SRI Challenges College on TD Bank

Recently, the College decided to reduce the amount of money it keeps in its Toronto Dominion (TD) bank account overnight on a day-to-day basis. While the Advisory Committee on Socially Responsible Investing (ACSRI) has touted this as a “win,” the College contends that this change is a result of cash management decisions and is not a response to ACSRI’s recommendations.  This comes in the wake of ongoing conversations between ACSRI and the administration regarding ACSRI’s request that the College withdraw its money from its account in TD bank.

Toronto Dominion is the bank the College uses to hold the $286 million that finance the College’s annual operating budget. The College has been banking with TD since 2004.

The College’s annual operating budget is funded by different sources of cash inflow to the College throughout the year — an influx of tuition dollars at the start of each semester, a monthly fixed amount from the endowment and periodic inflows from donations and other sources. This money is deposited into the College’s TD bank account, and then is drawn out on a daily basis to finance the costs of operating the College and all its entities.

Toronto Dominion, as one of the top five largest Canadian banks, potentially funds more than 20 percent of the total fossil fuel extraction activities in Canada through its loans, according to a 2008 Rainforest Action Network study. This figure is largely based in speculative estimates, but Ben Chute ’13, co-president of the Socially Responsible Investing (SRI) club and ACSRI member, contends that the possibility is cause for concern.

“It’s just the nature of Canada — a lot of their economy is mining and extracting fossil fuels. There are five big banks in Canada, and TD is the second-largest of them. It seems incredibly likely,” said Chute.

“And it may just be the nature of the economy that a bank in Canada is going to be investing heavily in extraction efforts, but Middlebury doesn’t uphold that in our mission statement. That might just be the way things are, but we don’t have to sign on to that,” he added. 

Recently, ACSRI members have voiced concern to the administration that the College’s decision to bank with TD is not consistent with the College’s values or commitment to sustainability and carbon neutrality.  The administration, however, has no plans to switch banks.

“The [College’s] relationship with TD has been very good,” said Patrick Norton, vice president for Finance and Treasurer’s Office. “TD provides an array of corporate banking products to the degree and specialization that the College requires and TD is a strong AAA-rated bank.”

Additionally, Toronto Dominion extended a $50 million line of credit to the College in 2007.

Members of the ACSRI have called for the College to move its money out of TD in conversations over the course of the past year, and the College’s decision to reduce its overnight holdings in TD bank was characterized by these students as evidence of the group’s “great strides working with the administration” in an email to SRI members in October.

However, Norton maintains that the decision to reduce its overnight holdings is not related to ACSRI’s efforts.

“When I met with the ACSRI, they urged me to consider minimizing the college’s overnight holdings at TD as a way of reducing the college’s carbon footprint,” wrote Norton in an email. “Since it is a cash management practice anyway to minimize overnight cash holdings to the extent the balances would cover bank and related fees, our treasury operations as a standard practice will … minimize bank holdings at TD.”

The minimum cash amount to be left in the bank account overnight is $8.5 million. Any leftover funds will be withdrawn and invested in other assets that may yield higher returns for the College than the interest rate.

“In the case where there is more daily cash inflows then cash outflows, any amount over our target minimum cash amount is transferred [out of the TD account overnight] to short-term investment vehicles, primarily dominated by U.S. Treasuries,” explained Norton in an email.

The timing of this decision can be explained by improvements in the global economy. During the economic crisis, the College’s money was more secure earning interest in a bank account, yet the College is now seeking higher yields.

“I do want to reiterate that the amount of overnight cash holdings at TD is a result of cash management practices and not as a result of a college position on TD’s sustainability practices,” wrote Norton.

Despite the fact that TD may count fossil fuel extraction and mining companies among its clients, the financial institution has adopted several corporate responsibility and socially responsible investing initiatives.

In February 2010, TD became the first carbon-neutral North American-based bank. It has officially adopted the United Nations principles of sustainable investment, and recently launched its TD Forests program, an initiative aimed at reducing paper consumption and increasing protected forest areas, among other projects.

In TD’s Q3 Investor Relations Quarterly Report, the bank reported that only 5 percent of its total financing involves clients operating in environmentally and socially sensitive industries such as mining and fossil fuel extraction. As of July 31, TD held $806 billion in assets and $405.2 billion in loans.

The bank’s sustainability and corporate responsibility report, which was assured by third party accounting firm Ernst & Young LLC, states its position on socially responsible investing.

“TD recognizes that … banks have a role to play financing extraction of traditional energy reserves and laying the groundwork for renewable energy development and deployment,” reads the report. “TD does not lend money for transactions that would … result in the degradation of protected critical natural resources. We do not lend money for transactions that are directly related to the trade in or manufacturing of material for nuclear, chemical or biological weapons.”

Despite TD’s official policies, Chute maintains that a better banking alternative exists.

Members of the ACSRI club have identified a regional bank, the name of which they would not disclose at press time, that they feel would be a more socially responsible banking relationship for the College.

“We want to keep the money in the area,” said Chute of the proposed alternative bank. “In Keynesian economics, you see the multiplier effect — money comes into an area, and then it gets used a couple of times, and the community benefits. With the TD relationship, there’s no multiplier effect there, and it’s a lost opportunity to help develop our community and improve the surrounding area.”

“We operate under the assumption that there’s always something better — there’s always a way to marginally, incrementally improve things,” Chute added. “Yeah, some banks may be bad, but … there’s only so much we can do as students. Instead of just seeing the world and all of its complexities and throwing our hands up in the air, we try to look at it more critically and we try to find a better solution.”