Written by: Derek Davies
Most people are familiar with how the average banking system works. Banks are financial institutions that work by giving the bank your money, which they re-invest by loaning out a portion of the money to people or businesses that need it, connecting surplus with deficits. The banks make their money off the interest rates that are paid and charged by the bank to the user.
In Canada there are five main banks, known collectively as the ‘Big Five’ banks, they consist of the Royal Bank of Canada (RBC), Toronto Dominion Bank (TD), the Bank of Nova Scotia (Scotiabank), the Bank of Montreal (BMO), and the Canadian Imperial Bank of Commerce (CIBC). Over 96% of Canadians have a bank account , and unless you invest your own money within the financial system, you likely have no say or idea as to where your money is going. For example, the Rainforest Action Network (RAN) has a strategy known as, ‘Rank ‘Em and Spank ‘Em’. This strategy is aimed at revealing international banks that finance Oil Sand expansion through loans from the year 2007. RBC ranked 1st, with lending, followed by TD (4th), CIBC (5th), Scotiabank (8th), and BMO (9th) . The mounting pressure from the Rainforest Action Network, is forcing the ‘Big Five’ to change their environmental policy in order to raise environmental standards within the financial industry. For example, in 2010, with the pressure from RAN, RBC has adopted an environmental and social standard to not finance clients that have not received consent from indigenous communities .
The ‘Big Five’ follow the Equator Principles, which are internationally recognized principles used when a financed project totals a certain cost. The client must undertake an environmental and social review. Over 50 banks around the world are signatories to the Equator Principles, representing 85% of the global project finance market . The Equator Principles comprise of ten principles that serveas a common framework to reach responsible development. These principles include environment and social assessment, environmental and social standards, stakeholder engagement, and monitoring. For a full list and summary of the ten principles, click here. Projects are categorized within three different classes, ranking from: significant adverse environmental and social impacts (A), to potential limited adverse environmental and social risk (B), to projects with minimal or no environmental and social risk (C). However, only categories A and B undertake the environmental and social assessment. In addition to this, the equator principles only apply within the ‘Big Five’ if they lend out in access of $10 million.
So, where do you fall in? Below is a listing of how each of the ‘Big Five’ defines their lending and financing environmental standards.
1. Royal Bank of Canada (RBC)
Environmental Policy: Equator Principles (Environmental Assessment for projects exceeding $10 million loans) & International Finance Corporation Standards & Environmental and Social Risk Management.
Responsible Lending: Finance clients intending to reduce GHG emissions, improve water quality, and facilitate adaption to climate change. Not engage financial activity with unsustainable forestry and only with clients with adequate certification. Only finance projects with indigenous approval. Not engage finance with any clients violating environmental laws .
2. Toronto-Dominion Bank (TD)
Environmental Policy: The Equator Principles, high-level screening of projects, social and environmental assessment procedure, and risk management decision tree.
Responsible Lending: Does not lend to activities within World Heritage Sites, activities that would degrade Conservation Areas, or finance illegal logging operations or finance manufacturing of weapons, nuclear, or of chemicals .
3. Bank of Nova Scotia (Scotiabank)
Environmental Policy: The Equator Principles, Environmental Risk Management, investment in renewable energy, Carbon Credit Trading.
Responsible Lending: Scotiabank has undertaken the highest amount of Environmental and Social Assessments under the Equator Principles among the top five banks (15) .
4. Bank of Montreal (BMO)
Environmental Policy: The Equator Principles and Environmental Risk Management
Responsible Lending: Evaluates risk on climate change, not engage in any unsustainable resource extraction such as rainforest logging .
5. Canadian Imperial Bank of Commerce (CIBC)
Environmental Policy: The Equator Principles, Environmental Credit Risk, Environmental Risk Management, and Pre-Approved Environmental Consultants for undertakings
Responsible Lending: Manage high-environmental risk and Carbon Management Program
One argument many people have is that these banks should adopt the Canadian Environmental Assessment Act procedure when financing projects but, if you think about how banks cross all boundaries, it makes sense to use an internationally recognized environmental principle system in which is the baseline for all comparisons. The ‘Big Five’ banks in Canada are well ranked within the financial industry worldwide, consistently ranking amongst the worlds best for their environmental practices. The Equator Principles are very similar to the environmental assessment process – with the goal of environmentally responsible decision making, and in some cases, based on each respective bank, they go above the requirements by implement greater restrictions. This ensures that the private sector is covered under environment assessment in some form and if clients do not comply with these standards, they must look elsewhere for funding.
 Canadian Bankers Association. (2014, January 4). Banks and Consumers. Retrieved January 20, 2014, from Canadian Bankers Association: http://www.cba.ca/en/media-room/50-backgrounders-on-banking-issues/127-banks-and-consumers
 Rainforest Action Network. (2011, September 28). Banks Ranked and Spanked on the Tar Sands. Retrieved January 20, 2014, from Rainforest Action Network: http://ran.org/banks-ranked-and-spanked-tar-sands-0
 Rainforest Action Network. (2010, December 22). Royal Bank of Canada Steps Away from Tar Sands With Support for First Nation Rights. Retrieved January 20, 2014, from Rainforest Action Network: http://ran.org/royal-bank-canada-steps-away-tar-sands-support-first-nation-rights-0
 TD Bank Financial Group. (2009). Responsible Financing and Lending. Retrieved January 21, 2014, from TD Bank Financial Group: http://www.td.com/corporate-responsibility/crr-2009/environment/responsible-financing/index.jsp
 Royal Bank of Canada. (2012). RBC Environmental Blueprint: 2012 Report Card. Report Card, RBC.
 Scotiabank. (2013). Project Finance and the Equator Principles. Retrieved January 20, 2014, from Scotiabank: http://www.scotiabank.com/ca/en/0,,441,00.html
 Bank of Montreal. (2013). Responsible Lending. Retrieved January 20, 2014, from Bank of Montreal: https://www.bmo.com/home/about/banking/corporate-responsibility/customers/responsible-lending#project_financing
 CIBC. (2013). Lending and Investing. Retrieved January 20, 2014, from CIBC: https://www.cibc.com/ca/inside-cibc/environment/lending-investment.html