Two Canadian banks are among the worst of leading global financial institutions when it comes to climate change practices, according to a report released today by Ceres, a Boston, Mass.-based investor coalition that analyzes sustainability issues.

“Corporate Governance and Climate Change: The Banking Sector” ranked a total of 40 leading financial institutions: 16 U.S., 15 European, five Asian, three Canadian and one Brazilian bank. TD Bank Financial Group, The Bank of Nova Scotia and the Royal Bank of Canada were the three Canadian financial institutions examined. The 40 companies include several different classes of financial services firms, including diversified banks, investment banks and asset managers.

The report found that a growing number of European, U.S. and Japanese banks are responding to the risks and opportunities presented by climate change, primarily by setting internal greenhouse gas (GHG) reduction targets, boosting climate-related equity research and elevating lending and financing for clean energy projects. But many others are still not addressing climate change, and only a handful of the 40 banks have begun integrating climate risks into their core business of lending by pricing carbon into their finance decisions or setting targets to reduce GHG emissions in their lending portfolios.

The shortcomings were evident in the report’s final scores. Using a 1- to 100-point scoring system, more than half of the 40 banks scored under 50 points, with a median score of 42 points. TD and Scotiabank and were among the bottom scorers, with 25 and 26 respectively, while RBC topped the median with 49 points.

The five highest scoring banks were all based in Europe — HSBC, ABN AMRO, Barclays, HBOS and Deutsche Bank — followed by Citigroup, Bank of America and the Royal Bank of Scotland.

“More banks realize that climate change is a big business issue, but their responses so far are the tip of the iceberg of what is needed to tackle this colossal global challenge,” says Mindy Lubber, president of Ceres. “As a key provider of capital and financing worldwide, banks must do more to move the economy away from fossil fuels and high-carbon investments that are exacerbating climate change.”

On the positive side of things, 28 of the banks have calculated and disclosed their GHG emissions from operations, 24 have set some set some type of internal reduction target and 29 reported their financial support of alternative energy, eight of which alone have coughed up more than US$12 billion of direct financing and investments in renewable energy and other clean energy projects.

However, for all of the positive momentum, many of the 40 banks have done little or nothing to elevate climate change as a governance priority — a trend that cuts across European, North American and Asian banks alike. For example, only a dozen of the 40 banks have board-level involvement, only six banks say they are formally calculating carbon risks in their loan portfolios, and only one of the 40 banks — Bank of America — has announced a specific target to reduce greenhouse emissions associated with the utility portion of its lending portfolio. No bank has set a policy to avoid investments in carbon-intensive projects such as conventional coal-fired power plants or Canadian tar sands.

The report concludes that more action is needed to align the banking sector with greenhouse gas reductions that scientists say are needed to avoid the dangerous impacts of climate change.