TD Bank Financial Group and the Royal Bank of Canada tie for top spot when it comes to taking action on climate change, according to a report released today by the Ethical Funds Co.

In general, the report concludes that among the big five banks there “has been progress on policy development, but concrete measures of performance are lacking.” In other words, the banks are coming up with all kinds of plans, but not enough is actually being done. However, the banks do score points on the power of those plans.

TD’s high scores came as a surprise, as it had been traditionally lacking in this area. “Once viewed as a laggard on environmental risk assessment, TD Bank now occupies a lead position,” reads the report. “With the June 2007 release of its Environmental Management Framework, TD is helping to set the bar in Canada on what banks can and should be doing to mitigate climate risk.”

The report refers to RBC as an “established leader” and notes that it first conducted a high-level carbon risk profile of their lending portfolio in 2005. “This provides the bank with a lead over the others in this crucial first step toward understanding the risks and opportunities for their clients, said the report. “RBC is committed to evaluating their portfolio carbon risk exposure on an ongoing basis.”

After announcing a huge earnings hit and seeing its stock tumble, BMO now ranks last in climate-change policy among its peers. “There is little evidence that [BMO] is considering the risk from climate change in its lending portfolio,” says the report. Ethical says it filed a shareholder proposal to BMO (and the Bank of Nova Scotia) asking for disclosure of climate-related risk assessment for the bank’s 2008 proxy circular but later withdrew it on the basis that BMO will disclose such information by April 2008.

BMO said today that it is on track to meet the April deadline. A BMO spokesperson told Investment Executive that the bank agrees there is more work to do, but said the conclusions in today’s report were drawn from public statements and documents, rather than internal guidelines or actual practice. The bank said all material risk is considered in lending, including that presented by climate change.

CIBC leads Bank of Nova Scotia in the middle of the pack. According to Ethical, CIBC is “moving up the ladder” with new policy developments and increased disclosure. Scotiabank, however, lags in “formalizing and disclosing lending procedures addressing climate risk” but the report is upbeat, predicting that the Scotia “is poised to improve its score in the very near future.”

As a whole, the report says Canadian banks accept the potential business risks of climate change, but are unclear on the extent to which these risks affect investment decisions.

In the report’s commentary, the authors note that investment analysts tend to focus on financial statements and MD&As, but most don’t read the types of documents that contain climate change information disclosed by the banks, such as public accountability statements. “Across the banking sector, climate risk disclosure in the MD&A is scant, inconsistent or rendered less than useful by the presence of boilerplate language,” says the report.

Banks are unique when it comes to climate-related risks, it says, and like major pension funds, can be seen as “universal investors” in the economy. “Due to their size, [banks] commonly invest across all sections,” reads the report. “If climate change threatens our economy as a whole, it will almost certainly undermine the ability of banks to make profits. It is the interest of each bank—and each bank investor—to see that the risks associated with climate change are minimized.”

The report, called “Credit Risk, Biodiversity, and Climate Change” used 25 climate-specific indicators from the firm’s proprietary system for assessing corporations’ environmental, social and governance performance. The study graded the banks on carbon management, biodiversity policies, board oversight, management capacity, performance and transparency.

“Our report clearly shows that all five banks have at least begun to rise to the challenge of climate change, but much more still needs to be done,” said Robert Walker, vice president of sustainability for Ethical Funds, in a release. “While these are important first steps, many of the statements made by the banks on climate change are aspirational only and some include a disturbing amount of qualifying language. A failure to take action will only lead to charges of green-washing.”