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Resolution Details

Company:

Royal Bank of Canada

Year:

2024

Issue Area:

Climate Change, Lobbying & Political Contributions

Focus Area:

Climate Change, GHG Reduction and Targets

Status:

Filed

Resolution Text

RESOLVED: Shareholders request that RBC disclose, at reasonable cost and omitting proprietary information, 1) its expectations of what a credible transition plan is for clients in sectors most exposed to climate-related risks and 2) procedures to ensure these transition plans will help RBC reach its 2030 interim targets to reduce the financed emissions associated with its lending portfolios.

SUPPORTING STATEMENT

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

Reflecting this, RBC states that climate change poses a significant risk to its business and recognizes the greatest impact the bank can have is by supporting clients through the net-zero transition.2 Investors strongly agree with this sentiment and believe the bank has the ability to be a global leader in this respect.

As indicated by RBC, the bank’s ability to meet its net-zero target relies on disclosing and reducing financed emissions. Publishing emissions data associated with automotive, power generation, and oil & gas lending is a positive first step. Additionally, committing to achieving net-zero emissions in lending and setting associated 2030 interim targets bolsters the bank’s commitment to climate.

Despite this, investors are left with significant uncertainty around RBC’s ability to meet these targets and thrive in a carbon constrained economy. Investors lack key information such as the proportion of clients who are misaligned with the bank’s climate targets, timelines for reporting on additional sectors’ financed emissions, and expectations of existing and future client’s transition plans. While RBC has repeatedly referenced communication of interim financed emissions targets with clients, investors continue to lack clarity on how expectations and standards are conveyed, and how climate ambitions shape the lending process.

Several of RBC’s peers provide more clarity on how they are implementing transition plans. For instance, CIBC has disclosed a high-level Carbon Risk Scoring methodology and a weighted average aggregate score of client transition preparedness while ING and UBS both provide details on their lending strategies and sector alignment. Standards and guidelines exist to help financial institutions and their clients operationalize net zero commitments and can help ensure investors that RBC has appropriate strategies in place to meet 2030 targets.

From an investor vantage point, failing to set these expectations could expose RBC to 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 RBC has effective and accountable client 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.rbc.com/community-social-impact/_assets-custom/pdf/RBC-Climate-Report-2022.PDF

 

 

Resolution Details

Company:

Royal Bank of Canada

Year:

2024

Issue Area:

Corporate Governance

Focus Area:

Executive Compensation

Status:

Filed

Resolution Text

BE IT RESOLVED

The Board of Directors undertake a review of executive compensation levels in relation to the entire workforce and, at reasonable cost and omitting proprietary information, publicly disclose the CEO- compensation-to-median-employee-pay-ratio on an annual basis.

SUPPORTING STATEMENT

Job action by United Auto Workers and Hollywood talent illustrates the employee unrest impacting many industries and underscores the discrepancy between corporate profits and increased executive pay compared to workers’ trailing wages. Exacerbating this unrest is stagnant wage growth combined with rising inflation, particularly impacting necessities like housing, energy, and food1.

Sluggish wage growth trailing inflation for average employees is in stark contrast to executive compensation, where realized wages have continued to exceed inflation and diverge from the rest of the workforce. This data is widely available, and this growing gap is undisputed.

While companies with lower levels of unionization are less exposed to direct labour action, they are still exposed to similar financial impacts. This is often felt through increased employee turnover, absenteeism, and lowered employee morale. For instance, research has shown that a burnt-out employee can incur a cost equivalent to over 30% of their salary and that replacing an existing employee can cost up to 400% of their annual salary2.

To effectively implement strategies that increase company value, senior executives need engaged employees to execute their vision. Many studies show that social comparison is a powerful factor in human interaction and employee satisfaction is heavily dependent on perceived fairness in compensation3.

The perception that only executives benefit from company growth and that the average worker is not fairly compensated for their individual contribution is demotivating for employees. The CEO- compensation-to-median-employee-pay-ratio is a useful mechanism to evaluate and assess wage distributions within a company. When pay differentials are closely monitored and managed, employees are more likely to be highly engaged and productive.

Say-on-pay vote results have very little to do with a company’s management of pay differentials. Shareholders are lacking information on how exposed RBC is to human capital risks associated with skewed compensation distributions. Vancity filed this proposal last year and received 13% support. MEDAC previously filed a similar proposal with RBC, indicating there is demand for this information.

As a financial institution, RBC is heavily dependent on human capital to drive growth and in turn, shareholder value. The CEO-compensation-to-median-employee-pay-ratio provides a simple cost-effective way for RBC to communicate how the company manages pay differentials. Scotiabank provide this ratio and the Global Reporting Initiative, which RBC already utilizes, offers a well-recognized method to calculate this through indicator 2-21.

The aim of this disclosure is not to limit executive compensation but to ensure that shareholders have the appropriate information to evaluate RBC’s management of human capital risks. Disclosing and tracking the ratio will allow RBC to better manage employee engagement and morale, talent recruitment and retention and mitigate the increasing financial and reputational risk associated with growing pay differentials.

1 https://www.forbes.com/sites/annefield/2022/05/23/ceo-worker-pay-gap-widens-and-employees-arent-happy- about-it/?sh=3ac80050142c 

2 https://www.joinpavilion.com/blog/the-real-cost-of-burnout; https://www.simplybenefits.ca/blog/employee- retention-what-is-the-true-cost-of-losing-an-employee 

3 https://www.psychologytoday.com/ca/blog/work-smarter-not-harder/202303/the-executive-worker-pay-gap-isnt-without-consequences

 

 

Resolution Details

Company:

Royal Bank of Canada

Year:

2024

Issue Area:

Inclusiveness

Focus Area:

Race Discrimination

Status:

Withdrawn

Resolution Text

RESOLVED, shareholders request the bank conduct and publish (at reasonable cost and omitting proprietary information) a third-party racial equity audit analyzing RBC’s adverse impacts on communities of colour and Indigenous people. Input from civil rights organizations, employees, and customers should be considered.

SUPPORTING STATEMENT

Financial institutions play a key role in society, allowing businesses and individuals to access essential economic opportunities through a range of financial products and services, including credit and loan services, savings accounts, and investment management. Financial institutions have the responsibility to ensure that their business operations do not have adverse impacts on communities of colour and Indigenous people.

An estimated 2% of Canadians are “unbanked”,1 while 15-25% are “underbanked”. Unbanking and underbanking have a disproportionate effect on Indigenous peoples.2 The Financial Consumer Agency of Canada found that racialized or Indigenous bank customers are subjected to discriminatory practices3, were more likely than other customers to be recommended inappropriate products, were not presented information in a clear and simple manner and were offered optional products such as overdraft protection and balance protection insurance.

In recent years, RBC has been subject to negative media coverage regarding discrimination against customers and employees. In January 2023, the US Justice Department announced a US$31 million settlement with RBC subsidiary City National Bank over allegations of lending discrimination in Los Angeles.4 The Department alleged that RBC’s subsidiary perpetuated “redlining,” a racist practice that is prohibited under the Fair Housing and Equal Credit Opportunity Acts, by systematically avoiding marketing and underwriting mortgages in predominately Black and Latino neighbourhoods.5

Additional recent race-based allegations against RBC include the use of high-pressure sales tactics6, racial profiling7, and other reports of alleged misconduct.8

RBC has committed to enabling economic inclusion through its Action Plan Against Systemic Racism. Although well intentioned, such initiatives do not constitute an alternative to racial equity audits. A racial equity audit is an independent examination of business practices intended to identify and remediate potential and actual discriminatory outcomes on people of colour and Indigenous people. Such an assessment would help shareholders, employees, and customers understand whether RBC’s initiatives are aligned with its stated racial equity commitments while ensuring that the bank’s business activities falling outside the Action Plan do not discriminate against people of colour and Indigenous people.

Racial equity audits have proven to be effective risk mitigation tools as they help manage material legal, financial, regulatory, and reputational business risks by identifying, prioritizing, remedying, and avoiding adverse impacts on communities of colour and Indigenous people beyond the workplace.

At RBC’s 2023 annual meeting, 42% of votes were cast in favour of a third-party racial equity audit. However, in contrast with a number of its US and Canadian peers, RBC has not confirmed its intention to conduct this assessment.

We urge RBC to assess its business activities through a racial equity lens in order to obtain a complete picture of how it contributes to and could help dismantle systemic racism.

1 https://www.bankofcanada.ca/wp-content/uploads/2023/10/sdp2023-22.pdf

2 https://bcbasicincomepanel.ca/wp- content/uploads/2021/01/Financial_Inclusion_in_British_Columbia_Evaluating_the_Role_of_Fintech.pdf 

3 https://www.canada.ca/en/financial-consumer-agency/programs/research/mystery-shopping-domestic-retail- banks.html 

4 https://www.justice.gov/opa/pr/justice-department-secures-over-31-million-city-national-bank-address-lending- discrimination 

5 https://www.latimes.com/california/story/2023-01-12/city-national-bank-redlining-settlement

6 https://www.cbc.ca/news/business/banks-racial-discrimination-report-1.6473715

7 https://ottawa.ctvnews.ca/rbc-client-accusing-bank-of-racism-after-police-called-to-investigate-transaction-1.6577256 

8 https://www.cbc.ca/news/canada/saskatoon/land-defenders-climate-activists-rally-downtown-1.6803576

 

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Resolution Details

Company:

Royal Bank of Canada

Year:

2023

Issue Area:

Climate Change, Lobbying & Political Contributions

Focus Area:

Climate Financing

Status:

Vote

Vote Percentage:

7.15%

Resolution Text

SCHEDULE A

Public companies with pollution-intensive assets such as coal, oil and gas projects (polluting assets) are coming under increasing pressure from institutional investors with ESG concerns. Certain issuers have sold polluting assets or are contemplating doing so. When these polluting assets are sold to private enterprises, investors are concerned about the lack of disclosure that results.

In response to BCGEU’s 2022 proposal, RBC stated it takes a holistic view to evaluating risk, and that projects/transactions with potential environmental impacts are evaluated against these standards through its enhanced due diligence process.

RBC’s response fails to grasp the challenge of facilitating the movement of polluting assets from public companies to private enterprises. This challenge was outlined by the UN Principles for Responsible Investment (PRI) in a recent publication discussing divestment of polluting assets by public companies[1]:

While a listed company spinning off a polluting asset may eliminate emissions from its balance sheet, it is unlikely to translate to a reduction in real-world emissions. In fact, it may reduce transparency and accountability over how the asset is managed, result in higher absolute emissions from more intensive exploitation of the asset, and shift risk onto governments and taxpayers.

A March 2022 paper by the European Corporate Governance Institute (ECGI) labels this phenomenon as “brown-spinning”[2]:

[T]here has been a concerning recent phenomenon known as brown-spinning whereby public companies sell their carbon-intensive assets to players in private markets (including private equity firms and hedge funds). This helps divesting companies to reduce their own emissions but does not result in any overall emission reduction in the atmosphere. [H]aving carbon-intensive assets going dark where they are not subject to the usual strict scrutiny of public markets is worrisome from the perspective of lowering emissions.

RBC’s Policy Guidelines for Sensitive Sectors and Activities acknowledges that certain sensitive sectors and activities require focused policy guidelines, as it will not provide direct financing for certain projects/transactions and other controversial projects will be subject to enhanced due diligence.[3] A similar approach is needed for the bank’s involvement in brown-spinning transactions, in an attempt to bridge the disclosure gap between public and private enterprises.

ECGI describes the benefits of improved disclosure from private entities, stating: “the uneven playing field between public and private companies would be levelled, thus eliminating the classical problem of avoiding regulatory obligations tied to being public by staying private (ie, removing incentives to remain private longer to avoid sustainability disclosures).”

RESOLVED THAT RBC amend its Policy Guidelines for Sensitive Sectors and Activities so that when RBC plays an M&A advisory or direct lending role on brown-spinning transactions, RBC will take reasonable steps to have parties to such transactions takes steps and make disclosures consistent with TCFD, including

ensuring acquiring board oversight of climate-related risks,
annual acquiring entity disclosure of Scope 1 and 2 GHG emissions from the acquired assets, and
regarding such acquired assets, having the acquiring entity set targets for reducing GHG emissions within a reasonable time after completing the brown-spinning transaction.

[1] https://www.unpri.org/download?ac=16109

[2] https://ecgi.global/sites/default/files/working_papers/documents/gozlugolringefinal.pdf

[3] https://www.rbc.com/community-social-impact/environment/RBC-Policy-Guidelines-for-Sensitive-Sectors-and-Activities_EN.pdf

  

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Resolution Details

Company:

Royal Bank of Canada

Year:

2023

Issue Area:

Finance, Human Rights & Worker Rights

Focus Area:

Affordable Housing

Status:

Withdrawn for Agreement

Resolution Text

As part of the Canadian federal government’s National Housing Strategy and its recognition of housing as a fundamental human right, in February 2022 the federal government appointed a Federal Housing Advocate (FHA), whose role is to promote and protect housing rights in Canada by independently conducting research on systemic housing issues.[1]

The FHA commissioned a series of reports on the financialization of housing, which is described as the growing dominance of financial actors in the housing sector, transforming the primary function of housing into a for-profit financial asset.

According to the summary report to the FHA, 20-30% of Canada’s purpose-built rental housing stock is owned by real estate investment trusts (REITs). The report outlines certain controversies[2]:

Financial firms strategically pursue unit “turnovers” to capitalize on allowable rent increases between tenancies. Researchers in the US have found that financial operators use eviction as a revenue-generating tool, and that they evict tenants at higher rates than other types of owners.

This concentration is higher in Canada’s north. A series of CBC News reports from 2021 highlighted tenant complaints against a publicly traded REIT that owns approximately 80% of the multi-unit private residential housing stock in Yellowknife and Iqaluit.[3]

A recent CTV News article highlighted the results of a survey indicating that “large, publicly-traded corporations, were more likely to face poor living conditions compared to those in housing owned by families or private companies.”[4]

The report for the FHA on the financialization of multi-family rental housing in Canadas describes the negative effects of cost-cutting and under-maintenance strategies of financialized landlords, which result in worsened living conditions, as well as the displacement of lower income and racialized renters.[5]

Human Rights Due Diligence in Commercial Real Estate

In October 2022, BOMA Canada released its 2022 Human Rights Guide for Commercial Real Estate, which draws upon the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines). The guide outlines how commercial property owners can incorporate business and human rights due diligence concepts into their operations.[6]

Human Rights Due Diligence in Multi-Family Rental Real Estate

Without an equivalent set of human rights due diligence practices for REITs operating in the multi-family residential space, banks must ensure that they are complying with their own obligations under the UNGPs and OECD Guidelines. Specifically, banks must ensure they are seeking to prevent and mitigate adverse human rights impacts linked to their business relationships with these REITS, even if the banks themselves have not contributed to those impacts.

RBC Involvement with Canadian Multi-Family Rental REITs

RBC has provided Canadian REITs with capital markets services through RBC Dominion Securities Inc., and each of the leading Canadian REITs discloses having a significant credit facility with a syndicate of Canadian banks.

RESOLVED THAT RBC disclose how it assesses and mitigates human rights risk in connection with its business relationships with clients which own multi-family residential rental properties in Canada.

[1] https://www.canada.ca/en/canadian-heritage/news/2022/02/statement-by-the-minister-of-housing-and-diversity-and-inclusion-on-the-appointment-of-canadas-federal-housing-advocate.html

[2] https://www.homelesshub.ca/resource/financialization-housing-canada-project-summary-report

[3] https://newsinteractives.cbc.ca/longform/the-landlords-game

[4] https://www.ctvnews.ca/business/tenants-with-large-corporate-landlords-more-likely-to-face-poor-living-conditions-survey-suggests-1.5992030

[5] https://www.homelesshub.ca/resource/financialization-multi-family-rental-housing-canada

[6] https://bomacanada.ca/wp-content/uploads/2022/09/BOMACANADA_HumanRightsGuide_2022_EN.pdf

  

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Resolution Details

Company:

Royal Bank of Canada

Year:

2023

Issue Area:

Climate Change

Focus Area:

Indigenous Peoples/FPIC

Status:

Vote

Vote Percentage:

28.00%

Resolution Text

The United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) stipulates that States shall consult in good faith with Indigenous peoples in order to obtain their free, prior and informed consent (FPIC) before implementing measures that may affect them.1

The federal UNDRIP Act affirmed that UNDRIP has legal effect in Canada as an international human rights instrument.2 The Truth and Reconciliation Commission’s Call to Action #92 calls upon the corporate sector to adopt and implement UNDRIP “as a reconciliation framework and to apply its principles, norms, and standards to corporate policy and core operational activities involving Indigenous peoples and their lands and resources.”3

Foley Hoag LLP’s report to banks which funded the controversial Dakota Access Pipeline Project recommended that international industry good practices on FPIC mean going beyond the minimum standards set by domestic law.4

Failing to consider FPIC also overlooks a material risk. Companies which only seek domestic legal minimums and fail to obtain FPIC routinely see project delays, conflict, and other significant legal, political, reputational and operational risks.

The Government of Canada has stated that FPIC is contextual and there is no “one size fits all” approach, and operationalizing FPIC may require different processes or new creative ways of working together.5

A 2019 paper prepared for the Union of BC Indian Chiefs (UBCIC) entitled Consent 6(Consent Paper) attempts to clear up misconceptions about FPIC, namely that:

“consent” and “veto” are not the same; they have different meaning and uses; and
FPIC is not an extension of consultation and accommodation, which are procedural in nature.

The Consent Paper outlines certain ways in which Canadian businesses can operationalize FPIC, including:

seeking and confirming Indigenous consent prior to major Crown processes;
outlining the conditions necessary for obtaining and maintaining a Nation’s consent, as opposed to legal devices such as releases that are intended to limit Indigenous rights;
using collaborative dispute resolution mechanisms and not limiting a Nation’s ability to take legal action; and
building a process for future decision-making and obtaining consent before any approvals are sought from the Crown.

RBC’s Human Rights Position Statement invokes the United Nations Guiding Principles on Business and Human Rights (UNGPs) and states that RBC will take action to mitigate adverse human rights impacts, including by leveraging its business relationships. RBC has also disclosed ways in which it honours Call to Action #92.

Shareholders believe further action is required to operationalize FPIC and Call to Action #92 into RBC’s corporate policies and activities. An explicit reference to operationalizing FPIC will help mitigate human rights risk while giving RBC additional leverage to effect meaningful and necessary change on the path towards reconciliation.

RESOLVED THAT RBC revise its Human Rights Position Statement to reflect that in taking action to mitigate adverse human rights impacts directly linked to its business relationships with clients (as outlined in the UNGPs), RBC will inform itself as to whether and how clients have operationalized FPIC of Indigenous peoples affected by such business relationships.

 
 
 

1 https://daccess-ods.un.org/access.nsf/Get?OpenAgent&DS=A/RES/61/295&Lang=E (Articles 18-19)

2  https://www.canlii.org/en/ca/laws/stat/sc-2021-c-14/latest/sc-2021-c-14.html

3 https://www.rcaanc-cirnac.gc.ca/eng/1524506030545/1557513309443

4 https://www.foleyhoag.com/news-and-insights/publications/ebooks-and-white- papers/2017/may/good_practices_social_impacts_oil_pipelines_united_states/

5  https://www.justice.gc.ca/eng/declaration/bgnrcan-bgrncan.html

6 https://www.ubcic.bc.ca/consent_paper

 

  

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Resolution Details

Company:

Royal Bank of Canada

Year:

2023

Issue Area:

Inclusiveness

Focus Area:

Race Discrimination

Status:

Vote

Vote Percentage:

44.00%


Bank of Montreal Racial Equity Audit – Proxy Memo
PROXY-ALERT_RBC_BMO_racial-equity-audit_0.pdf


Resolution Text

RESOLVED, shareholders urge the Board of Directors to oversee and publish a third-party racial equity audit analyzing RBC’s adverse impacts on non-white stakeholders and communities of colour. Input from civil rights organizations, employees, and customers should be considered in determining the specific matters to be analyzed. The report should be prepared at reasonable cost and omitting confidential or proprietary information.

Supporting Statement

As critical intermediaries, financial institutions play a key role in society as they allow businesses and individuals to access essential economic opportunities through a broad range of financial products and services, including facilitating transactions, providing credit and loan services, savings accounts, and investment management. Financial institutions have therefore a responsibility to ensure their business operations, practices, policies, products and services do not cause adverse impacts on non-white stakeholders and communities of colour.

A report from the Financial Consumer Agency of Canada studying frontline practices of Canadian banks, including RBC, suggests that racialized or Indigenous bank customers are subjected to discriminatory practices.1 Compared to other customers, visible minorities and Indigenous customers were more likely recommended products that were not appropriate for their needs, were not presented information in a clear and simple manner and were offered optional products, such as overdraft protection and balance protection insurance.

A December 2020 academic review commissioned by the British Columbia Securities Commission estimates unbanked Canadians (no official relationship with a bank) ranged from 3%-6%, and underbanked Canadians (who rely on fringe financial institutions like payday lenders) ranged from 15%- 28%.2 The review found under/unbanking has a disproportionate effect on Indigenous peoples, and that “financial access has been cited by researchers as an endemic problem in ‘low-income communities of color.”

In recent years, RBC has been subject to negative media coverage regarding how certain customers or employees have been discriminated against. This includes allegations of high-pressure sales tactics,3 racial profiling,4 and concerning allegations5 of sexism and racism6 in the workplace. Such controversies may be indicative of systemic racial equity issues in the Company’s operations.

RBC’s anti-racism commitment, including current priorities, commitments and programs are insufficient to identify or address potential/existing racial equity issues stemming from practices, policies, products and services.7 In 2020, RBC announced that it has expanded its initial $1.5 million commitment to $150 million to “invest in the futures of Black youth, generate wealth for Black communities, and redefine inclusive leadership at RBC.”8 However, there has been insufficient transparency and reporting on the progress of this commitment and how it has meaningfully advanced racial equity in its practices, policies, products and services.

Racial equity issues present meaningful legal, financial, regulatory, and reputational business risks. A racial equity audit will help RBC identify, prioritize, remedy, and avoid adverse impacts on non-white stakeholders and communities of colour beyond the workplace. We urge RBC to assess its behaviour through a racial equity lens in order to obtain a complete picture of how it contributes to, and could help dismantle, systemic racism.

1 https://www.canada.ca/en/financial-consumer-agency/programs/research/mystery-shopping-domestic-retail- banks.html
2 https://bcbasicincomepanel.ca/wp- content/uploads/2021/01/Financial_Inclusion_in_British_Columbia_Evaluating_the_Role_of_Fintech.pdf

3 https://www.cbc.ca/news/business/banks-racial-discrimination-report-1.6473715
4 https://montreal.citynews.ca/2021/12/13/couple-say-they-were-racially-profiled-by-rbc-after-bank-account-was- blocked-without-explanation/
5 https://www.nationalobserver.com/2018/05/01/news/tribunal-hears-shocking-allegations-following-complaint- whistleblower
6 https://www.fnlondon.com/articles/rbc-ordered-to-pay-1-2m-to-london-whistleblower- 20190204#:~:text=John%20Banerjee%20won%20his%20unfair,m%20to%20cover%20lost%20earnings.
7 https://www.rbc.com/diversity-inclusion/action-plan-against-systemic-racism.html
8 https://www.rbccm.com/en/citizenship/story.pagedcr=templatedata/article/citizenship/data/2020/07/rbcs_expanded _commitment_to_fight_systemic_racism_and_support_black_communities

  

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