 providing $6.1 billion to finance the Coastal Gaslink Pipeline in northwestern British Columbia without the consent of the Wet’suwet’en chiefs. The project, now nearing completion, threatens a vast swath of wild habitat and will dramatically increase greenhouse gas emissions.

Opponents of a number of other American and international projects co-financed by RBC with other banks also spoke at this year’s AGM. This  included the Enbridge Line 3 gas pipeline in Minnesota, the Mountain Valley Pipeline in Virginia, the East Africa Crude Oil pipeline in Uganda and Tanzania and a proposed new plastics plant in the primarily-Black, heavily-polluted community of St. James, Louisiana.

In the meeting, RBC chair Jacynthe Côté said the bank instituted the one-minute policy to give a broader group of shareholders and proxy holders an opportunity to ask questions. “After the last AGM, we’ve been hearing voices of shareholders, and we’re going to listen and hopefully again do better next year,” Côté said.

Phillip says RBC’s actions to limit participation at its annual meeting were “deplorable,” adding it’s now up to the bank to demonstrate whether it is serious in addressing Indigenous and racial rights and climate change.

What Phillip is suggesting – an effective veto over financed projects –  is a far-reaching action that would establish limits on RBC’s right to approve millions – perhaps even billions – of dollars in new project financing.

The investor agreements represent “positive steps in the right direction,” he says, but there is still a long way to go. “What matters now is whether and how it changes RBC’s decisions, which can directly determine the health and wellbeing of communities and the planet.” 

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now Responsible Investment Association).

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“The Big Five banks have taken little voluntary action to align their business practices with their own net-zero commitments,” states the report by InfluenceMap, a global corporate research think tank based in London.

The banks racked up $275 billion in loans and bond and equity underwriting to fossil fuel companies between 2020 and 2022, which represents 16.9% of their total financing activity of $1.63 trillion, states the report.

Instead of moving to reduce their financing of oil and gas, Canada’s financial heavyweights increased their fossil fuel involvement to 18.4% of total financing in 2022, up from 15.5% in 2020. 

By contrast, European and U.S. banks reduced their fossil fuel exposure over that same period, says the report.

In fact, Canadian banks’ fossil fuel exposure dwarfs that of their U.S. and European counterparts. The Canadian bank tally of 16.9% fossil fuel exposure compares with 6.1% at the top five U.S. banks and 8.7% at the five largest European banks. 

On an individual basis, CIBC had the largest exposure to fossil fuels at 23%, followed by TD bank at 19%, Scotiabank at 18%, RBC at 15% and BMO at 14%. RBC had the largest dollar value of fossil fuel financing of the Big Five with U.S.$72.4 billion in fossil lending and underwriting out of total financing activity of U.S.$499 billion. 

The Big Five banks have taken little voluntary action to align their business practices with their own net-zero commitments.

 

– InfluenceMap

The report says the banks are failing on the key ratio of renewable energy to fossil fuel financing. 

BloombergNEF, the new energy financing arm of Bloomberg News, has determined that global financial institutions must achieve a ratio of 4:1 low-carbon energy to fossil fuel financing this decade. This is the financial reallocation necessary to increase low carbon energy and decrease fossil fuels to sufficiently reduce carbon emissions and keep global warming within 1.5ºC.  

According to the InfluenceMap report, the financing flows of the large Canadian banks between 2020 and 2022 was 3.9:1 in favour of fossil fuel financing, roughly opposite to where the ratio needs to be to avoid catastrophic climate change. The top five European banks had a ratio of 2.0:1 in favour of fossil fuels, while the largest U.S. banks had a ratio of 2.8:1. 

The report notes that green industry financing has also risen in the 2020 to 2022 period, but it is a fraction of fossil fuel financing in the range of 2 to 6% of total financing activity.  

In a media statement, Mathieu Labreche, spokesperson for the Canadian Bankers Association (CBA) said the 2020 to 2022 data cited in the report doesn’t capture recent climate change progress of the banks.

“Canada’s banks understand the important role that the financial sector can play in facilitating an orderly transition to a low-carbon future. Firm commitments are required to accelerate clean economic growth and that’s why banks are implementing climate action plans that set specific targets to meet the demands of this global challenge,” said the statement.

“This includes working with clients across industries to help them decarbonize and pursue energy transition opportunities, and financing new and existing green projects that will help Canada meet its net-zero ambitions.”

Banks and fossil fuels are closely linked

Canada has one of the largest fossil fuel industries in the world, ranked as the fifth-largest producer of natural gas and the fourth-largest producer of oil. It also has a very concentrated banking sector. Together with National Bank of Canada, the Big Five control 93% of the banking assets in Canada. This concentration of ownership means the banks provide financing to virtually every sector of the Canadian economy, including oil and gas.

Bank financing to the fossil fuel sector rises and falls with the price of oil as banks adjust their lending and underwriting in tandem with oil and gas company expenditures to raise profit or lower costs. Financing to the oil and gas industry fell in 2020 when the Covid-19 pandemic seriously depressed oil prices.

In 2020, bank financing of Canadian oil and gas companies was $36 billion. Despite joining the international Net-Zero Banking Alliance in late-2021 and  pledging to bring their CO2 emissions to net-zero by 2050, fossil fuel financing rose sharply in 2022 to $73 billion when oil and gas prices soared after Russia’s invasion of Ukraine. 

 The InfluenceMap report found that three Canadian companies alone – Enbridge, TC Energy and Cenovus Energy – received 23% of all fossil fuel financing over the three-year period. 

Calgary-based Enbridge and TC Energy are the top two Canadian oil and gas transportation companies. Enbridge is No. 1, with the longest oil transportation system in the world and the largest natural gas utility in North America. Cenovus, a major oil sands company, is the second largest Canadian oil and natural gas producer and the second-largest refiner.

As cited in the report, the Canadian Bankers Association often portrays the banks as passive actors in the climate and energy transition but asserts that their size and scope will enable the economy to transition as it gradually shifts to lower CO2 emissions. 

But InfluenceMap says banks are powerful actors in and of themselves and are indirectly working to maintain the current high-CO2 emission economy through memberships in business groups opposing oil and gas emissions caps, carbon taxes and cap-in-trade policies. 

“This narrative placing banks outside of the shaping of the real economy downplays their influence and is in tension with their membership to industry groups that are active on real economy policy,” states the report. 

The InfluenceMap report shows that banks can’t simply stand by and wait for the climate transition to happen. They must use their power and influence to help shape a more sustainable economy or the climate transition may be seriously delayed, with potentially catastrophic consequences to the climate. 

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The bank’s policy change is an important signal about the need to reduce our reliance on fossil fuels, but it’s not nearly as sweeping as the phase-out of all oil and gas projects climate activists would like to see. HSBC says it will continue to support production in existing fields to provide an “orderly transition” to a net-zero world by 2050.

“It’s a hugely important symbolic step,” says Matt Price, director of corporate engagement for Investors for Paris Compliance, a group that focuses on the financial industry response to the Paris Agreement climate accord.

In 2021, the International Energy Agency released a climate change scenario that concluded that, in order to achieve net-zero emissions by 2050, there should be no new oil and gas fields approved for development and no new coal mines.

“Ever since IES’s [net-zero scenario] came out, advocates around the world have been pressing banks to acknowledge that fossil fuel expansion is inconsistent with net zero and here you have a major bank doing so,” Price said in an email

Some activists are pushing for a “fossil fuel non-proliferation treaty” in which national governments would ban all spending on new oil and gas production and phase out existing supply as quickly as possible.

Price says it’s disappointing that Canadian banks have failed to do the same as HSBC with a halt to financing for new oil and gas fields. Canadian banks remain major investors and lenders for oil and natural gas developments and the infrastructure needed to expand production.

HSBC carved out its Canadian subsidiary, HSBC Bank Canada, from the change in fossil fuel financing, after agreeing in November to sell that operation to Royal Bank of Canada for $13.5 billion.

“During the sale process, HSBC is precluded from applying policy changes that would alter the way we manage HSBC Bank Canada’s business,” said HSBC in its policy document.

“We have limited oil sands exposure in Canada. We have no direct exposure outside of Canada and will update this policy following completion of the sale of HSBC Bank Canada.”

It’s a hugely important symbolic step.

Matt Price, director of corporate engagement for Investors for Paris Compliance

It’s unclear what exactly HSBC’s prohibition on financing “new fields” would in fact cover in Canada. The IEA’s definition is relatively narrow: new fields where development has not been approved.

Last April, the Liberal government approved the development of the Bay du Nord field in the deep waters offshore of Newfoundland and Labrador, despite the IEA’s recommendations.

Oil companies are looking to significantly expand production of natural gas from the Montney field in northeastern British Columbia to support expanded exports of liquified natural gas. Gas reserves in that field are well established, but new pipelines are needed to justify dramatically increased investment.

Climate finance campaigners say approving new fossil fuel projects will make it much harder for Canada to reach its emissions reduction targets. Getting banks to stop financing such projects will go a long way in stopping them from moving forward.

Correction, December 21, 2022:
A previous version of this story erroneously stated that HSBC will maintain its financing and investment in existing oil and gas fields at 2020 levels through 2030 and then reduce it by half by 2050. This is not a commitment HSBC has made. Corporate Knights regrets the error.

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This week, RBC called the plan a “key milestone in its commitment to achieving net-zero in its lending portfolio by 2050,” and a “key element” of its commitment to the Glasgow Financial Alliance for Net-Zero (GFANZ), a financial sector decarbonization effort led by former Bank of England governor Mark Carney.

“We know the greatest impact RBC can have to drive emissions reductions in the economy is through partnerships with our clients,” RBC president and CEO Dave McKay said in a press release.

RBC’s Net-Zero Report sets 2030 emission reduction targets for the three sectors where the bank thinks its customers can have the greatest impact—fossil fuels, electricity generation, and automotive. But all of its intensity-based targets are based on grams of carbon per unit of whatever a company produces. So if oil and gas emissions fall by 30%, for example, but extraction increases by 35%, the bank takes credit for an emission reduction while the amount of CO2 entering the atmosphere continues to rise.

The RBC report sets intensity-based targets of 47% for the auto industry and 54% for power utilities. But oil and gas, the only major Canadian sector whose emissions have continued to increase, gets a big break, with an intensity-based target of just 35% by 2030. Late last year, the latest published projection from the Canada Energy Regulator showed Canadian fossil fuel production continuing to rise through 2032, peaking at 5.8 million barrels of oil or equivalent per day.

Climate finance campaigners were quick to jump on the RBC report.

The RBC Revealed campaign compared the RBC climate targets to fossil fuel criteria set by the United Nations Race to Zero campaign. It calls for a “50% reduction in absolute GHGs from financed, facilitated and insured activities by 2030” across the entire chain of fossil fuel production and consumption, from extraction to end use.

“There’s a dictionary-official definition for RBC’s climate targets: it’s called greenwashing,” said Richard Brooks, climate finance program director at Stand.earth. “With RBC continuing to bankroll polluters, these pledges are just more smoke and mirrors. While people across Canada bear the brunt of fires, floods, and deadly heat, Canada’s #1 fossil fuel-financing bank continues to pour gas on the flames, bankrolling gas, tar sands, oil, and coal. Instead of financing Indigenous rights-violating fracked gas pipelines, RBC has the opportunity to reinvest in climate-safe solutions and truly live into its climate rhetoric.”

Brooks identified the Bank of Montreal as the only large financial institution in Canada to base its climate plan on absolute rather than intensity-based targets, and three institutions in Europe – Deutsche Bank, French bank SocGen, and Lloyds — that have recently done the same.

“If they can do it, why can’t RBC?” Brooks asked in an email.

RBC spokesperson Andrew Block did not answer detailed questions on the net-zero report before deadline, but said in an emailed statement that the bank is “looking to focus our attention where we will have the biggest impact—helping our clients reduce their emissions and supporting initiatives that bring green solutions to market.”

He added that RBC is “committed to achieving net-zero in our lending by 2050, and establishing interim goals will help us drive action and measure progress. We have set ambitious targets that are informed by science and input from our front-line business teams. Our targets reflect a thoughtful and practical approach on climate action. While our ultimate goal will require absolute-emissions-reductions targets, however, at this time we feel that physical-emissions-intensity targets are the right choice.”

This article is republished from The Energy Mix. Read the original article.

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All of which has created the perfect petri dish for responsible robo-advisors. More millennials are looking to invest, and a surge of digital platforms are offering up automated, algorithm-driven investment services to help them do just that. Canada’s top robo-advisors say they’ve experienced double-digit growth since the start of the pandemic. Wealthsimple’s client base is up 24%. RBC’s Rajan Bansi called 2020 a “record year” for his bank’s InvestEase app – with RBC’s responsible portfolio a key driver of that growth.

But while environmentally and socially aligned investments are exploding around the world (constituting 40% of global investments), only a handful of Canadian robo-advisors offer “responsible” investing solutions.

If the hippies over at JPMorgan investment bank are right, Canadians are losing out: “Virtually all ESG index funds [those that assess environmental, social and governance factors] outperformed their conventional benchmarks because they were underweight in energy, the worst-performing sector so far this year.”

At this point, anyone who’s particular about aligning their wallet with specific values – like, say, zero waste or animal welfare – isn’t likely to find much comfort in the virtual hands of a robo-advisor. Good Investing’s Tim Nash explains: “Robo-advisors are elegant in their simplicity and offer responsible investors the best way to ‘set it and forget it.’ Unfortunately, their responsible portfolios are ‘one size fits all’ and won’t go far enough for some people.”

If that’s you, you’re better off going the DIY route so you can customize where your retirement savings go, based on your own unique priorities and values. In the meantime, here’s how three of Canada’s top robo-advisors with socially responsible investment (SRI) options stack up.

Wealthsimple

Arguably the hippest of the robo-advisors (just scroll through the lengthy list of influencers in its Instagram feed), Wealthsimple prominently promotes socially responsible investing as its top option for “investing on autopilot.”

Assets under management (AUM): $5 billion
Minimum investment: $0
Total annual fees: 0.62%

★ ★ World-changing impact: Wealthsimple has significantly beefed up screening on its SRI portfolios since our first robo ranking in 2019. It now boots out oil/gas/coal companies and other high-carbon emitters, along with weapons-makers and tobacco companies. It also screens out companies with few women on their boards. So it’s avoiding a lot of the worst companies, but to improve its score here, it needs to do lots more investing in sustainable solutions.

★ ★ Customization: Wealthsimple encourages you to “invest in your values,” but those values are limited to “halal” or the general “socially responsible” option.

★ ★ ★ ★ Transparency: Head to the help centre and you’ll find the full list of company names in its basket of stocks. Easy for the picky investor to peruse.

★ ★ How returns compare to business-as-usual: Its site used to have helpful graphs spelling out how SRI investments have fared compared to “traditional investors.” Today, graphs in the help centre will tell you that the balanced SRI portfolio has grown by a cumulative 34.5% (net of fees) since it was launched on March 24, 2016 (to November 30, 2020). But nothing about how it fared in relation to conventional portfolios.

★ ★ ★ Green cred: Since Wealthsimple stopped relying on external funds, you’ll no longer find the likes of Chevron and Imperial Oil in your portfolio – a relief for anyone concerned about the climate crisis. But zero-wasters aren’t going to dig that Keurig and Coca-Cola are top holdings, and animal lovers are bound to cringe at the 0.59% invested in Canada Goose.

RBC InvestEase

The only Big 5 bank with an SRI robo-advisor. RBC InvestEase’s “responsible investing” option promises to “help drive positive change by investing in companies aligned with your values.”

AUM: N/A
Minimum investment: $100
Total annual fees: 0.66%

★ World-changing impact: Negative screens are more social than environmental: no tobacco, controversial weapons, civilian firearms or companies involved in “very severe controversies” (Wells Fargo was recently booted out for its account fraud scandal). Beyond that, RBC says it chooses companies that “score most favourably in the assessment of environmental, social and governance risk factors,” but to boost this score it’ll need to really ramp up investments in sustainable solutions.

★ Customization: As with most robos, algorithms personalize to risk preference but not to values, other than choosing between “responsible” and, well, not.

★ ★ Transparency: If you dig into the FAQs, you’ll find a list of the ETFs (exchange-traded funds) RBC invests in. They now share the top 10 holdings of those ETFs, but you’ll have to rummage around on other websites to find the full list of companies that make up those ETFs.

★ How returns compare to business-as-usual: InvestEase “believe[s] companies that effectively manage ESG risks over the long-term could achieve superior financial results versus their less-effective peers,” but no evidence is provided. When contacted, RBC reps said that as of December 10, 2020, “the 100% equity portfolio outperformed its standard peer by approximately 100 bps.” Why not post that?

★ Green cred: InvestEase says its portfolios are invested in companies that score the highest on ESG factors. But its “iShares ESG Aware MSCI Canada ETF” banks on a number of Canadian oil, gas and pipeline companies, including Keystone-pusher TC Energy and Imperial Oil. To go fossil-free, skip the robo and ask RBC for its fossil-free ETFs.

Questwealth Portfolios

This popular robo comes courtesy of Questrade Wealth Management, Canada’s largest indie online brokerage firm. It’s had a socially responsible investing option since late 2018.

AUM: $20 billion (Questwealth Portfolios and Questrade)
Minimum investment: $1,000
Total annual fees: 0.38%

★ ★ World-changing impact: Of the bunch, Questwealth invests the most in cleantech solutions. However, there are no negative screens to filter out, say, weapons, tobacco or oil companies, so you will find all three in here. Over half (57%) of its small-holdings account is in a “low carbon” ETF whose holdings include Kinder Morgan, Raytheon and Lockheed Martin.

★ Customization: Besides adjusting for risk preference, SRI investors can opt for a small- or large-holdings account, but you can’t opt for fossil-free, for instance.

★ ★ Transparency: One improvement since our 2019 ranking: ETF names are now listed front and centre on the home page, but you’ll have to look elsewhere to discover which companies those ETFs are invested in.

★ ★ How returns compare to business-as-usual: Front-page graphs reveal that the SRI portfolios have returned anywhere from 12 to 22% since inception, but there’s no comparison to the broader market. Reps say that in the past year, the SRI portfolios have outperformed the standard portfolios. It would be helpful if this comparison was shared publicly.

★ ★ Green cred: While its SRI small-holdings account puts 27% into a solid cleantech fund, overall its portfolios include a number of fossil fuel and pipeline companies. The presence of Jantzi Social Index ETF only compounds the problem, with some questionable holdings like Imperial Oil (Canada’s Exxon subsidiary).

Correction: Wealthsimple’s world-changing score has been updated.

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Women occupy a high percentage of positions in education, office support, social services and personal care, which are more likely to be suspended, laid off or forced to work reduced hours during the pandemic. PayScale noted that women “are also more likely to have to take time off work, or even resign their positions, in order to care for children who are no longer in school, as well as other family members.”

The report was released in advance of Equal Pay Day on March 31. With the stats saying that women earn on average only 75 to 80% as much as men, Equal Pay Day was founded to recognize the day of the year when women have finally made as much money over the past 15 months as their male colleagues earned in 12.

Facebook chief operating officer Sheryl Sandberg spoke with Yahoo Finance about the impacts of the pandemic on women. “Because you have less savings, you have less ability to earn and so these problems we have that hit our most vulnerable — domestic violence, pay gaps — this is a wake-up call to fix them,” says Sandberg.

While that pay gap has been shrinking, it’s not happening fast enough to meet the goal of the Ontario-based Equal Pay Coalition: to achieve wage parity by 2025. Still, market forces are kicking in. As big companies today struggle to find talent, they’ve been adopting more formal structures, such as pay parity, special leadership programs and rules regarding sexual harassment, to promote equity for women and other disadvantaged groups.

Longer-term, the signs are more encouraging. Bloomberg publishes an annual Gender-Equality Index, which tracks the progress of public companies committed to supporting gender equality. This year’s list includes 16 Canadian companies, up from just 12 in 2019.

The full index includes 325 public companies around the world (up from 230 last year). Each company is worth at least US$1 billion, so it’s an exclusive list. But Bloomberg expects this project to accomplish two key objectives: encourage more businesses to adopt gender-equity policies and give investors more data on companies embracing progressive ethics.

Canuck companies on the list include all six major banks, plus insurance giant Manulife, as well as such outliers as Enbridge, Teck Resources and retailer Lululemon. Newcomers this year include Algonquin Power, Aurora Cannabis, toymaker Spin Master, engineering giant Stantec and electrical producer TransAlta.

Corporate Knights checked on a few of these firms to find out how they’re managing equality at the top. Our conclusion: awkwardly.

Only one of the 16 companies is headed by a woman: Dawn Farrell, CEO of TransAlta. The firm’s 12-person board includes only four women.

Kathleen Taylor chairs the board of RBC, and six women sit on the 14-seat board. But just one woman ranks among the bank’s 10 “executive officers.” She runs human resources.

Manulife lists 12 men on its senior leadership team and just three women. Marianne Harrison runs Manulife’s sprawling U.S. division, with assets nearing US$500 billion.

Lululemon is the only Canadian company with gender parity on its board: five men and five women. And its website lists a management team of six women and four men.

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Of course, that was before the coronavirus began pummelling the economy. COVID-19 is only deepening our desire to support companies that behave nobly and put people and planet ahead of profits.

It just so happens that corporations with better environmental, social and governance (ESG) scores are proving themselves to be more financially resilient during the pandemic. Yes, sustainably minded funds have taken a big hit because of COVID-19, but Bloomberg found that they have been outperforming their conventional peers. Bloomberg’s analysis of 2,800 responsible investing (or RI, also known as sustainable, socially responsible or ethical investing) funds globally found that the average RI fund has fallen by about 12% this year as of March 12. That stings, but it’s just half the decrease seen by the S&P 500 Index over the same period.

According to Ipsos polling released by RBC Global Asset Management in January, two thirds of Canadians surveyed say they’re interested in RI. Nearly three out of four believe RI is “the way of the future.”

So why do so few Canadian banks offer any sustainably focused investing options?

Most bank advisors are poorly informed about ethical options

Corporate Knights anonymously visited Toronto branches of the Big Five banks in January and inquired about ethical investing. While some bank advisors were enthusiastic and fairly well informed, many advisors didn’t know whether their banks offered ethical investments or what those offerings entailed. Some advisors downright discouraged us from putting our savings into RIs. Notably, BMO and RBC were the only two banks that had dedicated RI funds.

The Toronto-based Responsible Investment Association (RIA) did its own polling with Ipsos in 2019 and found that while 79% of Canadian respondents would like their financial services provider to inform them about RI options, only 23% have been asked by their banks if they’re interested in RI. That helps explain why only a quarter of Canadians say they already have responsible investments, according to stats from Wealthsimple, BMO and the RIA.

In the U.S., meanwhile, new investments into sustainable funds quadrupled in 2019 compared to 2018 (pulling in a record US$20.6 billion in new money last year), and European investments doubled to a record-busting €120 billion, according to Morningstar.

Push to regulate the wild west of green investing

The tricky part for would-be purchasers is figuring out what investments genuinely align with their values. One CIBC branch advisor told Corporate Knights that “all the mutual funds we offer have gone through these ESG checks.” Ditto for all of RBC’s funds around the globe. That doesn’t mean they screen out any dubious companies or sectors. Only exclusionary funds with negative screens do that – and they may just screen out, say, tobacco and gambling but not thermal coal and oil. Part of the problem is there’s no universal standard for how terms like “ESG,” “low carbon” and “fossil-fuel free” are defined or applied, leaving funds vulnerable to “impact washing.”

Many Canadian ethical fund managers choose not to screen out fossil-fuel companies, instead investing in those they consider sector leaders. Which is fine for some responsible investors – if funds are transparent about it. But after the RIA received flak for listing fossil-fuel-free funds in its directory that were later exposed to contain oil and gas companies, the association is now considering creating a certification process for RI funds in Canada.

It gets even more muddled when retail investors start exploring the wider world of self-directed online trading accounts and robo-advisors (digital platforms such as apps that rely on software to offer financial advice), which often offer access to a number of American and international ETFs, or exchange-traded funds. (Branch-level bank advisors are generally not able to sell ETFs despite their booming popularity.) One ETF known as iShares MSCI ACWI Low Carbon Target ETF was called out for having holdings in Shell, Chevron and a number of other high-carbon companies.

To counter potential “impact washing” in Europe, the EU sets standards for the labelling of financial products, mandating that financial advisors disclose the sustainability risks of a finance product to investors, “regardless of the sustainability preferences of the end investors.”

Canada’s federally convened Expert Panel on Sustainable Finance recommended we do something similar here. The panel (which included Tiff Macklem, a Scotiabank director and Rotman School of Management dean, as well as RBC director Andy Chisholm) recommended that Finance Canada create “financial incentive for Canadians to invest in accredited climate-conscious products through their registered savings plans.”

How green are the banks’ own investments and loan books?

Many climate-conscious investors will also want to know just how their banks are dishing out their own money. All five banks have signed on to the UN-supported Principles for Responsible Investment, promising to fold ESG factors into investment decisions, though research by Corporate Knights has found that while the Big Five invest billions in sustainable-solution companies, they also invest billions in controversial weapons, for-profit prisons and severe environmental violators, as well as a number of other themes that would register as egregious on many responsible investors’ radars. All five also have loan books bulging with fossil fuels in relation to their renewable energy lending, putting them at odds with global money trends.

With former Bank of Canada governor Mark Carney cautioning that firms that ignore the climate crisis “will go bankrupt without question,” Canadians should be able to readily invest their retirement savings in environmentally-conscious options, sustainable finance champions say

With even central bankers now warning of climate-induced systemic financial crisis and former Bank of Canada governor Mark Carney cautioning that firms that ignore the climate crisis “will go bankrupt without question,” Canadians should be able to readily invest their retirement savings in climate-conscious options, sustainable-finance champions say.mo

In the meantime, the first RRSP deadline of the new decade gives Canadians a chance to rethink their finances, knowing there are now some options on the shelf that allow them to bank on a sustainable future.

Big Five ethical investing report card

We visited Toronto-area branches of the Big Five banks and asked advisors what ethical or sustainable investment options they offered. Here’s what we found:

Scotiabank

Ethical options: No responsible funds available in branch, though Scotiabank said in a statement that it has “considered” ESG factors in the investment process, and added, “Scotia iTRADE offers sustainable investing tools [online].”

Fossil-fuel-free or climate-conscious funds: No.

Knowledge of adviser: The personal banking adviser was unaware of any sustainable options and returned five minutes later to confirm that no options exist that the bank’s financial advisers were aware of.

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): Scotiabank dishes out the second-most oil and gas loans ($14.8 billion), compared to zilch in loans to renewables.

Score: D-

TD Canada Trust

Ethical options: TD Canada discontinued its sustainability funds in 2013, and at this point there are no specific RI-themed­ funds available to Canadians at branch level. TD did not respond to our request for comment.

Fossil-fuel-free or climate-conscious funds: No.

Sustainability knowledge of advisor: One bank advisor was blunt, saying “To be completely honest, most socially aware investment funds don’t make a lot of profit. As such, we don’t have funds that invest in these companies.”

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): TD has the smallest oil-and-gas loan book of the Big Five, but its investment book is another story. Among the Big Five, it has the worst ratio of investments in sustainable-solution companies to harmful companies.

Score: D-

CIBC

Ethical options: No specific RI funds. CIBC’s VP of Public Affairs says that “ESG factors are included in our investment process across all funds.”

Fossil-fuel-free or climate-conscious funds: No.

Sustainability knowledge of advisor: Initially, the branch manager said that CIBC has some ethical funds that “don’t invest in tobacco companies or oil companies,” but the manager and a financial advisor weren’t aware of specifics, so they placed a phone call. “We don’t get asked this question frequently,” the manager said. After their call, the manager updated earlier comments: “The good news is there’s no specific mutual funds that actually do that since all the mutual funds we offer have gone through these ESG checks.”

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): CIBC says all its funds are filtered through an ESG lens, but it has $2.7 billion, or 6.4% of assets, invested in companies flagged for harmful products and activities, including palm oil deforestation and severe human rights violations. On the bright side, the bank has 9.4% of its investments in companies tagged as sustainable-solution providers, because they earn more than a fifth of their revenue from themes like renewable energy and electric cars. On the loan side, CIBC’s exposure to oil and gas companies is almost five times as large as its renewable energy book.

Score: D

RBC

Ethical options: RBC’s Vision line uses ESG filters to determine holdings while screening out weapons makers, as well as traditional sin stocks like tobacco and alcohol. RBC Vision also has a Women’s Leadership fund.

Fossil-fuel-free or climate-conscious funds: Yes: the RBC Vision Fossil Fuel Free Global Equity Fund. Though a financial planner at one branch said the bank doesn’t offer entirely fossil-free options, suggesting that omitting a whole sector could limit the opportunity to grow. RBC’s Vision Fossil Fuel Free fund actually outperformed RBC’s Global Equity Fund in both 2018 and 2019.

Knowledge of adviser: The financial planner was well versed in the Vision line (besides fossil-free funds) and enthusiastic about the Vision balanced fund, saying it has outperformed RBC’s regular balanced fund (“being green is saving companies a lot of money down the road”).

Cost of values-aligned portfolio: Varies, but many are slightly lower than conventional funds.

Bank loans and investments (clean vs. dirty): Canada’s largest bank has the highest total amount of oil-and-gas loan exposure on its books ($16.4 billion). That’s more than seven times more than its renewable loans, which gets it into trouble with environmental activists, though it also has the biggest ratio of investments in sustainable solutions to harmful companies among the Big Five.

Score: C+

BMO

Ethical options: Branches offer BMO’s Sustainable Opportunities Global Equities mutual fund, as well as a Women in Leadership fund. There are eight new ESG ETFs for self-directed online accounts.

Fossil-fuel-free or climate-conscious funds: Yes: the BMO Sustainable Opportunities fund.

Knowledge of adviser: The personal bank associate was enthusiastic about BMO’s sustainable opportunities fund, explaining that she invests in it herself, but she cautioned that it is mid-to-high risk and is best for longer-term investments. A financial planner follows up via email to discuss ESG options further.

Cost of values-aligned portfolio: Fees vary, but the Sustainable Opportunities fund has a somewhat lower fee than comparable BMO funds. The ESG ETF fees are also priced lower than many non-RI equivalents.

Bank loans and investments (clean vs. dirty): BMO has both the biggest renewable-energy loan book and sustainable-solutions investment book among the Big Five, but it has the largest amount invested in companies classified as “harmful.”

Score: B-

A version of this article appeared in the Toronto Star.

*Note: This article was updated for the Spring Issue of Corporate Knights magazine.

** Sustainable solution investments includes 512 companies in the Corporate Knights database that earn more than 20% of their revenues from products or services (such as reneable energy, energy efficiency, electric cars, public transit and organic food) that benefit the environment or society as tracked by Corporate Knights Radar.

*** Harmful investments include 451 companies in thermal coal, weapons, for-profit prisons, as well as companies with severe human rights and environmental violations, and other types of egregious products and misconduct tracked by Corporate Knights Radar.

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Nevertheless, sustainable or responsible investing (whichever term you prefer) has hit the big-time, particularly around the theme of climate change.

Michael Baldinger, head of impact investing at UBS wealth management, which manages more than US$4 trillion in assets, claims that sustainable investing is now the fastest-growing asset class at scale in the world.

It’s hard to argue with the numbers. The Global Sustainable Investment Alliance says there is a US$30 trillion pot of sustainable investments across various themes as of 2018, growing at about 12% per year. A lot of that growth is coming from pension funds and other institutional investors signed up to the UN-backed Principles for Responsible Investment, whose members control US$86 trillion.

Financial markets are driven by two powerful emotions: greed and fear.
As the outgoing governor of the Bank of England, Mark Carney, puts it, “Companies that don’t adapt [to the low-carbon economy] – including companies in the financial system – will go bankrupt without question. [But] there will be great fortunes made along this path aligned with what society wants.”

To wit: the top five coal companies in the U.S. have all declared bankruptcy since 2016, and Apple is now bigger than all the oil and gas companies on the S&P 500 combined, in large part because they have earned negative returns over the last decade, even after accounting for dividends.

Carbon-intensive companies are suffering because the alternatives are not just cleaner but cheaper. Renewables are now cheaper than coal in two-thirds of the world’s countries, according to Bloomberg New Energy Finance. BNP Paribas estimates that oil needs to come down to US$10 a barrel to be competitive with electricity-driven transport. This does not mean fossil fuels are going away tomorrow, but it does kill the growth story. For oil investors, the market’s realization of this inevitable decline could make the coal horror show look like Bambi.

This increasing speed of the energy transition is part of the reason why investors representing US$11 trillion in assets have made public their plans to divest from fossil fuels.

Perhaps more telling is that beyond these public declarations, many of the biggest investors in the world are selling off their fossil fuel holdings and loading up on green assets. For example, without any fanfare the $200 billion Ontario Teachers’ Pension Plan has dialed down its fossil-fuel equity holdings to just 1%. On the upside, the $306 billion Caisse de dépôt et placement du Québec (CDPQ) has grown its green investment book to $30 billion, earning commercial returns along the way, according to outgoing chief executive Michael Sabia.

Just in case anyone was in doubt whether sustainable investing is really about making money, the vampire squid of investment banking, Goldman Sachs, showed up this December pledging US$750 billion in financing over the next decade to profit from the climate transition and inclusive growth.

While economics are shifting in favour of sustainable investing, so is public sentiment. Call it the Greta effect if you like, but most people are no longer comfortable with the idea that their retirement investments may be helping to set the world on fire.

Andreas Utermann, chief executive of Allianz Global Investors, which manages US$600 billion, says, “Clients have changed their tune. They have said we need to take this more seriously, and that has sharpened the minds of asset managers.”

Despite all this action among big investors, it appears small investors are getting left behind. If you add up the assets of the 130 funds on offer in Canada that declare sustainability intentions in their official documents, it is less than 1% ($12 billion) of total fund investments ($1.6 trillion). That’s an even smaller fraction than they were at in 2003, when Corporate Knights published its first guide for responsible investors. What gives?

It boils down to a belief many people still hold that sustainable investing is about sacrificing returns. The theory is that investing to make a return is hard enough, and if you add social and environmental considerations into the mix you are at a disadvantage. The trouble with this theory is that investing is like hitting a curveball, which is a pretty good metaphor for the world we live in. Putting on a sustainability lens gives the batter a better sense of the ball’s trajectory and increases the chance of making solid contact.

To make things easier, Corporate Knights scores all the equity mutual funds and ETFs available in Canada according to how well their holdings line up with established sustainability criteria and, where available, their three-year financial performance record. While we’re not promising any home runs, the 36 funds listed below were deemed the worthiest for taking a swing at.

Eco-Fund Methodology

Funds are scored according to (1) three-year net return percentile rank (50%), (2) weighted sustainability rating percentile rank based on analysis of their holdings* (40%), and (3) fund manager intention to manage the fund according to responsible guidelines (10%). If the fund is less than three years old, its final score is based on #2 and #3, which are grossed up proportionately to 100%. Funds that score in the highest or second-highest quintile among category peers receive a five-tree or four-tree rating respectively.

* Holdings that are red-flagged automatically receive a 0% CK Sustainability Rating Score. Red-flag holdings include companies that are classified in the Corporate Knights database for one or more of the following criteria: companies blocking climate policy, farm animal welfare laggards, companies causing severe environmental damage, companies causing deforestation, forced and/or child labour, severe human rights violations, illegal activity, controversial and conventional weapons, civilian firearms, tobacco, thermal coal, for-profit prisons, access to nutrition laggards, access to medicine laggards, digital rights laggards, investor climate laggards and gross corruption violations.

Sources: Corporate Knights Research, Fundata, Responsible Investment Association, Refinitiv, InfluenceMap, Business Benchmark on Farm Animal Welfare (BBFAW), Norges Bank Investment Management (NBIM), Chain Reaction, Know the Chain, NZ Super Fund, Stockholm International Peace Research Institute, American Friends Service Committee, Access to Nutrition Initiative, Access to Medicine Initiative and Ranking Digital Rights.

The post Eco-Fund Ranking 2020: The ultimate guide to responsible investing appeared first on Corporate Knights.

While we understand that business targets are very important and that what gets measured, gets done, we also recognize that it is the leaders behind these polices and targets who are really the drivers of change.

Addressing the most daunting challenges of our age will require innovative approaches and a generation of leaders who think creatively and are willing to take risks. That’s why RBC is proud to be the exclusive sponsor of Corporate Knights’ Top 30 under 30 Sustainability Leaders.

Through RBC Future Launch, our 10-year, $500 million commitment to help empower Canadian youth for the jobs of tomorrow through access to work experience, skills development opportunities, networking solutions and mental well-being supports and services, we are supporting the next generation of leaders.

Youth are reacting to the constant change that technology and innovation have brought about, and are embracing the fact that they must be “lifelong learners” to thrive. As a result, they are responsible self-starters, oriented around productivity and making change and have also shown interest in developing the skills necessary to pursue opportunities in an evolving world of work. Youth are not simply reacting to the changing nature of work, they are active agents in defining it.

Canada’s prosperity is directly linked to our ability to prepare the next generation to succeed in a fast-changing global economy that will be driven by creativity and innovation.

If young people succeed, we all succeed.

The post RBC is proud to celebrate inspiring Canadian youth through our sponsorship of the Corporate Knights Top 30 under 30 Sustainability Leaders appeared first on Corporate Knights.