Environment Canada conducted a project with 6 major banks, and other stakeholders, to analyze sustainability risks and opportunities in the boreal region. Brent Parker highlights the main conclusions of the recently finalized project report.

Financial institutions around the world are increasingly responding to the unique business opportunities and risks posed by sustainability issues. Many financial institutions have recognized the inherent benefits of integrating sustainability into business decision-making and have begun to incorporate sustainability criteria into their operations, risk assessment processes, and new product development. At the same time, institutions are facing increased scrutiny over their policies and practices related to environmental and social issues such as biodiversity, climate change, and human rights. In Canada, banks in particular are experiencing growing stakeholder pressure from investors and non-government organizations to examine and disclose their lending policies with respect to these issues. One emerging area of focus is the impact and potential role of the financial services sector in protecting and conserving Canada’s boreal region.

Boreal risks and opportunities
Canada’s boreal region supports one of the world’s last frontier forests with over 70% considered ecologically intact. The boreal forest plays an integral role in Canada’s history, culture, economy and environment. It is home to hundreds of rural, remote and resource-dependent communities and plays a vital role in the economy by providing petroleum products, peat, forest products, hydro-electricity and tourism dollars. At a global level, the boreal plays a vital role as the single-largest terrestrial carbon storehouse in the world. The main issues threatening the sustainability of the boreal region are the: cumulative impacts from forestry, mining, oil and gas, power generation and agricultural activities; impacts of abnormal natural disturbances such as forest fires, insects and disease; effects of climate change; and poor land use planning.

Activities in the boreal region present a mix of opportunities and risks for Canadian banks. Banks not only procure products from the region to support their operations but also provide products and services that support the activities in the area. Although Canadian banks have risk management procedures in place and are already working in various ways to enhance their environmental and social policies, they share a common interest in developing a better understanding of the relevance of their activities to the sustainability of the boreal region.

Engaging stakeholders
Building on this shared interest, the federal Department of Environment, Environment Canada, in collaboration with six major Canadian banks (Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, Scotiabank, Toronto-Dominion Bank) commissioned research to examine financial institutions’ activities in light of the sustainability challenges facing the boreal region and identify priority issues and global best practices appropriate to the Canadian financial services sector. The ultimate objective of the research paper was to provide a range of options for consideration in developing strategies aimed at fostering greater alignment of the social, environmental and economic interests of the banks and their stakeholders with the sustainability of the boreal region.

The research assessed the relevance of financial institutions’ lending, procurement and other policies, strategies and practices on Canada’s boreal region. This broad perspective was supplemented by an inventory and review of the participating banks activities and an overview of recognized international best practices in the financial sector.

In total 81 Canadian and international organizations including NGOs, SRI funds, Aboriginal peoples, financial institutions, and financial service sector clients, were researched as part of this project. Thirty-five stakeholders actively participated in the consultation process identifying key issues and developing options for consideration.

Key findings and future considerations The research culminated in the report Financing Sustainability — Moving from Concept to Practice: Research Paper on the Relevance of Canadian Banks’ Activities to the Sustainability of Canada’s Boreal Region, which outlines the key issues and considerations for financial institutions (1).

The research highlights the fact that although concerns about the boreal were the impetus for sustainability considerations, these issues could just as easily come into focus in other critical areas of Canada such as the arctic, the rainforests of British Columbia, the urbanization of southern Ontario or Atlantic Canada. The issues landscape will also likely further expand from today’s primary focus on climate change and biodiversity to include water scarcity and endangered species. Both trends speak to the benefit of corporate-level sustainability policy.

Risks around the boreal forest region and sustainability need to be carefully considered in the context of all other types and forms of risks faced by a bank. In the overall scheme of a bank’s operation, revenue and shareholder value, the significance of such risks will vary. Rather than respond to pressure-based, issue-specific solutions proposed by activists, there is a need to balance the competing needs of relevant stakeholders by getting ahead of potential issues to assess the impact they may have on their organizations.

In order to expand beyond the historically narrow definition and assessment of environmental risk (e.g. site contamination), banks need to identify and obtain a broader set of skills to assess questions and practices of sustainability. Canadian banks are beginning to develop this forward looking capability; however, this could be further supported by broader consultation processes that engage non-traditional stakeholders such as government agencies, aboriginal organizations and academics. Canadian banks might also consider developing partnerships with science-based conservation organizations to further research issues related to specific sustainability issues.

The report also identified the opportunity for Canadian banks to develop environmentally-oriented consumer investment products as well as commercial products that provide incentives or preferential services which recognize the implementation of sustainability practices such as third party certified operations, research and development leading to improved operational practices, or the development of green products or technologies. In terms of their own operations and procurement Canadian banks could also generate a positive impact on the boreal region by enhancing internal corporate social responsibility practices.

The research noted the catalytic role banks could play in fostering a sustainability-based economy and identified key areas of opportunity for further development. The options outlined for consideration involve assessing transaction risks with respect to social and environmental criteria, fostering improved client performance, and sectoral collaboration on leadership activities such as Equator Principles-type guidelines for lending in Canada, standardized environmental risk assessment checklists and a statement on sustainable lending for protected or eco-sensitive areas.

Institutionalizing sustainability Canadian banks are acknowledging their direct and indirect role in Canada’s sustainability through the responsible management of the country’s social, economic and natural resources. Over the intervening time period of this research, Canadian banks have broadened their corporate environmental policies and expanded their supporting activities. For example, some banks have committed to carbon-neutral operations while others have identified ‘no-go’ zones, such as World Heritage Sites, which are off limits for project financing. Many have also begun to capitalize on investor interest in responsible investments and have launched specialized SRI and environmental investment products.

It is expected that this research paper will be used to provide a common foundation upon which Canadian banks can, individually or collectively, continue their constructive dialogue with key stakeholders on boreal and sustainability issues. As financial institutions continue to acknowledge the risks and opportunities presented by sustainability, those organizations that most effectively institutionalize these emerging issues stand to benefit their shareholders, stakeholders, and society at large.

Brent Parker is Senior Policy Advisor, Sustainability Policy Directorate, Environment Canada

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(1) The full report can be downloaded here