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Description: On Friday RBC announced that it would not be funding new oil drilling projects in the Arctic. Neither would the giant bank be financing new coal-fired projects. Andrew Block, speaking on behalf of RBC, said “We are committed to finding ways to balance the transition to a low-carbon economy.” It will be interesting to see how other Canadian banks respond to RBC’s initiative.

Date:  October 2, 2020

Source:  cbc.ca

Link: https://globalnews.ca/news/7376077/rbc-coal-oil-financing-restrictions/

 

Discussion points:

1) What do you think about RBC’s move?

2) What sort of environmental efforts are students at your campus carrying out?

3) On page 1-26 of Wiley’s Financial Accounting: Tools for Business Decision-Making, you can read about an important section in a company annual report called Management Discussion and Analysis (MD&A). If you were preparing the MD&A for RBC’s next annual report, how would you present this decision on future investments?

2 Responses to “RBC and the Arctic”

  1. Katherine Anne Hanscom, Shaobo Gong, Anna Hardie

    1) I think that RBC has made a bold but calculated move in today’s climate. I feel it is a just and right move; although RBC may lose millions in interest charges, the brand will elevate itself and differentiate in a way that better aligns with most customers ethical values. We know our Arctic is melting at an unheard-of rate and is one of the areas most affected by climate change. I do feel the decision is more of a calculated marketing strategy than a true environmental decision, I feel it is a win-win decision and it may lead more financial institutions to limit lending to projects which benefit all Canadians. As RBC is already one of the top banks in Canada with a very diverse clientele, the bank can afford to take a stance and will likely see an increase in first-time clients due to the positive attention that the announcement will bring.

    2) The students are Mount A are environmentally aware, as many young students are, and constantly push the school to do better. The student activist group, Eco-Action, has been raising awareness for environmental policies and emissions since 1999 and continues to remain active today. Students have organized protests for the Northern Gateway Pipeline, the Climate Crisis, Indigenous rights in regards to the destruction of traditional land, and most recently, the Divest movement. I remember the Divest movement vividly as it was well advertised on campus sidewalks and in the green spaces as well as in hallways. A student activists group called Divest MTA dedicated to promoting fossil fuel divestment at Mount Allison. It is a good indicator of the sentiment towards fossil fuels in young people. I believe the news of RBC’s new loan restriction would drive more students to RBC for their banking over other financial institutes who have not taken a stance.

    3) If I were to prepare the MD&A for RBC following the 02/10/20 announcement that they would join Citi, Goldman Sachs, Chase, Morgan Stanley and Wells Fargo in the decision to distance themselves from fossil fuels by not lending to any Arctic exploration plans, I would first look to the final quarter of 2020 to see the change in income and the number of new clients following the announcement. I believe the initiative will increase business, so my perspective would be that it would continue to increase market share through cause marketing. The decision would be presented as a marketing decision to increase our already large market share by being the first Canadian bank to protect the Canadian Arctic.

    Reply
  2. Group 5: Shaobo, Katherine, and Anna

    Our group answer after discussion:

    Group 5: Shaobo, Katherine, and Anna

    Dr. Brent White

    COMM 2101

    Oct. 17, 2020

    WWAU 1: RBC and the Arctic

    1) What do you think about RBC’s move?

    On October 2nd, 2020, RBC implemented a new policy stating that they will not finance Arctic Refuge drilling and restrict investment in new coal plants as the climate change is affecting the environment in the Arctic area.I think that RBC’s move was mainly for improving its brand image and for marketing purposes. Although RBC might suffer from the decrease in interest expenses, it can differentiate itself from other institutions and meet the values of their customers better, which will bring good renown for the bank, these policies improve the image of RBC more than decrease their support to coal companies. To explain, the new policy is not a divestment policy from investment in coal but a promise not to invest in “new clients that get more than 60 percent of their revenue from thermal coal or coal-fired power generation (GlobalNews, 2020). RBC can still invest in non-new coal deals and has lent over $3.116 billion dollars to these companies in these past three years alone(Reclaim Finance, 2020). Moreover, the new policy is only referring to not supporting greenfield coal plants and does not include brownfield coal plants (Reclaim Finance, 2020). However the biggest point that can be made is that “it was not too difficult for RBC to put an end to the direct financing of new coal projects since it was impossible to find any such deal financed by RBC in the past 20 years in the international financial database IJGlobal.” This means that RBC can still lend to companies to drill in the arctic as long as they are brownfield coal plants and are of companies that are not 60% coal companies. This still means that drilling in the arctic can still be funded by RBC by other fossil fuel companies for crude oil and gas.

    2) What sort of environmental efforts are students at your campus carrying out?

    There are two clubs at Mt.A that focus on environmentalism: Eco-Action and Divest MTA. Eco-Action has been raising awareness for environmental policies and emissions since 1999 and continues to remain active today. Students have organized protests for the Northern Gateway Pipeline, the Climate Crisis, Indigenous rights in regards to the destruction of traditional land, and most recently, the Divest movement. Divest MTA is dedicated to promoting fossil fuel divestment at Mount Allison, which is more closely connected to divestment of shares in fossil fuel companies by Mt.A. Students of Divest MTA do public speeches to share their thoughts every term. The existence of student activists groups just like Divest MTA is representing people’s attitude towards the use of fossil fuels. Although little progress has been made in terms of divestment of fossil fuels by Mount Allison. The finance department at Mt.A argues that much of the shares “they” buy and hold is beyond their choice because their shares are managed by an agency for them. Divest students continue to hold virtual protests and gain support on campus despite the COVID pandemic. Divest students believe that there are better investment options like green energy which has surprisingly high returns. In addition, the purpose of holding shares in the first place is to provide Mt.A with a financial safety net in case it goes bankrupt. In other words, the fossil fuel shares(including coal) are bought using alumni donations and held in the name of savings, rather than being traded in on a regular basis. Mount Allison arguably has no reason to increase their savings by buying shares as they already have huge amounts of capital and hold so many shares in other industries. From my understanding Mt.A has something in the billions in shareholdings. Divesting and using the money to invest in other profitable industries as safety nets is likely more ethical.

    3) On page 1-26 of Wiley’s Financial Accounting: Tools for Business Decision-Making, you can read about an important section in a company annual report called Management Discussion and Analysis (MD&A). If you were preparing the MD&A for RBC’s next annual report, how would you present this decision on future investments?

    We discussed three possible ways RBC could present and prepare for the MD&A report. First, As RBC has gained a good reputation from its new policy by restricting fossil fuel companies, it would be favourable to start putting more investment in green energy industries. This could make up the loss from losing clients and getting high returns as green energy will be the main source of energy in the future. Further, the report could also include how RBC could collaborate with Citi, Goldman Sachs, Chase, Morgan Stanley and Wells Fargo in the decision to distance themselves from fossil fuels by not lending to any Arctic exploration plans. We would first look to the final quarter of 2020 to see the change in income and the number of new clients following the announcement. We believe the initiative will increase business, so our prospective would be that it would continue to increase market share through cause-marketing. The decision would be presented as a marketing decision to increase market share by being the first Canadian bank to protect the Canadian Arctic.

    Reply

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