Story of the Week: September 2023

This article originally appeared in the Financial Post.  The British banking system has just gone through a major scandal. Though it hasn’t received much coverage on this side of the Atlantic we would all do well to pay attention. The worrying incident at the centre of the scandal — what’s now known as “de-banking” — looks a lot like a kind of cancellation increasingly common here in Canada. The scandal involves British politician and media personality Nigel Farage, formerly head of UKIP, the U.K. Independence Party, and a leader of the Yes side in the 2016 Brexit referendum. Earlier this summer, Mr. Farage announced that his bank — Coutts & Co — had notified him his account was being terminated. He made an issue of this in public, suggesting the closure was politically motivated. The bank denied it, going so far as to claim the actual reason was that he didn’t have enough money in the account. But eventually Mr. Farage was proven right. He got his hands on internal communications showing Coutts was closing his account because his political positions didn’t “align with their values.” What followed was the resignation of Alison Rose, CEO of NatWest Group, the parent company of Coutts, quickly followed by the departure of Peter Flavel, CEO of Coutts.  Even U.K. Prime Minister Rishi Sunak became involved and is now considering new regulations that would prevent banks from denying customers service due to their politics. Farage was ultimately offered his Coutts account back, but he has not yet clarified if he will accept the offer to keep his accounts open. He has made clear, however, that he sent a legal litigation letter to Coutts demanding full apologies and compensation for his costs. This whole episode should raise alarm bells for all of us. The idea of banks, which are key institutions of modern life, becoming ideological actors and deciding to deny service to otherwise eligible individuals because of their political opinions is more than a little disconcerting. Of course, banks are already engaging in forms of cancellation that are not unlike what happened to Mr. Farage. Financial institutions, including banks, now regularly decide to stop investing in or providing services to oil and gas companies, both in order to appeal to climate activists and to improve their Environmental, Social, and Governance (ESG) scores with environmentalist and other advocacy groups. InvestNow, the organization I head, has stepped up and presented shareholder proposals to Canadian banks to counter these prosperity-destroying campaigns, whose ultimate objective is to shut down Canada’s oil and gas industry. We are the first to present such proposals to Canada’s banks. Our goal is to prevent them from giving in to political and ideological pressure and becoming complicit in schemes to undermine Canada’s energy sector. Why do banks exist? The Bank Act, which regulates Canada’s chartered banks, has three main goals: protecting depositors’ funds, ensuring the maintenance of cash reserves and promoting the efficiency of the financial system through competition. Banks require a charter from the government in order to do business. That charter grants a privilege, but it also imposes a responsibility: to hold and manage the investments of all Canadians. It is not a licence to act as social activists. Banks have many of the attributes of public utilities. They must not become the financial enforcement arm of any given moral position. Citizens, and especially shareholders, should carefully examine what our banks are signalling through their policy statements and ensure they are wisely and prudently managing their investments, not being co-opted by special interests. The weaponization of banking as a political tool needs to stop. Banking should be about banking, not climate, income distribution or whatever. The Canadian banking system is among the most well-managed, well-regulated, and well-capitalized in the world. It is important that Canadians have confidence in their financial institutions. But that confidence rests on the knowledge that all of us have access to the benefits of our system, not just those who hold officially favoured political and ideological positions. Gina Pappano, executive director of InvestNow, was head of Market Intelligence at the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV).

This article originally appeared in the Hamilton Independent. “The Canadian banking system is well-known for its strength and stability and the sector is an essential contributor to the country’s economic growth and well-being. Canadians rely on sound, stable banks to help them purchase a home, save for retirement, support the growth of small businesses, and drive the economy, which generates economic benefits to all Canadians.” — Canadian Bankers Association But what happens when the banks follow ideologies and policies that hurt a sector that is central to Canada’s economy and prosperity? Over the past several years, shareholder proposals calling for the banks to stop all investments in oil and gas have been presented by activist shareholders and well-funded non-profit organizations. To counter these, this year InvestNow stepped up and presented our own shareholder proposals to three Canadian banks, asking for explicit commitments to continue to invest in and finance Canadian oil and gas and to step away from policies that hurt the sector. This is the first time shareholder proposals of this nature have been presented to Canadian banks. The shareholder proposal is one of the most common and most powerful tools available to influence corporate policy. Shareholders submit proposals for consideration at a corporation’s annual general meeting, allowing them to have a say in board direction and management positions and policies. We believe strongly that our banks cannot be part of a scheme designed to strangle a sector of vital importance, not only to our citizens, but the democratic world. The Canadian oil and gas sector fuels our economy. It provides livelihoods not only for the hundreds-of-thousands across Canada who work in the sector, but the millions – that is all of us – who depend on it in so many ways. Encouraging divestment puts our economy at risk. Moreover, it will result in the growing demand for oil and gas around the world being met by other less democratic, less environmentally responsible suppliers. The dogmatic narrative that eliminating our oil and gas sector is going to somehow “help” Canada and reduce CO2 emissions couldn’t be more wrong. Over eighty percent of the primary energy needs of the world are met by oil, natural gas, and coal. Global demand is increasing, not decreasing. The International Energy Agency just reported that world oil demand is scaling record highs. If our banks go down the divestment path, Canada will lose its ability to influence the global energy conversation and we will see direct hardship for everyday Canadians. Our economy will be hobbled, industry will shut down, people will lose their jobs, and energy poverty will grow. Canadians live the way we do because we have one of the most productive, innovative, and responsible energy industries in the world. Our shareholder proposals called on the banks to come onside and to signal to the investment community, and to the world, that they are committed to the Canadian oil and gas sector. In fact, they have an economic and moral imperative to do so. Nothing happens without oil and gas. This sector is essential for the functioning of the economy, for jobs, for innovation – and for global emissions reductions. InvestNow will continue fighting for investment in Canada’s oil and gas sector through shareholder proposals and other work. Gina Pappano is executive director of InvestNow Inc., a non-profit dedicated to demonstrating that investing in Canada’s resource sectors helps Canada and the world. Join the movement and pass the InvestNow resolution at investnow.org.