Royal Bank of Canada’s decision not to finance exploration in the Arctic National Wildlife Refuge (ANWR) shows the bank is acting on its environmental, social and governance (ESG) principles, which will prove positive with investors, says Moody’s Investors Service.
In a new report, the rating agency said the bank’s announcement that it won’t fund ANWR drilling reflects a new policy that also includes restrictions on financing for coal mining and power generation.
Moody’s said RBC’s move is a positive for the bank’s credit profile “because it demonstrates in a tangible way the bank’s commitment to [ESG] principles.”
Equity investors, customers, and bondholders “are increasingly making decisions regarding the banks they choose to do business with and invest in based, at least in part, on that bank’s commitment and adherence to ESG policies,” the report noted.
RBC has a high level of reliance on wholesale funding relative to its global peers, so the bank’s commitment to ESG principles will improve its access to wholesale funding from investors that apply such to their investment decision-making, the report said.
While the payoff is hard to quantify, RBC’s demonstrated commitment to ESG principles “will make the securities it issues to fund itself more attractive to a growing contingent of investors that use commitment and adherence to ESG principles as an investment criteria,” Moody’s said.