The Bank of Montreal (BMO) has become one of the latest signatories to the Partnership for Carbon Accounting Financials (PCAF), a global partnership of financial institutions which have committed to working together to address sustainability and climate change issues.
Already acknowledged across North America for its sustainability efforts, BMO’s membership in PCAF is part of a growing movement in the financial sector to assess and address the impacts of investment decisions. The partnership requires members to utilize PCAF methodologies to measure and disclose GHG emissions associated with their loan and investment portfolios.
“When we’re able to better quantify and understand our impacts and the relationship of our financing activity to the climate goals that exist, we’ll be better able to work with our clients to help them navigate this transition to a greener economy,” said Michael Torrance, a former practising lawyer who is now the chief sustainability officer at BMO.
According to PCAF data, the banking sector has upwards of $2.7 trillion of investment in the fossil fuels sector with no signs of declining interest or assessment of the carbon impact of those investments. PCAF encourages its 95 signatory banks and investment organizations to work cohesively to align their investments with goals under the Paris Climate Agreement, and then to share best practices.
“Joining PCAF clearly aligns us with the emerging best practices and how they’re done, and we can also demonstrate to the market that we want to be a leader in terms of adopting best practice in the area,” said Torrance.
N. America’s most sustainable bank
BMO has been ranked most sustainable bank in North America by the Wall Street Journal, the Dow Jones Sustainability Index and Corporate Knights.
The bank hit a major milestone in October 2020, reporting it matched 100 per cent of its electricity usage with renewable electricity, and BMO has signed the Operating Principles for Impact Investment developed by the International Finance Corporation of the World Bank.
BMO committed in 2019 to mobilizing $400 billion in sustainable finance by 2025, including lending, underwriting and investing $150 billion in companies pursuing sustainable outcomes. It also pledged to align $250 billion in client investments to sustainable objectives.
By 2020 the bank had achieved 71 per cent of that $150 billion target and surpassed its $250 billion target.
BMO’s Purpose to Boldly Grow the Good program, founded in 2019, will provide $400 billion in financing for projects aimed at the economy, sustainability and inclusivity. In 2020, it launched BMO EMpower, a $5 billion commitment over five years to assist minority communities in the U.S.
“Where the world is going, and where we’re going, is appreciating that our real impact as an organization is how we are able to use our position in the economy to make positive impacts,” said Torrance.
Torrance moves from law to sustainability
Torrance started his career as a labour, employment rights, human rights and health and safety lawyer at Norton Rose Fulbright in Toronto. Early on, he became interested in understanding international standards around sustainability and developed a practice at the firm focusing on this aspect of law.
He rose to partner before moving to BMO in January 2018. Part of Torrance’s decision to move from law to a full-time sustainability role was his understanding that being in a position of control with a financial institution would allow him to make a real impact.
“I have two little kids and want to ensure that we pass on a world to them that’s sustainable. I see the financial sector and businesses having an opportunity to really have a positive and critical role to play there. We cannot simply solve these problems with regulation,” he said.
Joining PCAF is a sign to investors, consumers and clients the bank does actually care about what the future will look like, Torrance said.
“Led by industry . . . you can develop a practical approach to achieving an objective that I think a third party to the industry just wouldn’t have the ability to do as well.”
Sustainability good business for BMO
Torrance said it is also good business.
By positioning itself as one of the first players in the market via climate-related programs and shifting investments to be more green-friendly, BMO is also increasing its understanding of climate-related financial risks. All of this is expected to pay financial dividends for BMO and its clients.
“By really being at the forefront of thinking and analysis of the change we can be a leading advisor to our clients on the topic of climate change. We believe that’s gonna open up enormous opportunities for us,” said Torrance. “There’s a real business strategy dimension to this, that we really want to be capable of being leaders in this sustainable transition.”
Torrance thinks it could take decades to fully meet all the targets set out in the Paris Climate Agreement, but said the consensus amongst experts is that companies will need to work together to decarbonize the economy. The more co-operation there is, the faster it can happen.
“It’s going to take a massive transformation, innovation, and investment. Through all of those things we have a personal connection to this,” he said.