TD Bank 2009 Annual Report Download - page 84

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS80
WHO MANAGES ENVIRONMENTAL RISK
The Group Head of Corporate Operations holds senior management
accountability for environmental management. The Group Head is
supported by the Chief Environment Officer who leads the Corporate
Environmental Affairs team. The Group Head and Corporate Environ-
mental Affairs team are responsible for developing enterprise-wide
environmental strategy, setting environmental performance standards
and targets, and reporting on performance. The Group Head also leads
an enterprise-wide Environmental Management Steering composed
of senior executives from the Bank’s main business units. This Steering
Committee is responsible for approving environmental strategy and
performance standards, and communicating these throughout the
business. The Bank’s business units are responsible for implementing
the environmental strategy within their units.
HOW WE MANAGE ENVIRONMENTAL RISK
We manage environmental risks within the Environmental Manage-
ment System which consists of three components: an Environmental
Policy, an Environmental Management Framework and Environmental
Procedures and Processes.
Within our Environmental Management Framework we have identi-
fied a number of priority areas and have made voluntary commitments
relating to these. Priority areas include: climate change, forest biodi-
versity, our operational footprint, and land management related to
indigenous peoples. The Bank has made the commitment that its
Canadian operations will be carbon neutral in 2010, with U.S. and
international operations to follow shortly after. The Bank reports
annual carbon emissions as part of the Carbon Disclosure Project.
During 2009, the Bank completed an update of the Environmental
and Social Credit Risk Management Procedures applied to credit and
lending. An environmental and social risk screen is applied to all clients
and projects and sector-specific guidelines have been developed for
high-risk sectors. The Bank is a signatory to the Equator Principles and
applies them to project financing.
TD Asset Management (TDAM) is a signatory to the United Nations
Principles for Responsible Investment (UN PRI). Under the UN PRI,
investors commit to incorporate environmental and social issues into
investment analysis and decision-making. In 2009, TDAM adopted
a Sustainable Investing Policy across its operations in Canada and the
US. The Policy provides information on how TDAM is implementing
the UN PRI.
We continue to monitor and assess policy and legislative develop-
ments, and maintain active dialogue with environmental and
community organizations, industry associations and responsible
investment organizations.
For more information on our Environmental Policy and Environmental
Management Framework and related activities, please refer to our
Corporate Responsibility Report, which is available at our website:
http://www.td.com/corporateresponsibility/.
TD Ameritrade
HOW RISK IS MANAGED AT TD AMERITRADE
TD Ameritrade’s management is primarily responsible for managing risk
at TD Ameritrade under the oversight of TD Ameritrade’s independent
Audit Committee of the Board. The Bank monitors the risk function
and potential risk issues at TD Ameritrade through appropriate board
and management governance and protocols.
Currently, four of the eleven TD Ameritrade directors are designated
by the Bank, and the Bank has the ability to designate a twelfth director.
The Bank-designated directors currently include our CEO, our Group
Head Wealth Management and an independent director of the Bank.
TD Ameritrade’s bylaws, which state that the Chief Executive Officer
appointment requires approval of two-thirds of the Board, ensure the
selection of TD Ameritrade’s Chief Executive Officer requires the
support of the Bank. The directors we designate participate in a
number of TD Ameritrade Board committees, including chairing the
Audit Committee and the HR and Compensation Committee.
Management processes and protocols are aligned between the Bank
and TD Ameritrade to coordinate necessary inter-company information
flow. In addition to regular communication at the Chief Executive
Officer level, monthly operating reviews of TD Ameritrade permit the
Bank to examine and discuss TD Ameritrade’s operating results and
key risks. As well, certain functions, such as Internal Audit, Finance
and Compliance, have relationship protocols that allow for the sharing
of information on risk and control issues. Quarterly reports to our Audit
Committee and Risk Committee include comments on any significant
internal audit issues at TD Ameritrade; risk issues are reported up
to the Risk Committee of the Board of the Bank as required, and at
least annually.
ACCOUNTING STANDARDS AND POLICIES
Critical Accounting Estimates
The Bank’s accounting policies are essential to understanding its results
of operations and financial condition. A summary of the Bank’s signifi-
cant accounting policies is presented in the Notes to the Consolidated
Financial Statements. Some of the Bank’s policies require subjective,
complex judgments and estimates as they relate to matters that are
inherently uncertain. Changes in these judgments or estimates could
have a significant impact on the Bank’s Consolidated Financial State-
ments. The Bank has established procedures to ensure that accounting
policies are applied consistently and that the processes for changing
methodologies are well controlled and occur in an appropriate and
systematic manner. In addition, the Bank’s critical accounting policies
are reviewed with the Audit Committee on a periodic basis. Critical
accounting policies that require management’s judgment and estimates
include accounting for loan losses, accounting for the fair value of
financial instruments, accounting for securitizations and variable interest
entities, the valuation of goodwill and other intangibles, accounting
for pensions and post-retirement benefits, accounting for income taxes,
and contingent liabilities.
LOAN LOSSES
Accounting for loan losses is an area of importance given the size
of the Bank’s loan portfolio. The Bank has two types of allowances
against loan losses – specific and general.
The specific allowance is recorded against loans that are classified
as impaired, which occurs when the Bank determines that there is
objective evidence that there has been a deterioration of credit quality
subsequent to the initial recognition of the loan to the extent, that
the timely collection of all contractually due interest and principal
payments is no longer reasonably assured. Judgment is required as to
the timing of designating a loan as impaired and the amount of the
required specific allowance. Management’s judgment is based on
its assessment of probability of default (PD), loss given default (LGD)
and exposure at default (EAD). Changes in these estimates, due to
a number of circumstances, can have a direct impact on the provision
for credit losses and may result in a change in the allowance. Changes
in the specific allowance, if any, would primarily impact the Canadian
Personal and Commercial Banking, the U.S. Personal and Commercial
Banking, and the Wholesale Banking segments.