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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 Canadian Imperial 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 specific example.

"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."

 

 
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