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February 24, 2025
Canadian Banks: Shifting Landscape of Climate Disclosure
In January 2025, Canada's financial landscape experienced a major shift when six of the country’s largest banks—BMO, National Bank, TD Bank Group, CIBC, Scotiabank, and RBC—announced their exit from the Net-Zero Banking Alliance (NZBA), a global coalition of financial institutions committed to reaching net-zero emissions by 2050. This departure is particularly significant, as these banks collectively manage more than 80% of Canada’s banking assets, making their withdrawal a noteworthy sign of changing priorities in the sector. The move mirrors a broader trend across North America, with major U.S. banks like JP Morgan, Citigroup, and Bank of America also stepping back from the NZBA.
Despite this move, Canadian banks are still expected to align with international climate-related disclosure standards. The Canadian government and financial regulators, such as the Office of the Superintendent of Financial Institutions (OSFI), are increasingly encouraging or requiring financial institutions to report on climate-related risks. Aligning with frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) helps banks comply with emerging regulations, and the Sustainability Accounting Standards Board (SASB), which focuses on industry-specific ESG metrics. Many banks also rely on the Carbon Disclosure Project (CDP) for environmental performance tracking, while the International Financial Reporting Standards (IFRS) supports climate disclosures. Additionally, proxy advisory firms like Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (GL) have established climate-reporting guidelines for public companies, further strengthening accountability in the financial sector. Although proxy voting may not encompass the entirety of a bank's climate engagement, it serves as a vital tool in holding institutions accountable to their commitments.
Notwithstanding the banks’ departure from the NZBA signals a shift, they emphasized that their climate goals and sustainable financing initiatives will remain intact. In Canada, the banking sector is increasingly expected to disclose information on how they are addressing climate change, including their exposure to carbon-intensive industries, their efforts to finance the transition to a low-carbon economy, and their overall climate risk management strategies. Several noted that their climate strategies have evolved in recent years, positioning them to comply with international standards and regulatory requirements while aiding clients in the transition to a net-zero future.
The exit has sparked significant discussion around corporate governance, particularly within the context of Canada’s legal framework. The Canadian Bank Act mandates that directors of financial institutions act in the best interests of their institutions, shareholders, and stakeholders. As climate-related risks are increasingly viewed as financially material, directors are considering the long-term implications of these risks on financial stability and profitability.
Banks are central to the energy transition through their capital allocation decisions. As key players in the financial system, they provide essential services to Canadians, including savings and checking accounts, loans, investment products, and support for both small businesses and large corporations. Investors, too, are calling for more action on climate-related risks. The case for addressing these risks is clear: banks that fail to incorporate climate change into their governance and strategy risk long-term reputational damage and financial loss.
Institutional investors in Canada are also becoming more influential in shaping the future of ESG disclosures. A February 18 article in The Globe and Mail revealed that Canadian institutional investors significantly increased their support for climate-related shareholder proposals in 2024, with over 65% backing climate change resolutions—up from just over 50% in 2023. This growing engagement signals a strong commitment within the investment community to drive climate accountability, including within the banking sector.
As institutional investor engagement intensifies, climate risks mount, and regulatory frameworks evolve, Canadian banks find themselves at a pivotal juncture. Climate disclosure reporting enables them to demonstrate their commitment to aligning with national climate goals, such as reducing greenhouse gas emissions and fulfilling international climate commitments. By balancing profitability with long-term sustainability, banks shape their future in an increasingly complex financial environment. Their responses to climate change influence not only their financial performance but also their role in advancing a sustainable global financial system.
Despite this move, Canadian banks are still expected to align with international climate-related disclosure standards. The Canadian government and financial regulators, such as the Office of the Superintendent of Financial Institutions (OSFI), are increasingly encouraging or requiring financial institutions to report on climate-related risks. Aligning with frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) helps banks comply with emerging regulations, and the Sustainability Accounting Standards Board (SASB), which focuses on industry-specific ESG metrics. Many banks also rely on the Carbon Disclosure Project (CDP) for environmental performance tracking, while the International Financial Reporting Standards (IFRS) supports climate disclosures. Additionally, proxy advisory firms like Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (GL) have established climate-reporting guidelines for public companies, further strengthening accountability in the financial sector. Although proxy voting may not encompass the entirety of a bank's climate engagement, it serves as a vital tool in holding institutions accountable to their commitments.
Notwithstanding the banks’ departure from the NZBA signals a shift, they emphasized that their climate goals and sustainable financing initiatives will remain intact. In Canada, the banking sector is increasingly expected to disclose information on how they are addressing climate change, including their exposure to carbon-intensive industries, their efforts to finance the transition to a low-carbon economy, and their overall climate risk management strategies. Several noted that their climate strategies have evolved in recent years, positioning them to comply with international standards and regulatory requirements while aiding clients in the transition to a net-zero future.
The exit has sparked significant discussion around corporate governance, particularly within the context of Canada’s legal framework. The Canadian Bank Act mandates that directors of financial institutions act in the best interests of their institutions, shareholders, and stakeholders. As climate-related risks are increasingly viewed as financially material, directors are considering the long-term implications of these risks on financial stability and profitability.
Banks are central to the energy transition through their capital allocation decisions. As key players in the financial system, they provide essential services to Canadians, including savings and checking accounts, loans, investment products, and support for both small businesses and large corporations. Investors, too, are calling for more action on climate-related risks. The case for addressing these risks is clear: banks that fail to incorporate climate change into their governance and strategy risk long-term reputational damage and financial loss.
Institutional investors in Canada are also becoming more influential in shaping the future of ESG disclosures. A February 18 article in The Globe and Mail revealed that Canadian institutional investors significantly increased their support for climate-related shareholder proposals in 2024, with over 65% backing climate change resolutions—up from just over 50% in 2023. This growing engagement signals a strong commitment within the investment community to drive climate accountability, including within the banking sector.
As institutional investor engagement intensifies, climate risks mount, and regulatory frameworks evolve, Canadian banks find themselves at a pivotal juncture. Climate disclosure reporting enables them to demonstrate their commitment to aligning with national climate goals, such as reducing greenhouse gas emissions and fulfilling international climate commitments. By balancing profitability with long-term sustainability, banks shape their future in an increasingly complex financial environment. Their responses to climate change influence not only their financial performance but also their role in advancing a sustainable global financial system.
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