Canada’s big banks are pushing back against calls for shareholders to vote on their strategies for dealing with climate-related risks, arguing boards of directors, not investors, are best suited to oversee environmental priorities.
Mouvement d’éducation et de défense des shareholders, known as Médac, has submitted a series of proposals to Canada’s seven largest banks. A key one urges shareholders to back regular advisory votes on environmental policy and targets. Such say-on-climate proposals are becoming mainstream around the world, with carbon reduction an imperative in high-emitting industries and their lenders.
In its proposal, Médac cites research from the Rainforest Action Network, done in 2019, that shows Canada’s banks, including Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia, were among the top-10 funders of fossil fuel development, providing US$89-billion. It said Bank of Montreal and Canadian Imperial Bank of Commerce were ranked 16th and 21st.
The group says such activities run counter to what is needed to address the findings by the Intergovernmental Panel on Climate Change, which has concluded global warming is occurring at a faster pace and producing widespread effects that are more definitively tied to human influence than ever before.
RBC, Scotiabank, CIBC and National Bank of Canada have recommended its shareholders vote against the say-on-climate proposal. They point out they are making strides, citing their commitments to make hundreds billions of dollars available for sustainable finance initiatives, to push clients to pursue decarbonization efforts and to support the development of green and energy-transition technology as part of their net-zero plans.
The banks also cite their efforts at improving disclosure through the use of such frameworks as those set out by the Task Force on Climate-Related Financial Disclosures and Partnership for Carbon Accounting Financials, both of which include quantifying emissions among their borrowers.
Say-on-climate, modelled on say-on-pay votes that give investors some sway in how companies set executive compensation, has been catching on at major corporations worldwide, but it has been slow to take hold in Canada. Canadian National Railway pledged last year to hold say-on-climate votes at future annual meetings, and rival Canadian Pacific Railway committed to put its climate strategy to a shareholder vote at its 2022 meeting.
Say-on-climate may not become the norm in Canada, given the complexity of climate-related issues, many of which are industry-specific, and because regulators are already pushing companies to improve environmental practices and disclosure, said Ian Robertson, chief executive officer of Kingsdale Advisors, which counsels public companies on shareholder and governance matters.
“The push of regulatory initiatives, I think, is in some way going to lead what companies do, as opposed to having shareholders push them to do it,” Mr. Robertson said. Another factor prodding companies to improve their environmental performance, even without shareholder resolutions, is demand among major institutional investors, he said.
An official with Médac did not respond to a request for comment. The group has been the country’s most active proponent of shareholder proxy proposals, accounting for half of them in 2021, according to Kingsdale. It won an average of 14-per-cent support for its environmental proposals last year.
Scotiabank said it recognizes the importance of setting and adhering to “bankwide, quantitative, time-bound targets for reducing greenhouse gas emissions” that are consistent with its goal of getting to net-zero emissions by 2050.
But a say-on-climate vote removes the accountability for environmental initiatives from the board and management, which goes against good governance practices. “Shareholders can hold directors accountable in other ways, beyond an advisory vote, and communicate with directors when they are of the view that a company’s strategy, risk oversight or disclosures fall short of shareholders’ expectations,” Scotiabank said in its management proxy circular.
CIBC said its environmental, social and governance practices, including climate initiatives, are “inextricably” tied to overall corporate strategy. “We view the duty to ensure this alignment and cohesion as being within the province of management, and we see the oversight of the same as being within the province of the board of directors. As a result, CIBC does not currently support an annual advisory vote with respect to its environmental and climate change plan,” CIBC said in its circular.
This year, proxy advisory services, which issue recommendations to institutional investors on shareholder votes, are evaluating say-on-climate proposals on a case-by-case basis.
Institutional Shareholder Services Inc. said it will base its recommendations on such factors as the completeness of a company’s climate-related disclosure, actual emissions reduction performance, whether a company has been subject to environmental fines, legal action or controversy related to emissions, or if the shareholder proposal is too burdensome or prescriptive.
Glass, Lewis & Co., meanwhile, said say-on-climate has positive aspects, such as ensuring companies provide “robust” climate-related information to shareholders and putting climate issues on the agenda. But a lack of deep technical knowledge in the investment community, as well as the absence of legal clarity and codified best-practices standards, could present problems.
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