It’s time for Canadian banks to be more transparent about their exposure to fossil fuel investments and the potential impact of carbon pricing on their portfolios, the non-profit Shareholder Association for Research and Education (SHARE) urged last week.
“Because of the potential impacts of climate change on these financing activities, shareholders are interested in understanding how the banks are managing these risks, including their overall exposure to carbon-intensive assets and how they are aligning their longer-term business strategies to a low-carbon economy,” wrote SHARE’s Shannon Rohan.
“Banks have to be prepared for a price to be placed on carbon and for assets held by oil, gas, and coal companies to become ‘stranded’ because they can’t be exploited without catastrophic climate change,” CBC reports, citing Rohan. The commitment to limit average global warming to 2ºC “should be part of their investment ethic, she said, adding that banks should be analyzing the carbon footprint of their entire portfolio.”
Rohan listed stranded assets, property damage due to flooding and severe weather, systemic risks from the cost of a low-carbon transition, and competitive risks from other countries that are quicker to embrace that transition, as pitfalls that Canadian financial institutions can expect to face.
Rohan “recommends having executive compensation tied to targets for reducing carbon exposure,” CBC notes. “She said Canadian banks are lagging behind their European counterparts, some of which have begun to assign shadow carbon pricing for energy companies.”