Shareholders Want More From TD Bank Stock Than Dividends

Ruth Saldanha: The Toronto-Dominion Bank, ticker TD, has been one of the most popular stocks on Morningstar Canada for years now, and for good reason. The bank has a wide economic moat, meaning it can fend off competition for years to come, and it is one of the big six banks that collectively own 90% of Canada's banking deposits. Additionally, the bank delivers on one thing that investors love. It has healthy dividends. However, some investors are asking TD for something beyond dividends. They want specifics regarding the bank's climate transition plan, especially since in 2023 they say TD lagged on environmental performance. Kyra Bell-Pasht is the Director of Research and Policy at Investors for Paris Compliance, which is one of the filers of the shareholder proposal. If passed, the proposal will be put to vote at TD's AGM on April 18. She is here today to tell us more about the proposal and what shareholders expect.

Kyra, thank you so much for being here today.

Kyra Bell-Pasht: Thank you for having me.

Why Do TD Bank Stock Investors Want Action on the Bank’s Transition Plan?

Saldanha: Let's start by talking about the proposal itself. What is your ask?

Bell-Pasht: So, we're asking that TD disclose its climate transition plan, and what that means is specifically what activities it's going to undertake to align its business, its financing, with its 2030 emissions reduction targets. So, will it be limiting funding to plus oilfield expansion, will it be establishing escalating, time-bound climate engagement policies with its existing carbon-intensive clients, will it commit to fund climate solutions at a rate required to align with a 1.5-degree future, and finally, will it commit to lobbying the government for supportive climate policies? And how much does the bank estimate that each one of these measures will reduce its financed emissions and when will the measures be put in place, when will the reductions happen, on what timeline?

Engagement With TD Bank Has Not Been As Fruitful As The Filer Hoped

Saldanha: That makes sense, but this is not the first time that you filed this proposal. In fact, you filed the same one last year as well. What, if any, engagement did you have with TD and what was the outcome of that? Why did you refile?

Bell-Pasht: So, yes, we filed the same resolution request last year with co-filer Vancity Investment Management. We received close to a third of investors broke with management, so 23.5% voted in support, 5.4% abstained. For context, in dollar value, that was at the time equivalent to about $19 billion voting in favor of the resolution. And when it comes to the abstentions, that's sort of a polite Canadian way of saying, we agree in principle. Since we filed that resolution, we have continued to do our research on TD. We've been looking for announcements on substance to its climate strategy, haven't seen any. We've also met a couple of times with TD, and in addition, we have been emailing with them in the hopes of news that would justify withdrawing the proposal. And so far, that has not been the case.

Other Canadian Peers Have Moved Ahead of TD Bank – This Must Change

Saldanha: So, Kyra, how has TD performed relative to its peers? So, compared to the other big five Canadian banks, how is its performance to environmental factors?

Bell-Pasht: Well, according to the last Banking on Climate Chaos report released, TD had the largest jump in fossil fuel financing of any bank in the world in 2022, adding US$7.3 billion, so up 33% from the previous year. We also saw the transition plan initiative score TD 4% on its decarbonization strategy. So, very pathetic score there. And BloombergNEF ranked TD 100 out of 100 for its low carbon financing ratio. So, not great.

In terms of its Canadian peers, this past year, we saw RBC, BMO and National Bank take a couple of small steps to add some substance to their climate strategy. So, they've gone further than TD has gone in that regard. RBC released its client climate engagement strategy, which is not perfect, but it's the most robust released in Canada so far. We saw BMO announce its commitment to lobby government in alignment with the Paris Agreement and phase down its exposure to U.S. oil and gas. Also, not enough, but a step in the right direction. And we also saw National Bank commit to increase its renewable energy financing faster than its lending to carbon intensive sectors. So, we do see other Canadian peers taking small steps in the right direction, not as far as we'd like to see them go, but further than TD has gone so far.

What Does TD Bank Need to Do Now?

Saldanha: Finally, the main question here is what would success look like for you and your co-filers in this particular proposal?

Bell-Pasht: The best outcome always is for the target company to share information with us. In this case, it would be some substance to TD's climate strategy that would justify us withdrawing our resolution. There is still time. There's a small window of opportunity for that to happen, and we do have open lines of communication with the bank. The next best outcome would be increased investor support for this resolution from last year. And on this I'm hopeful because investors that are investing in TD are increasingly committing to net zero across their own investment portfolios. And they're claiming that engagement is the primary tool they're going to use to do this. And of course, voting and support of climate-related shareholder resolutions is one of the lowest hanging fruit to do that. So, we are optimistic, at least in this second regard, to get more investor support.

Saldanha: Great. Sounds good. Thank you so much for joining us today with your perspectives, Kyra.

Bell-Pasht: Thank you so much for your time as well.

Saldanha: For Morningstar, I'm Ruth Saldanha.