Wednesday, October 14, 2015

Canadian banks failing to consider climate change risks, says SHARE

A new research report from SHARE concludes that Canadian banks have not sufficiently integrated climate change considerations into their long-term business strategies and risk management processes.

The report notes that banks are particularly vulnerable to climate-change related risks because their financing activities span all sectors of the economy. Despite this exposure, however, Canada’s banks are not adequately considering the potential impacts of climate change in the way that they do business, the report notes.

“Canada’s banks are failing to demonstrate to their shareholders that they understand the implications of this fundamental risk to their core business,” says SHARE’s Director of Responsible Investment, Shannon Rohan, who also authored the report. “It is critical for investors that are concerned about the long-term risks associated with climate change to push for improved performance by Canada’s banks in integrating climate change considerations in their business strategies and risk management processes.”

The report, “Banking on 2°: The Hidden Risks of Climate Change for Canadian Banks,” includes a set of recommendations suggesting how Canada’s banks can more effectively manage climate change risks and catalyze the transition to a low carbon economy.

The recommendations include integrating climate change considerations into risk management, establishing carbon reduction targets and incentives to achieve them, and disclosing meaningful information to investors.

To date, five of the big banks have disclosed information under the CDP program. While all five referenced risks from uncertainty around new regulation as well as potential impacts of energy efficiency regulation and carbon taxes, all of the banks considered those risks to be low.

“In their most recent CDP disclosures the banks acknowledge the reputational risks associated with their financing of carbon-intensive industries, although it is not clear how any of the banks are managing this risk,” the report says. “We find that Canadian banks’ disclosures of their consideration of systemic risks associated with climate change and the potential impacts of transitioning to a low carbon economy on their overall business model fall short of what is needed by investors to make informed investment decisions.

Download the full report.