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].

The Bank of Nova Scotia has acknowledged that climate change is a “top and emerging risk” that can ultimately “affect Bank performance by giving rise to credit, reputational, operational or legal risk”[2]. In response, Scotiabank has published a net-zero by 2050 target, and in October 2021, publicly committed to the Net-Zero Banking Alliance, which includes a commitment to align its lending and investment portfolios with a net-zero by 2050 pathway[3]. Despite these commitments, Scotiabank is currently the ninth highest lender to the fossil fuel sector globally since the Paris Agreement (over C$200 B total), including C$38 B of financing for the sector in 2021, the bank’s highest amount to date.

In its 2021 Net Zero Pathway Report, Scotiabank states: “We believe we have a key role to play in the transition to a net-zero future, and we intend to collaborate with and support our current and prospective clients in the public and private sector, as they decarbonize their supply chains, operations, and economies.”  However, the bank has yet to demonstrate to investors that it is systematically managing the risks associated with its financing of high carbon activities. Specifically, it has yet to articulate its framework for expecting, assessing and evaluating high GHG emitting clients’ transition plans.

When a bank’s clients are expected to set and implement transition plans, they become accountable for their part in reducing the financed emissions of the bank and its investors. Standards and guidelines are emerging to help financial institutions and their clients operationalize net zero commitments, and “to accelerate the development and implementation of credible, real-economy transition plans”.[4]

From an investor vantage point, failing to set these expectations could expose Scotiabank to considerable 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 both Scotiabank and its high carbon-risk clients have effective and accountable 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.scotiabank.com/ca/en/about/responsibility-impact/esg-publications-policies.html p 17

[3] https://www.unepfi.org/net-zero-banking/commitment/

[4] September 22, 2022, GFANZ Releases Report to Provide Blueprint for Real-Economy Transition Plans