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HOW WE OPERATE RESPONSIBLE BANKING WORKPLACE ENVIRONMENT COMMUNITY GOVERNANCE


Contextual Trends % Economic Volatility


Elevated financial market volatility is a key global risk. Lingering worries about China’s economy and the dramatic decline in crude oil prices have been weighing on investors’ confidence. Low oil prices have led to a recession in Alberta’s economy, but put more money in the pockets of households and businesses in Central Canada and the Northeastern United States.


Other drivers of market volatility include divergent paths of monetary policy within the advanced world and continued excessive debt burdens, particularly within the emerging markets.


In early 2016, the Canadian dollar tumbled to a level not seen since 2003. While a low currency provides a competitive boost to exporters, large fluctuations tend to send shock waves through businesses and consumers alike. Higher import costs and increasing food prices are more than offsetting the benefit of lower gasoline prices, thus reducing the purchasing power of Canadian consumers.


Low Interest Rates


The sustained climate of low interest rates continued to have an impact on our business by putting pressure on margins.


Low interest rates have kept debt affordable for the average household. If perpetually low interest rates encourage additional borrowing, we may see an increase in customers who are no longer able to meet debt obligations in the event of a sudden rise in rates.


In the U.S. the Federal Reserve responded to stronger economic performance by raising the lending rate in December 2015. However, volatility in the markets is casting doubt on whether the Federal Reserve will continue to incrementally increase rates over the next few years.


Increasing Regulation of ESG Topics


Corporate responsibility reporting was founded on a principle of voluntary disclosure. We’re seeing a shift from voluntary to mandatory reporting and transparency.


Research shows that since 2012 there has been a 45% global increase in the number of regulations calling for more transparency on environmental, social and governance (ESG) topics.1


Specific examples include


the introduction of human trafficking laws in the U.K., transparency on CEO pay ratios in the U.S. and tax reporting by country. While not all of these regulations directly affect TD, they point to a broader global trend requiring companies to provide ESG information in a timely and accurate way.


A number of global trends and events with the potential to affect our business continued to make headlines during the past year. While not within TD’s direct control, they nevertheless influence the economic context in which we operate and inform our business strategy and/or our approach to corporate responsibility.


Climate Resilience


Scientific research shows that Earth’s average temperature could rise several more degrees this century.2


In addition to mitigating the causes of


climate change by reducing GHG emissions, there is growing global attention on the need for adaptation strategies to prepare for the changes we know are coming.


TD is taking action now to build increased climate readiness into our business. We are also working to help our customers and communities understand and adapt to a range of possible climate scenarios. To learn more, refer to page 33.


Data Security


Data security incidents and breaches continued to make headlines in 2015, drawing more questions from investors, governments and consumers about how companies plan to stay ahead of the risks and protect their systems from cyber attacks.


All stakeholders are understandably concerned about privacy and security in the digital age. Companies are increasingly aware of the investment required to limit vulnerabilities in their technology. For more on how TD is addressing data security, refer to page 57.


Sustainable Development Goals


Launched in 2015 and driven by the UN, the Sustainable Development Goals (SDGs) are a set of global goals that governments are expected to adopt. The 17 goals address poverty, food, health, education, women, water, climate and more. As governments begin to measure and track progress, businesses will need to assess their own impacts in the context of the SDGs.


Forty-one per cent of businesses say they will embed SDGs into their strategy and the way they do business within five years.3


Over the course of 2016 we will be evaluating the SDGs and science-based targets to ensure they are aligned with the national and subnational goals for the jurisdictions in which we operate.


Page 7 1


http://www.erevalue.com/lawyers-see-esg-risks-as-central-to- clients-interests


2 IPCC; Environmental Protection Agency 3


http://www.pwc.com/gx/en/sustainability/SDG/SDG%20 Research_FINAL.pdf


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