November 12, 2002
Canadian SRI Firms Call for Disclosure from Country's Top Banks
by William Baue
Two Canadian SRI firms filed shareowner resolutions at five major Canadian banks asking them to
report on how they account for environmental, social, and ethical issues.
With this year's proxy season drawing to a close, advocates of socially responsible investing (SRI)
already have their sights set on next year's season. Last week, Vancouver-based Real Assets Investment Management and Ethical Funds co-filed shareowner
resolutions with five major Canadian banks that ask for reports on how social, environmental, and
ethical risks are managed and mitigated.
The banks receiving the resolutions are
the Royal Bank of
Canada (ticker: RY), Bank of Montreal (BMO), Bank of Nova Scotia
(BNS), Toronto-Dominion Bank (TD), and the
Bank of Commerce (BCM). The resolutions point out that all five banks voluntarily signed the
1992 United Nations Environmental Programme (UNEP) Statement by Financial Institutions on the
Environment and Sustainable Development. This document acknowledges that pursuing sustainable
development is a fundamentally sound business practice, and that identifying and quantifying
environmental risk should be part of the normal process of risk assessment and management.
"By signing this voluntary instrument [the banks] also promised to integrate environmental
considerations into [their] operations, asset management, and other business decisions, and to
'periodically report on the steps taken to promote integration of environmental considerations into
[their] operations," the resolutions state, quoting the UNEP Statement.
None of the five
banks has yet lived up to this promise to report on their environmental policies and practices, nor
do they report on their social and ethical policies and practices.
"It's time for the
banks to come clean," said Real Assets CEO and Portfolio Manager Deb Abbey. Real Assets, a
subsidiary of Vancouver City Savings Credit Union, was the first Canadian investment management
firm to focus exclusively on SRI. "Investors and consumers have a right to know how the big five
compare to their competitors, at home and abroad. We're hoping that at least one of the banks will
emerge as a leader in reporting in this area and raise the bar for all Canadian banks."
The resolutions contend that banks' primary activity is to manage financial risk. The
supporting statement points out that social, environmental, and ethical risks can impact banks'
financial success, and therefore must be assessed. The resolutions illustrate this point with a
"The Goldman Sachs-led PetroChina IPO, for instance, raised only US$2.7
billion of the expected US$10 billion in 2000 following poor institutional uptake--motivated in
part by human rights considerations," the resolutions read.
Real Assets enumerated other
social, environmental, and ethical risks the banks are exposed to, including the recent lawsuits
alleging human rights violations by international banks that lent money to the Apartheid-era South
African government. As well, most major banks were involved to some degree in the Enron and
WorldCom debacles, according to Real Assets.
The Enron-related scandals have firmly
established the financial risk of corporate ethical and social practices, as well as the value of
disclosure. Canadian law currently requires banks to disclose consumer and community impacts in an
annual Public Accountability Statement, but not social, environmental, and ethical impacts. In the
absence of full disclosure, investors cannot accurately assess the risk environmental, social, and
ethical issues pose to their bank holdings.
The UNEP Statement calls on banks to extend
their commitment to environmental stewardship beyond their own boundaries by holding their business
partners to similarly high environmental standards.
"The question we're asked most often
is why we own the banks when their biggest clients may be companies that we would consider
liabilities in our portfolios," said Ms. Abbey. "When we know more about how [these five banks]
conduct their business, we'll feel more confident answering that question."