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Canada’s ‘Big Five’ banks undermining own net zero commitments - Industry roundup: 8 March

Canada’s ‘Big Five’ banks undermining own net zero commitments

Canada’s five largest banks may be undermining their own net zero goals, according to an analysis released by independent think tank InfluenceMap. Analysis of the climate performance of the Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD Bank), Scotiabank, Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CIBC) – all of which are signatories of the Net Zero Banking Alliance – finds that all five appear misaligned with climate science across all three assessment areas: climate governance, financing portfolios, and climate policy engagement.

This research, undertaken by InfluenceMap’s FinanceMap program, shows that the Big Five Canadian banks' financing and fossil fuel exclusion policies appear highly misaligned with the IEA’s and IPCC’s science-based net zero pathways. It reveals that the proportion of total financing going to the fossil fuel value chain from these banks has increased year-on-year, from 15.5% in 2020 to 18.4% in 2022. This compares with an average of 6.1% for leading US banks and 8.7% for leading European banks across the same period.

FinanceMap’s assessment of the policy engagement by the banks finds that all five are members of industry associations that have engaged obstructively with financial and real-economy climate policies in Canada. The Canadian Bankers Association, for example, stated in November 2023 that Canada does not require climate-related banking regulations, while the Business Council of Canada has advocated for the expansion of Canadian fossil gas as recently as March 2023.

FinanceMap’s overall assessment of the banks’ climate governance, strategy, and policies against TCFD guidelines and IPCC and IEA technological positions show no leaders in the Canadian banking sector, with an average regional score of D+.

Additional findings from the report include the banks continuing to favour fossil fuel financing over green financing by a factor of 3.9 to 1, a significant jump from the ratios seen in US and European Banks, which stand at 2.8 to 1 and 2.0 to 1, in the largest, respectively. BMO had the highest fossil-fuel-to-green ratio at 6.8 to 1, while Scotiabank had the lowest at 3.0 to 1.

FinanceMap also assessed the climate governance, strategy, and policies of the Big Five banks and found that the banks do not appear to be aligning their short and medium-term emissions reduction targets with their long-term net zero commitments. CIBC, TD Bank, RBC, and Scotiabank have all set relative, intensity-based targets, allowing for absolute financed emissions to rise year on year. Only BMO has set an absolute target for Scope 3 oil and gas emissions. Most banks have not expanded the scope of their targets to cover facilitated emissions from capital markets activities.

None of the banks have committed to restricting financing for the development of new oil and gas fields or to phasing out the financing of thermal coal. Overall, the five banks’ fossil fuel exclusion policies are highly misaligned with IPCC science, consistently scoring F across coal and oil and gas under FinanceMap’s scoring methodology.

This study also found that the lack of robust financing exclusion policies at the Big Five has allowed US$275bn to flow to companies in the fossil fuel value chain through lending and security underwriting activities from 2020 to 2022. Using the PACTA tool, it finds each bank’s combined lending and securities underwriting portfolios to be significantly off track with the IEA Net Zero by 2050 scenario.

Domestic oil and gas financing represented 68% of the banks’ total oil and gas financing deal flows over the three years assessed, representing an increasing proportion of overall financing year-on-year. Total domestic oil and gas financing stood at $184 billion over the three-year period assessed. The report states that Canadian oil and gas giants Enbridge, Cenovus, and TC Energy have particularly benefited from this, with US$62bn in financing between 2020 and 2022.


HKMA unveils wholesale CBDC project

The Hong Kong Monetary Authority (HKMA) has announced the commencement of Project Ensemble, a wholesale central bank digital currency (wCBDC) project to support the development of the tokenisation market in Hong Kong.

The new project will explore innovative financial market infrastructure (FMI) that will facilitate seamless interbank settlement of tokenised money through wCBDC. The project will initially focus on tokenised deposits, which are digital representations of commercial bank deposits issued by commercial banks and made available to the general public. With wCBDC as the foundation, tokenised deposits can be used for tokenised asset transactions, unlocking new opportunities for optimisation and innovation in the tokenisation era.

At the core of Project Ensemble is a wCBDC Sandbox that the HKMA will launch this year to further research and test tokenisation use cases that include, among others, settlement of tokenised real world assets (such as green bonds, carbon credits, aircraft, electric vehicle charging stations, electronic bills of lading and treasury management). It could forge a new FMI that bridges the gap between tokenised real world assets and money in transactions.

To help set industry standards and a future-proof strategy, the HKMA will form a wCBDC Architecture Community consisting of local and multinational banks, key players in the digital asset industry, technology companies and the CBDC Expert Group. The HKMA will also continue to partner with Cyberport and Hong Kong Science and Technology Parks Corporation to foster the development of asset tokenisation and support homegrown fintech innovation.

Project Ensemble forms a vital part of the HKMA’s broader portfolio of initiatives to facilitate the development of the tokenisation market, comprising e-HKD and collaboration with the BIS Innovation Hub Hong Kong Centre such as mBridge, Dynamo and Genesis. It will also build on the experimentation of tokenised deposit use cases that the HKMA conducted with HSBC, Hang Seng Bank and Ant Group in 2023. The HKMA will engage relevant international stakeholders, including other central banks and organisations, to participate in future experiments and exploration at the wCBDC Sandbox.

Finally, if the wCBDC Sandbox garners sufficient interest from the industry, the HKMA will conduct a “live” issuance of the wCBDC at the appropriate time.

“Hong Kong has always championed innovation and international collaboration,” said Eddie Yue, Chief Executive of the HKMA. “Project Ensemble will provide fresh impetus to our vibrant financial industry and reinforce our forefront position in tokenised money and assets. We welcome global talents and industry players to come to Hong Kong and be part of this very exciting tokenisation journey.”


Islamic finance sector will retain strong momentum in 2024

A report from Moody’s Investors Service shows that the firm expects demand for Islamic finance to remain robust in 2024, supported by sustained economic momentum thanks to ambitious development agendas in core Islamic markets and high oil prices. Moody’s expects sukuk issuance volumes to stabilise or fall slightly as higher financing needs for the Indonesian and Turkish sovereigns will be largely offset by lower sovereign issuance from Saudi Arabia and Malaysia. Activity among financial institutions and companies will remain robust but will likely decline from high 2023 levels.

Islamic finance asset growth will continue to outperform conventional asset growth, the report finds. Moody’s expects Islamic banking assets to continue to grow steadily, supported by robust economic activity in the Gulf Cooperation Council (GCC, comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) and Southeast Asia driven by high hydrocarbon prices, sustained investment inflows, diversification agendas and demographic growth. Saudi Arabia (A1 positive) remains the largest Islamic finance market, followed by Malaysia (A3 stable) and the UAE (Aa2 stable). The ratings agency continues to expect greater adoption of Islamic financial instruments.

The report also expects sukuk issuance to stabilise near record highs. Sukuk issuance increased by 3% in 2023 to US$200bn thanks to a strong corporate issuance, driven by the UAE and Saudi Arabia and higher short-term volumes in Malaysia. Moody’s expects issuance to stabilise in 2024, at around US$190-200bn, supported by higher issuance from the Indonesian and Turkish sovereigns and resilient activity by financial institutions and companies. Malaysia remains the largest market for sukuk, followed by Saudi Arabia and Indonesia.

Elsewhere, increased appetite for green and sustainable sukuk supports future growth potential. Issuance nearly doubled in 2023 to US$14bn as COP 28 was held in the UAE. Moody’s expects higher investor demand for these instruments to support growth.

The report also finds that while demand for Islamic fund assets and insurance (takaful) remains resilient, ongoing challenges may lead to consolidation in the latter. Stable investor demand for Shariah-compliant products will continue to support inflows to Islamic funds. Moody’s expects that takaful premiums will grow moderately in the next two to three years, propelled by demand and supported by supportive digitalisation and regulatory improvements. The impact of inflation and fierce competition on profitability strengthen the case for consolidation.


Allianz Trade launches service range for B2B e-commerce activities

Allianz Trade has launched Allianz Trade pay, a payment solution with a range of services dedicated to B2B e-commerce activities, which includes an instant financing solution through its partners, a digital buyer onboarding solution, an online fraud risk management and mitigation system and trade credit insurance at checkout.

With its e-commerce credit insurance, Allianz Trade offers real-time coverage against non-payment risks to B2B marketplaces, BNPL providers, and e-merchants. Allianz Trade says it is now gearing up to accelerate and go further to support the B2B ecosystem more efficiently and adapt its offer to the rise of e-commerce trade flows.

As such, Allianz Trade pay solutions are dedicated to all e-commerce players, from credit insurance to instant financing and KYB processes. The solution gathers already existing tools along with brand-new services. Among the existing solutions, it offers e-commerce credit insurance, an instant financing solution for domestic operations, and an instant financing solution for multinational operations. 

In addition, Allianz Trade pay is also bringing new solutions to market. These include a buyer onboarding solution, insurance covering fraud risks, and a simple plugin for companies using a CMS. 


Currencycloud gets in-principle approval for Singapore major payment institution licence

Currencycloud, a Visa solution, has obtained an in-principle approval (IPA) for a Major Payment Institution (MPI) licence holder from the Monetary Authority of Singapore (MAS). The licence will allow Currencycloud to provide a full suite of intra-regional and international services to Singapore businesses.

Currencycloud now offers customers based in Asia Pacific the ability to collect, convert, hold, send, and spend multiple currencies simultaneously across 180 countries and territories. With the Singapore MPI licence, if granted, Currencycloud will gain additional capabilities for a broader suite of services to process intra-Asia and east-to-west payments more quickly, efficiently, and seamlessly.

For businesses in Singapore, customers can make conversions and payouts in their respective time zones and local currencies. By tapping into its global and local networks and multi-currency account infrastructure, Currencycloud can help enterprises launch new financial services quickly, while supporting banks with speedier go-to-market service innovations.

“Having the licence would allow us to integrate with the robust financial network in Singapore and collaborate with valuable industry players,” commented Rohit Narang, Managing Director of APAC, Currencycloud. “The payments opportunity in Asia-Pacific is significant, and Singapore’s excellent infrastructure, world-class regulatory system, and strategic geographical location serve as an ideal base for accelerating future payments innovation across the region.”


Danske Bank partnership to support climate reporting for businesses

Danske Bank has entered a partnership with Danish software firm EIVEE, which aims to help the bank’s business customers by making climate reporting easier. Many companies are currently working intensively to comply with the EU’s forthcoming sustainability requirements. The upcoming legislation will impact not only large, listed companies but also their subcontractors, who will face increased sustainability data requirements from their customers. 

EIVEE helps companies by providing an overview of Scope 1, 2 and 3 emissions. This is done by collecting, cleansing and categorising data from relevant data sources in the business that is then used to make very precise calculations all the way down to product level.

“Our experience is that the increased requirements on sustainability reporting are putting substantial pressure on many of our customers,” said Niels-Bang Hansen, Danske Bank’s Head of Business Customers in Denmark. “Obtaining an overview of a business’s overall carbon footprint is no easy task, which is why we have entered into a partnership with EIVEE, who can help our customers with both the collection and reporting of CO2 data.”


AmEx integration to streamline spend management for small businesses

American Express and American Express Global Business Travel (Amex GBT) have announced an integration to help small and mid-sized businesses manage their spend and expenses. The firm is making it possible for businesses to issue a virtual card for their employees via the Amex GBT Neo1 spend management platform. US card members must enrol in Amex GBT Neo1, and then they will be able to add eligible American Express business or corporate card accounts into the platform.

The integration of American Express virtual cards into the platform supports automated expense management processes by combining the capabilities of an expense system, procurement platform, online business travel booking tool, and virtual card issuance into a single ecosystem.

American Express says that the integration provides small and mid-sized businesses with better visibility and control over a range of employee spend including budgeting, purchasing with virtual cards, booking business travel, and streamlined expense processing.

Manual employee expense management processes cost businesses significant time and money and are prone to human error - issues that are only magnified for small and mid-sized businesses with more finite resources. More than a third (37%) of financial leaders say processing expense reports is a drain on time, according to Amex GBT.

Digital payments like virtual cards can help address these issues, as they help automate the expense management process, including employee spend management, with the option for employers to set specific spending controls and permissions.


FOMO Pay streamlines payments and treasury lifecycle with Bottomline 

Singapore’s FOMO Pay has implemented the Bottomline solution to strengthen efficient payment workflows, effective treasury lifecycle management, and robust regulatory compliance. 

FOMO Pay sought technology innovation to elevate payment workflows and cash management, with a focus on reducing manual efforts and centralising account insights. This approach would optimise processes, provide a clearer understanding of its cash position, and result in improved efficiency and more robust compliance.

“It was beneficial to work with a single company that had proven solutions in treasury, cash management, payments and sanctions compliance,” said Jing Wei Lee, Head of Finance at FOMO Pay. “Introducing these technologies has been the catalyst for significant improvements in how we make payments, manage cash and deliver competitive services to clients. We have eliminated manual activity, streamlined financial processes, and centralised connectivity to multiple banks.”

FOMO Pay began by implementing Bottomline’s Cash Management solution. It is using the SWIFT Bureau for real-time connectivity to local banks. The Bureau downloads end-of-day and intraday statements from different banks which are then uploaded to Cash Management. 

In addition, Bottomline’s solutions allow FOMO Pay to enhance further payment transparency across the information flow among different financial institutions involved in processing transactions. This enables better AML and CFT management.

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