Friday, October 21, 2016

TD Complicit in North Dakota Pipeline Controversy

Recently, protesters chained themselves to a TD branch to protest the bank’s funding of the controversial North Dakota oil and gas pipeline.  The pipeline is meant to transport natural gas from U.S. fracking operations.  Despite President Obama and the justice department directly intervening to block the pipeline's progress due to the lack of stakeholder engagement and consent, the media has not been covering the issue to any great extent.

Earlier this week, Schulich School of Business hosted the Senior Director of CIBC's Environmental Group.  The Schulich MBA alumnus explained how CIBC screens projects based on their environmental risk to the client.  This is what we’d call the business case for sustainability because it makes financial sense for CIBC to do this.  These sorts of initiatives are labeled as a commitment to sustainability when they are simply business practices that maximize the bottom line.  As a 12 year old article in the Economist noted, this is not CSR, this is simply good business.  But the problem is that the bank’s determination of what is an environmental risk is not the same as society’s determination of an environmental risk.  For instance, a bank may push their clients to consider the effects on their operations of devastating storms resulting from climate change but they will not consider the negative impact of those same operations on nearby waterways upon which local communities depend if there is nothing in place, such as regulation, to facilitate the potential for financial costs.  This is why CIBC often looks completely hypocritical considering that they continually boast their commitment to breast cancer research through funds raised for CIBC Run for the Cure yet will not bring their environmental risk standard to a level that would preclude funding those businesses that produce and/or use the chemicals that contribute to breast cancer.  

TD’s blunder in the North Dakota access pipeline represents a very similar example of this because the project likely passed their weak environmental risk standard, a standard they boast to be part of their commitment to sustainable development.  But what their standards did not include was the necessary social license to operate that companies should have before receiving funding from TD.  This is because TD would determine this to be low risk, even though broader society as represented by the protests there (including the US President and Justice Department), deem this high risk.  The bottom line is that the banks' standards around sustainability will only become as strict as is necessary to optimize profitability.  This is insufficient if any bank is serious about responsible business.  Let's be clear:  standards that are necessary to prevent negative social impact yet are unnecessary to prevent substantial risk - because government regulation is too laxed or behind in enforcing certain practices,  or the risk of stakeholder revolt at the time of the loan and its impact on the client's brand is negligible - would represent a drop in profit.  

So I balk at Schulich's CIBC presenter and the rest of the big banks’ bold commitments of environmental sustainability because they are simply following the buck.  It is now more attractive for banks to go in this direction because of looming regulation, serious stakeholder revolt if they fail to do so, and the negative impacts of decades of negligence in the lending practices these banks have ultimately facilitated (e.g. climate change).  To now say that this movement into environmental markets is a solid example of their commitment to sustainability is like saying that Tim Hortons' or McDonald’s introduction of healthier food options is a bold movement towards responsible business.  The reality is that they are now profiting from a growing awareness that what they were feeding society over these last several decades was garbage.  The banks have profited off of the negative externalities they were complicit in creating as the intermediary of capital and now they are profiting off of the growing market for environmental practices meant to correct what they helped to create.  That's f$%#& up!