TD's Views on Desjardins' Net Zero by 2040 .... Read-throughs from Desjardins' Net Zero by 2040 Announcement
TD Investment Conclusion
Strategy highlights: Desjardins Group, North America's largest cooperative
financial group, announced its plan to achieve net zero by 2040 in its lending activities
and own investments. This includes:
Focusing on/supporting carbon intensive companies (specifically energy,
transportation, real estate) that: 1) demonstrate solid ESG performance; 2)
factor in climate risk; and 3) set credible GHG reduction targets.
Increasing support for renewables through: 1) lending (increase renewable
allocation in energy lending to 35% in 2025 from 24% in 2020, and 2) investing
(build $2B investment portfolio in renewable energy infrastructure; financial
support for five development projects to convert organic waste largely from
agriculture into renewable energy).
Working with key suppliers to reduce the carbon footprint of their supply
chains (Desjardins also recently updated its procurement policy to include ESG
factors).
Aligning its workforce: Provide training to employees on the principles of
sustainable development.
Aligning GHG reporting: Joined the Partnership for Carbon Accounting
Financials to accurately measure its GHG emissions in its lending and investing
activities using recognized methods.
Why it matters: To our knowledge, Desjardins is one of the first financial institutions
with a 2040 net zero timeline, while most globally are targeting 2050 (see the
Glasgow Financial Alliance for Net Zero [GFANZ] here). Recall, Desjardins first
announced its climate mitigation/ESG integration strategy in 2017. It also explicitly
stated how they were going to engage carbon-intensive sectors, including energy,
transportation, and real estate.
What it means for those sectors— Increasing pressure to align emissions
goals in order to maintain access to capital: As more financial institutions
evaluate lending/investing activities in the context of climate risk and as more
institutional investors sign onto climate change coalitions, w e believe companies
in hard-to-abate industries will continue to face increasing pressure to establish
emission reduction goals that are in line with providers of capital.
Majority of energy companies on the TSX have emissions reduction goals;
not so much for other sectors: Although we do not know which companies are in
Desjardins' loan book/portfolios, we can use the TSX as a proxy for these industries.
We note that of the 23 companies listed under the Energy GICS category (which
includes oil & gas producers, midstream companies), the majority of them (16 or
70%) have stated emissions reduction goals (e.g. SU, CNQ, ARX, TOU, ENB, TRP).
Under Transportation, there are three (or 38%) out of eight (namely AC, CNR,
CP). Meanwhile out of the 26 companies under the Real Estate category, there are
approximately eight (or 31%; e.g. CHP.UN, CIGI, D.UN, REI.UN) with stated goals.
In our view, integrating ESG and climate risk into corporate strategy is no longer a
nice-to-have but is a growing requirement in order to maintain access to capital—
not just for hard-to-abate industries but likely all industries over time.