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Forging Ahead in the Energy Transition: Darryl White to Global Reserve and Asset Managers

 

Recent events, like the tragic Russian invasion of Ukraine, have underscored the urgency to transition to net zero, a change that must be done quickly ­and done right, Darryl White, BMO’s Chief Executive Officer, told the 2022 Global Reserve & Asset Managers Conference in Toronto.

Interviewed in a fireside chat by Svetlana Radan, Chief Operating Officer, General Account Investments for Manulife Financial, White lauded the “remarkable” acceleration in pathways to a net zero world, but also noted the complexities that lie ahead, from concerted and coordinated action to understanding the arc of the transition away from fossil fuels.

“The financial system, writ large globally, has moved pretty aggressively into that category of doing something about carbon,” said White, noting how financial institutions have stepped up since COVID-19 to put a spotlight on numerous environmental, social and governance issues.

Russia’s invasion of Ukraine, for instance, has seemingly validated two contradictory viewpoints around the transition: One camp sees the fight as a catalyst to adopt renewable energy so that regimes like Russia’s can’t finance war, while the other says that Western countries have been too hasty to divest of traditional fossil fuel supplies, at the expense of energy security.

“I don’t believe in either of those arguments,” White said in his wide-ranging conversation with Radan. Rather, he sees a middle path, one that supports increased investments in the energy transition without dismissing fossil fuels. “We decided a couple of years ago we’re not going for a blanket divestiture strategy,” he said. He also made the point that if North American governments had promoted and ultimately permitted the development of the Keystone XL and Energy East pipelines, Canada could have replaced virtually all imports of Russian oil to the American market as well as freeing up foreign barrels equal to 8% of Europe’s oil imports.

Canada should make no apologies for its strategic advantage as one of the world’s largest producers of oil and gas and other key commodities, especially at a time when importing nations are looking for alternative sources of supply. However, investors must continue thinking about ways to accelerate the transition. People must ask themselves, “What capital and technologies can we accelerate? How can we take advantage of the renewable outcomes in a faster way, even though there's almost an infinite amount of capital in the world?”

Common Standards

A fundamental obstacle to a smooth transition is that there are still no common set of standards for environmental reporting and recognition. That makes it difficult for investors to gauge whether a project or initiative can earn promised returns. “How do I know if I can get a reliable return if there’s no international standard for reporting?” said White. “We don't have that, but if we did then there would be an enormous amount of capital for projects.”

Another issue is government accountability.

While governments have made net-zero commitments, they can’t simply outsource the job of transforming the global economy to the private sector. Rather, there must be much stronger coordination between nations so that everyone can work towards the transition together.

Of course, that’s easier said than done. “Imagine if you woke up tomorrow morning and said let’s figure out what the next biggest challenge in our lifetime is going to be – and there’s no one bigger than climate change – and then you had to blueprint it across jurisdictions that have conflicting interests, and we have to use that as a pathway to sourcing enormous amounts of capital and accelerate the transition. It’s really hard.”

White is optimistic, though, that this can get done, even if it takes longer amid all the complexities. “Let's recognize the challenges of standardization, while we try to push for more and more of it,” he said. “But in the meantime, we can't wait for it. I think that's the issue. We have to get on with some risks, because of the assumptions we have to take. It puts a lot more onus on diligence and it puts a lot more onus on the work that we have to do.”

Bringing Skeptics to the Middle

BMO is doing its part to forge ahead, said White. The bank has been carbon neutral since 2010, and in 2021 declared its climate ambition: to be its clients’ lead partner in the transition to a net zero world. That same year BMO created the BMO Climate Institute, an internal think-tank to advise both management and clients on approaches to decarbonization. It also created an Energy Transition Group, a leading and innovative investment banking group that works with clients as they seek to decarbonize their businesses and as they pursue energy transition opportunities.

These groups aren’t just meant to further the climate agenda, but they’re also analyzing the potential consequences to human rights, energy security and communities to achieve a “just transition.” As well, BMO signed on to the Net-Zero Banking Alliance, committing to a 33% reduction in the carbon intensity of its investment portfolio (carbon emissions per dollar of revenue) and a 24% absolute emissions reduction by 2030. “We’re the only bank (in Canada) to do that,” he noted.

Despite the action, there will always be skeptics who don’t take the transition seriously and it’s important to engage those critics, to get them into the middle of the playing field, he said. “If you’re going to get people to the middle, you have to do a better job of articulating that and putting it more at the fore of all the things that we do.”

Laying Foundations

As complicated as the transition may be, Canada remains a world leader in ESG adoption, he said. BMO’s own experience with diversity and inclusion shows how the steps taken today can be built on in the future. “We wrote white papers in the 1990s on the empowerment of women in the workplace,” he said. “Many were cynical about the exercise back then, but today 50% of BMO’s board of directors and three out of four committee chairs are women.”

Three years ago, he noted, the bank adopted the purpose statement to "Boldly Grow the Good in Business and Life,” meaning BMO’s not only pursuing the interest of shareholders, but it’s contributing to a sustainable future and an inclusive society, too.

“I’ve 180 degrees come around on this,” White told the audience. “Sustainability now lives on the cover page of my board meetings, of all my committee meetings, and it’s on the screen of everyone who opens their screen every morning.  It lives. It breathes. It informs our choices. It informs our ambition.”

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Darryl White Chief Executive Officer, BMO Financial Group

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