Scotiabank CEO calls for federal commission to study long-term economic growth issues

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Bank of Nova Scotia BNS-T chief executive Brian Porter is calling on Ottawa to create a federal commission to draw a long-term economic road map, citing the need for new investments to build prosperity and counter mounting headwinds facing Canada’s economy.

Mr. Porter urged the federal government to set up a “modern Macdonald Commission” on Tuesday, a reference to a landmark royal commission on economic policy appointed in 1982 by then-prime minister Pierre Trudeau. At the time, Canada was battling high inflation, sluggish growth and rising protectionism abroad.

Those same obstacles to economic expansion are resurfacing now, Mr. Porter said, and the country needs to confront them aggressively.

His call to craft a long-term strategy that could guide near-term investments and spur economic growth adds to the pressure on Prime Minister Justin Trudeau’s government to shift priorities and introduce a more focused plan for the economy.

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With Ottawa set to release a federal budget on Thursday, senior business leaders have voiced frustrations over what they see as the government’s tendencies toward short-term decision making, lavish spending and sporadic engagement with corporate Canada. They worry that Canada is missing a chance to set itself up for sustained economic success, and sending the wrong signals about the country’s business climate.

Mr. Porter acknowledged that it is the nature of many governments to focus on short-term issues, but said in an interview on Tuesday that “we think it’s time to have a longer-term view on what the Canadian economy should look like in five, seven or 10 years, and what investments need to be made to get there.”

Asked why he proposed creating a new commission, he said: “Because I’m concerned.”

The idea of a commission is one that Mr. Porter has already pitched directly to government, he said.

He had planned to publicly issue a call to action in a speech at the bank’s annual shareholders’ meeting on Tuesday, but he was unable to attend because he contracted COVID-19. Instead, Scotiabank’s chief financial officer Raj Viswanathan gave an abridged version of Mr. Porter’s prepared remarks at the meeting, and said Mr. Porter is expected to make a “full and quick recovery.”

The new commission’s work could serve as “economic scaffolding” to guide the country in the coming years, Mr. Porter said in his prepared remarks, helping set an agenda to boost innovation, competitiveness and productivity, and shape a national strategy for a transition to cleaner energy. And he told The Globe Tuesday that it could explore ways to break down interprovincial trade barriers, and to export more clean sources of energy to the world.

To make his case, he invoked the work done by Donald Macdonald, the former finance minister and Scotiabank director, which was initiated by Mr. Trudeau’s father and implemented by his successor as prime minister, Brian Mulroney. The Macdonald Commission succeeded in setting a new economic trajectory for Canada precisely because it took a longer-term view, Mr. Porter said.

“We should be looking at what parts of the economy can be running better, or being more productive,” he said. Canada’s “per-capita GDP against the U.S. has been falling. Redistribution is okay, but you’ve got to get all boats rising and so what do we need to do that?”

Canada produces many products and resources that are in high demand in the global economy today, he added, but “I think we might be being a bit complacent.”

“We have to prepare ourselves for the economy of 2040 and 2050, and what skills does our labour force need? … What are going to be the four or five driving industries of the future?” he said. “The government’s got a lot on their plate, I certainly recognize that. But to have a forward-looking view in terms of what the economy should look like in seven, eight, 10 years is critically important.”

In his prepared remarks for the annual meeting, he also took aim at a proposed surtax on large banks and insurers with profits of more than $1-billion, accompanied by a temporary levy against those same companies. Both measures are expected to be outlined in Thursday’s budget, and could raise approximately $11-billion from financial institutions over the next four years, according to government estimates.

He called the tax “a knee-jerk reaction that sends the wrong message to the global investment community” and wrote that it ultimately taxes shareholders who broadly own bank stocks, including through mutual funds and index funds.

At Scotiabank’s annual meeting, shareholders pressed the bank on its plans to reduce its carbon footprint, which is expected to be a prominent theme as other banks hold shareholder meetings over the coming weeks.

In particular, they focused on the bank’s interim net-zero targets to reduce the intensity of carbon emissions from clients it finances in oil and gas, power and utilities by 2030. They urged the bank to focus on reducing overall emissions levels, and not simply intensity.

In response, Meigan Terry, the bank’s chief social-impact, sustainability and communications officer, said at the meeting that Scotiabank uses intensity targets partly because it is easier to measure clients against their peers.

“We can see where companies are performing very well, and where there may be some laggards, and that helps us as a bank prioritize our investment and where we spend our time to support our clients,” she said.

The meeting also provided a first test of a series of proposals submitted to major Canadian banks, urging financial institutions to adopt annual shareholder votes on their strategies for dealing with climate-related risks. Banks have opposed such say-on-climate votes, which would be similar to existing, non-binding shareholder votes on executive compensation. On Tuesday, 79 per cent of Scotiabank’s shareholders voted against adopting a say-on-climate vote.

Scotiabank won strong support for its executive-pay practices, with 94 per cent of votes in favour after the bank had weak support from shareholders at last year’s meeting. At the 2021 meeting, only 60.8 per cent of votes supported the bank’s compensation practices after influential shareholder adviser Institutional Shareholder Services Inc. recommended voting against the resolution.

This year, ISS restored its support despite continued concerns about a lack of alignment between pay and the bank’s relative performance.

That was mitigated by the bank’s “enhanced disclosure” regarding the CEO’s incentive compensation program, “its shareholder engagement efforts and overall improved performance,” the ISS report said.

“On balance, the bank has demonstrated adequate stewardship of investor’s interests regarding executive compensation.”

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