Royal Bank of Canada | Climate Transition Plan and Financed Emissions Reduction Goals at Royal Bank of Canada

Status
15.10% votes in favour
AGM date
Proposal number
7
Resolution details
Company ticker
RY:CN
Lead filer
Vancity Investment Management
Resolution ask
Report on or disclose
ESG theme
  • Environment
ESG sub-theme
  • Fossil fuel financing
  • Net Zero / Paris aligned
Type of vote
Shareholder proposal
Filer type
Shareholder
Company sector
Financials
Company HQ country
Canada
Resolved clause
RESOLVED: Shareholders request that RBC disclose, at reasonable cost and omitting proprietary information, 1) its expectations of what a credible transition plan is for clients in sectors most exposed to climate-related risks and 2) procedures to ensure these transition plans will help RBC reach its 2030 interim targets to reduce the financed emissions associated with its lending portfolios.
Supporting statement
SUPPORTING STATEMENT
Climate change is a global crisis that requires urgent action. Exceeding a 1.5°C warming scenario presents risks to the planet, economies, investors, and ultimately to the long-term profitability of banks: projections have found that limiting global warming to 1.5° degrees will save $20 trillion globally by 2100, while exceeding 2 degrees could lead to climate damages in the hundreds of trillions. Estimates show that 10% of global economic value stands to be lost by 2050 under current emissions trajectories.1
Reflecting this, RBC states that climate change poses a significant risk to its business and recognizes the greatest impact the bank can have is by supporting clients through the net-zero transition.2 Investors strongly agree with this sentiment and believe the bank has the ability to be a global leader in this respect.
As indicated by RBC, the bank’s ability to meet its net-zero target relies on disclosing and reducing financed emissions. Publishing emissions data associated with automotive, power generation, and oil & gas lending is a positive first step. Additionally, committing to achieving net-zero emissions in lending and setting associated 2030 interim targets bolsters the bank’s commitment to climate.
Despite this, investors are left with significant uncertainty around RBC’s ability to meet these targets and thrive in a carbon constrained economy. Investors lack key information such as the proportion of clients who are misaligned with the bank’s climate targets, timelines for reporting on additional sectors’ financed emissions, and expectations of existing and future client’s transition plans. While RBC has repeatedly referenced communication of interim financed emissions targets with clients, investors continue to lack clarity on how expectations and standards are conveyed, and how climate ambitions shape the lending process.
Several of RBC’s peers provide more clarity on how they are implementing transition plans. For instance, CIBC has disclosed a high-level Carbon Risk Scoring methodology and a weighted average aggregate score of client transition preparedness while ING and UBS both provide details on their lending strategies and sector alignment. Standards and guidelines exist to help financial institutions and their clients operationalize net zero commitments and can help ensure investors that RBC has appropriate strategies in place to meet 2030 targets.
From an investor vantage point, failing to set these expectations could expose RBC to material financial risks, including (but not limited to): significant counterparty risks due to stranded assets, declining credit quality, increased risk in other portfolios, and loss of goodwill. The disclosures requested in this proposal will help assure investors that RBC has effective and accountable client transition plans in place for achieving 2030 emissions reduction goals.
1 https://www.swissre.com/institute/research/topics-and-risk-dialogues/climate-and-natural-catastrophe- risk/expertise-publication-economics-of-climate-change.html
2 https://www.rbc.com/community-social-impact/_assets-custom/pdf/RBC-Climate-Report-2022.PDF

How other organisations have declared their voting intentions

Organisation name Declared voting intentions Rationale
Anima Sgr For As shareholders would benefit from more information on the company's future GHG reduction plans to better assess how the company is managing the physical and transition risks associated with climate change effectively. An advisory vote would also provide investors an opportunity to express their views on whether the plan is meeting expectations over time.
Benguela Global Fund Managers For Benguela Global Fund managers is in support of GHG reduction and transition to clean energy. We believe that shareholders will stand to benefit significantly from RBC's initiatives to enhance transparency regarding environmental goals and social responsibility. These initiatives could improve risk management by providing RBC with a clearer understanding of its climate exposure and clients' readiness for a low-carbon future. Additionally, aligning with the increasing investor focus on Environmental, Social, and Governance (ESG) factors positions RBC as a more appealing investment option. Lastly, the focus on areas like clean energy and the circular economy could present new business opportunities, thereby creating additional value for shareholders.

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