From millennials looking to stash their retirement savings in line with their ethics all the way up the corporate ladder to the world’s largest investment houses vowing to put climate action at the heart of investment decisions, responsible investing is quickly gaining traction.
According to Ipsos polling released by RBC Global Asset Management last month, two-thirds of Canadians surveyed say they’re interested in responsible investment options (or RI, also known as sustainable, socially responsible or ethical investing). Nearly three out of four believe RI is “the way of the future.” But with the deadline for retirement-savings-plan contributions less than two weeks away, it turns out that three of Canada’s “Big Five” banks don’t currently offer any options to meet that demand.
Corporate Knights anonymously visited Toronto branches of the Big Five banks (RBC, BMO, TD Canada Trust, CIBC and Scotiabank) and inquired about ethical investing. While some bank advisers were enthusiastic and fairly well informed, information about responsible investments was often spotty and inconsistent.
Many bank staff weren’t sure whether or not their bank offered ethical investments and what those offerings entailed. Some advisers downright discouraged us from putting our savings into RIs, suggesting they were money-losers, while advisers at other banks gushed about how their responsible funds outperform conventional funds.
Notably, BMO and RBC were the only two banks that had dedicated RI funds. Scotiabank and TD trailed at the back of the pack.
How the banks stack up in ethical investing
Here’s how much the Big Five banks have invested in sustainable and other investments
|OVERALL RANK||BANK||RENEWABLE LOANS ($M)||OIL & GAS LOANS AND ACCEPTANCES ($M)||SUSTAINABLE SOLUTIONS INVESTMENT ($M)*||HARMFUL INVESTMENTS ($M)**|
The Toronto-based Responsible Investment Association (RIA) did its own polling with Ipsos in 2019 and found that while 79 per cent of Canadian respondents would like their financial services provider to inform them about RI options, only 23 per cent have been asked by their banks if they’re interested in RI. That helps explain why only a quarter of Canadians say they already have responsible investments, according to stats from Wealthsimple, BMO and the RIA.
Meanwhile in the U.S., new investments into sustainable funds quadrupled in 2019 compared to 2018, and in Europe investments doubled, according to new Morningstar data.
Regulating green investing
The tricky part for would-be purchasers is figuring out what investments genuinely align with their values. One CIBC branch adviser told Corporate Knights that “all the mutual funds we offer have gone through these ESG (environmental, social and governance) checks.” Ditto for all of RBC’s funds around the globe. That doesn’t mean they screen out any dubious companies or sectors. Part of the problem is there’s no universal standard for how terms like “ESG,” “low carbon” and “fossil-fuel free” are defined or applied, leaving funds vulnerable to “impact washing.”
Many Canadian ethical fund managers choose not to screen out fossil-fuel companies, instead investing in those they consider sector leaders. Which is fine for some responsible investors – if funds are transparent about it. But after the RIA received flak for listing fossil-fuel-free funds in its directory that were later exposed to contain oil and gas companies, the association is now considering creating a certification process for RI funds in Canada.
To counter “impact washing” in Europe, the EU passed a disclosure regulation in December that sets standards for financial product labelling, mandating that financial advisers disclose the sustainability risks of a finance product to investors.
Canada’s federally convened Expert Panel on Sustainable Finance recommended we do something similar here.
How green are the bank’s own investments?
Many climate-conscious investors will also want to know just how their banks are dishing out their own money.
All five banks have signed on to the UN-supported Principles for Responsible Investment, promising to fold ESG factors into investment decisions, though research by Corporate Knights has found that while the Big Five invest billions in sustainable-solution companies, they also invest billions in controversial weapons, for-profit prisons and severe environmental violators, as well as a number of other themes that would register as egregious on many responsible investors’ radars (see report card). All five also have loan books bulging with fossil fuels in relation to their renewable energy lending, putting them at odds with global money trends.
In the meantime, the first RRSP deadline (March 2) of the new decade gives Canadians a chance to rethink their finances, knowing there are now at least some options on the shelf that allow them to bank on a sustainable future.
Big Five ethical investing report card
We visited Toronto-area branches of the Big Five banks and asked advisers what ethical or sustainable investment options they offered. Here’s what we found:
Ethical options: No responsible funds available in branch, though Scotiabank said in a statement that it has “considered” ESG factors in the investment process, and added, “Scotia iTRADE offers sustainable investing tools [online].”
Fossil-fuel-free or climate-conscious funds: No.
Knowledge of adviser: The personal banking adviser was unaware of any sustainable options and returned five minutes later to confirm that no options exist that the bank’s financial advisers were aware of.
Cost of values-aligned portfolio: N/A.
Bank loans and investments (clean vs. dirty): Scotiabank dishes out the second-most oil and gas loans ($14.8 billion), compared to zilch in loans to renewables.
TD Canada Trust