RBC Financial Group 2005 Corporate Responsibility Report and Public Acountability Statement

STRUCTURE AND ACCOUNTABILITY
RBC has a direct impact on the environment through our own operations, and our goal is to minimize our environmental footprint by using resources efficiently. Our Corporate Real Estate group ensures that we build energy-saving efficiencies into our own operations and evaluates the environmental impact of our purchases. Our Environmental Management System is modelled on ISO 14001 and applies to all RBC platforms, with a special emphasis on corporate real estate within Canada.

As a financial services provider, we also have a significant indirect impact on the environment through our clients, especially those to whom we lend money. Risk management is a core competency of all financial institutions, with environmental risk management a unique category within the overall risk management structure of RBC. Our Environmental Risk Management group is responsible for this area, with oversight provided by the Chief Risk Officer and ultimately by the Conduct Review & Risk Policy Committee of our Board of Directors.

ENVIRONMENTAL POLICY
RBC’s Environmental Policy was established in 1992, is reviewed regularly, and supplements the environmental section of our employee Code of Conduct. It guides every RBC activity that can influence the environment, including our own operations, as well as our lending and investment activity. We also have a set of policies and sector-specific procedures designed to assess the social and environmental costs of any deal or project. Compliance is audited on a regular basis by RBC’s internal audit professionals.

LENDING AND BUSINESS OPPORTUNITIES
Equator Principles
RBC was the first Canadian bank to adopt the Equator Principles, in 2003. These nine principles provide a framework that helps financial institutions address the environmental and social risks associated with financing large-scale projects in developing countries. “Large scale” means projects with a capital cost of US$50 million or more, and they are typically engineering and construction projects in industries like oil and gas, power generation and manufacturing. RBC has broadened our use of the Equator Principles to include high-impact projects with a capital cost of US$20 million or more, regardless of location.

Upon signing the Equator Principles, we revised our Policy on Social and Environmental Review in Project Finance to include all elements of the Equator Principles, including updated procedures for lenders and risk managers. These were fully communicated to all employees involved in project finance.

When a project is being evaluated under the Equator Principles:

• Our client must conduct a full social and environmental impact assessment of the proposed project;

• A professional technical consultant or environmental expert, working on our behalf, evaluates the assessment, and prepares an environmental due diligence report;

• This report is provided to our Credit Risk Management and Environmental Risk Management departments to determine whether the project meets our criteria, with recommendations made if further work is required; and

• Once the project meets our criteria, including the Equator Principles guidelines, it is forwarded to RBC’s Chief Risk Officer for final approval.

In 2005, we applied the Equator Principles in the assessment of two resource sector projects internationally in the energy and power sectors.

Climate change
Climate change is considered one of the most significant global and economic threats in history. Its effects are expected to cause shifts in weather patterns, weather-related damage, and rising sea levels affecting coastal regions around the world. Climate change represents a concern and a challenge for financial institutions and our clients.

RBC is working on a number of fronts to address the issues raised by climate change, including:

•	Evaluating the climate change risks to industries such as tourism, agriculture and natural resources, and the risks of severe weather events in our property insurance business;
•	Assessing the risks and opportunities of international agreements such as the Kyoto Protocol and government responses as they apply to RBC and our clients; and
•	Incorporating “carbon risk” into the assessment of borrowers in high-impact sectors such as mining, oil and gas and heavy manufacturing.

RBC is among 60 companies worldwide that have been recognized as leaders in understanding and addressing climate change issues. The ranking was carried out as part of the Carbon Disclosure Project (CDP), an initiative sponsored by a coalition of 155 leading institutional investors that collectively manage $21 trillion in assets. These institutional investors share a common desire to know the degree to which large companies are exposed to climate change risks, and how they are managing them.

Emissions trading opportunities
As the Kyoto Protocol comes into force, carbon dioxide and other greenhouse gas (GHG) emissions will be either an asset or a liability on the balance sheets of many of our clients or their subsidiaries. RBC is preparing for GHG emissions regulation and trading, particularly in response to the E.U.’s trading scheme, which started in January 2005.

Carbon trading allows industries with carbon credits generated by reducing their GHG emissions to sell them to industries with excess GHG emissions or to governments.

In examining the potential risks and opportunities in trading GHG emissions, we conducted an extensive review of energy carbon markets in Canada, the U.S., and the E.U. and identified specific business opportunities for RBC, along with timing, risks and how risks could be mitigated. We:

• Monitor developments in the E.U., Canada and the U.S.;

• Participate in a number of IETA (International Emissions Trading Association) initiatives, including developing the framework for a Canadian carbon market;

• Examine the risks and opportunities of greenhouse gas emissions trading as an RBC business area; and

• Examine the impacts of the monetization of carbon on our clients.

Renewable energy opportunities
Renewable energy and energy efficiency can provide some long-term investment options with a great return for the planet.

RBC Technology Ventures is a lead investor in the GEF Clean Technology Fund, L.P. This new private equity investment fund will seek to identify and finance companies that create technologies to help traditional industrial companies reduce energy consumption, material waste and the discharge of pollutants, and manage safety or public health hazards and other environmental consequences.

We recognize the opportunity in alternative energy resources, and finance 26 wind farms in North America, U.K., France and the Republic of Ireland. In 2005, RBC Capital Markets also acted as financial advisor to a number of significant green energy business transactions that will generate more than 1 gigawatt (GW) worth of power in Europe. These include a wind development business in the U.K., a renewable energy company with an international portfolio of wind assets, and a landfill gas generation business.