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Green vs Growth Economy

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An analysis of the Big Five's ESG Reports 2020-2023

 

This research explores the following question: can a green economy exist within a growth economy and what are the opportunities and or challenges in sustainable financing within the Canadian financial market? In response to the Paris Agreement under the UNFCCC (United Nations Framework Convention on Climate Change) and the Sustainable Development Goals (SDG), the Canadian Government’s Climate Action Plan has influenced organizations operating in the Canadian economy to consider greener objectives (Government of Canada, 2022 & 2023a). This research explores the relationship between green policies or directives and economic growth in the financial industry and how environmental, social, governance (ESG) values shape the financial contributions made by the Big Five Canadian Banks; BMO Bank of Montreal, CIBC Canadian Imperial Bank of Canada, RBC Royal Bank of Canada, Scotiabank Bank of Nova Scotia, and TD Toronto Dominion Bank. Sustainable financing is the key driver in achieving these ESG metrics which presents both challenges and opportunities in its implementation. This research is summarized through a series of infographics which outlines the factors and progress contributing to Canada’s economic shift towards a greener economy.

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Sustainable investing has grown over the years due to several global events; the Paris Agreement on Climate Action, the United Nations Sustainable Development Goals, the European Union Green Deal and Taxonomy Regulation, the UK Green Finance Strategy, the Friday’s for Future movement and more recently the economic impact of Covid19 (Rizzello, 2022). These events have encouraged transformation in sustainable thinking and caused radical change towards how the financial sectors approach sustainability. For Canada, the Climate Action plan has set a precedent for the Canadian financial industry to contextualize their direct and indirect environmental impact (Government of Canada, 2023a). Environmental Social Governance (ESG) reporting has become one of the primary blueprints for Canadian banks to outline their support and embodiment of socially and environmentally conscious standards (SASB Standards, n.d.). ESG pillars have become a requirement for financial institutions to widen their business strategies and operations by offering innovative products and services contributing to environmental efforts (Eccles & Stroehle, 2018). For the Canadian financial market one of the biggest influences on the Canadian economy are that of the Big Five; Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC), Bank of Nova Scotia (Scotiabank), and Toronto-Dominion Bank (TD) (TMX Group, n.d.).

 

With increasing demand in financial industry regulations, especially those of the Big Five, ESG reports have become mandated serving as a guideline for banks to incentivize greener contributions whether through direct operations, indirect product/service offerings or partnerships (SASB Standards, n.d.). Sustainable financing, also known as green financing, has become a pivotal tool for the Big Five to provide more meaningful environmental considerations that shareholders can also partake in (Torre & Chiappinni, 2021). Either through lending or investing, sustainable financing aims to achieve, “both financial and or environmental benefits – ethical, responsible, environmental, social, and governance (ESG),” (Torre & Chiappinni, 2021, p.286).

 

The push for green growth has become a crucial part in the decision-making process for the Big Five to manage climate risks confronted by their business operations and for society as a whole (Bagheri et al., 2018). A common concern in this transition is that investor and borrower perception towards the expectation of growth may or may not always align with ESG mandates, ultimately affecting consumer loyalty and financial participation (Ferriani & Natoli, 2021; Semieniuk, et al., 2022). For Canada, as an oil-producing country, “sustainable finance presents very real opportunities and challenges,” and requires banks to proactively address ESG concerns (Bak, 2019, p.26). Although sustainable financing helps support the economic transition, Canadian financial institutions are still trying to navigate this landscape and balance a number of factors, some of which include; shareholder engagement, greenhouse gas emissions (GHGe) and the overall governance related to sustainable financing activities, products and services to support economic growth.

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