Yahoo Finance Opinion: Banks should stick to banking and leave changing the world to others
By Gina Pappano
Banks are essential institutions for participating in modern life. Without a bank account it’s hard to be part of society. Of all institutions banks therefore need to be truly inclusive. Which means they should be held to a standard of strict political neutrality, looking after the interests of their clients and shareholders in a nonpartisan, non-ideological way. So long as their clients are abiding by the law, banks should be open to all potentially profitable businesses — for the good of the bank’s own shareholders and the health of the economy.
Increasingly, however, that isn’t how things work in Canada. Instead, highly motivated activists have spent years pressuring banks to sign on to environmentalist pledges to “divest” from oil and natural gas projects and companies. Their objective is to have banks help enforce the 2015 Paris Agreement’s vision of “net-zero” energy emissions by 2050.
Boycotting the oil and gas sector in this way is decidedly not in the interests of the banks’ clients and shareholders. As Philip Cross and Jack Mintz show in a recent study for the Macdonald-Laurier Institute, the oil and gas industry is, by far, our country’s most productive sector.
But because the activists are so loud, insistent and politically well-connected, they have had a great deal of success. All of Canada’s big five banks — TD, CIBC, BMO, Scotiabank, and RBC — have taken some version of the Net Zero pledge. And almost no one has been willing to call them to account for it.
InvestNow, the not-for-profit of which I’m executive director, is one of the few exceptions. Last month, for the second year in a row, our organization presented shareholder proposals at the annual general meetings of the big five banks with an eye towards making them accountable on their political pledges.
InvestNow’s proposal this year was simple. We asked the banks to commission and issue reports qualifying and quantifying the impacts and costs of divestment from the Canadian oil and gas sector, should they continue on the path of their declared Net Zero objectives. For the banks to charge headlong toward Net Zero by 2050 without any kind of cost-benefit analysis is both shocking and reckless. But so far that is exactly what they’ve been doing.
All five banks received the same proposal and, unfortunately, all five recommended that their shareholders vote against InvestNow’s proposals, which by and large they did. The banks did offer responses to our petition, however, and these were quite troubling.
CIBC and TD both pledged to continue to support their clients as they “transition to a low-carbon economy,” to quote the language used in both responses. Neither bank acknowledged the negative impacts such a transition might have on its clients or the larger economy. Neither did they lay out potential consequences for their clients who don’t — maybe because they can’t — meet their new anti-carbon criteria.
On this point, RBC was more forthcoming: “RBC Capital Markets will prioritize supporting clients actively engaged in the energy transition. RBC Capital Markets is prepared to make difficult decisions and ultimately step away if a client … does not demonstrate sufficient planning for the energy transition.” Which is to say, they’re prepared to drop clients they deem insufficiently committed to Net Zero.
For its part, Scotiabank declared that “As a signatory to the Net Zero Banking Alliance (NZBA) in October 2021, we have set an objective to become a net-zero bank.” What is the NZBA? In its own words, it is a “UN-convened” group of international banks “committed to financing ambitious climate action to transition the real economy to net-zero greenhouse gas emissions by 2050.”
Scotiabank went on to mention its support for the Trudeau Government’s “net-zero commitments,” and “the Paris Agreement on Climate Change,” all of which puts it firmly on one side of a political debate.
To repeat, banks should not be ideological actors. To go down that road is to severely damage their institutional legitimacy. And allowing themselves to be pressured into divesting from oil and gas, eliminating projects and companies from their investment pool that are part of our country’s most productive sector is, frankly, a betrayal of their responsibility to their shareholders.
It is also bad for Canada. Ours is a resource-rich country. Oil and gas drive our exports, productivity, job market, government revenues and national security. Cross and Mintz call our natural resources sector the “Golden Goose” of our economy. And our reputation for political stability and for respecting human rights and the environment — something which cannot be said for many of the other resource rich nations throughout the world — should make our oil and gas industry particularly attractive for investors.
The Big Five banks have placed Net Zero and decarbonization ahead of the interests of their shareholders and customers, not to mention everyday Canadians and our economy. As long as they continue to pursue social, political and ideological goals over fiduciary ones, InvestNow will do whatever we can to hold them to account, urging them to get back to the business of banking.
Financial Post
Gina Pappano, executive director of InvestNow, was head of market intelligence at the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV).
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