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It’s estimated that the Canadian economy could take a $5.5-trillion hit by the end of the century due to climate change, according to a white paper from Independent Sen. Rosa Galvez’s office published this week as sustainable finance experts and policymakers descended on Ottawa for a high-level conference Wednesday.
The staggering sum was sourced from Queen’s University’s Institute for Sustainable Finance, which also found in a study last year that trillions of dollars could be saved if global warming is held to the Paris Agreement’s goals. Already climate change is pushing the cost of food up and up to 10 per cent of homes are or will soon be uninsurable due to the growing frequency of catastrophic natural disasters.
At the root of the climate crisis is burning fossil fuels, and beyond the Earth’s temperature being pushed to unsafe levels leading to lethal consequences, it’s also expected to exacerbate economic crises.
Still, as attendees at the sustainable finance conference heard, there are plenty of options at hand to set Canada on a safer path.
UN Special Envoy on Climate Action and Finance and former governor of the Bank of Canada Mark Carney told attendees that we’re in an age of crises. From war and geopolitical instability to energy and financial crises, the stakes are enormous, he said.
The only way the world can meet emission reduction targets is if a majority of existing fossil fuel reserves stay in the ground, he said. Meeting the Paris Agreement goal of holding global warming to 1.5 C necessitates some fossil fuel assets becoming stranded, a financial term for when the profitability of an asset, like an oil rig or an untapped gas deposit, loses significant value. This has major implications for banks that have financed fossil fuel companies with an expectation those fossil fuels will be extracted and sold for profit.
Thankfully, there are answers to these challenging problems, according to Carney. Canada could be a “clean energy superpower,” but it needs a sustainable financial system to get there, he said.
“It's getting beyond time for us to implement mandatory climate disclosure [rules],” he said, referring to financial regulation that would require companies to report on things like their greenhouse gas emissions and energy transition risks to give investors a clear understanding of what they’re investing in. “The need's been long recognized, the world is moving forward, and we could end up in a situation where Canadian firms are subject to a patchwork of methods, including extraterritorial [rules] from the EU and California... This will slow investment, job creation and hold back competitiveness.
“The question for Canada is what role are we going to play … when we don't have an agreed approach?”
The cost of inaction on climate change couldn't be clearer, but policies to align Canada's financial sector with planet-warming greenhouse gas emission reduction targets are glaring holes in Ottawa's approach. #SustainableFinanceForum2023
Carney pointed to the Sustainable Finance Action Council (SFAC) taxonomy roadmap published last year. The SFAC is an expert body set up by the federal government in 2021 tasked with recommending ways to help align the Canadian financial sector with sustainable finance goals with the hope of making them industry standard. A top priority is developing a “sustainable finance taxonomy” to define sustainability terms and make it clear to investors what counts and what doesn’t if you’re going to claim investments are sustainable.
Those recommendations were sent to Finance Minister Chrystia Freeland over a year ago, but appear to be gathering dust. Her office has yet to turn the expert recommendations into binding rules that would help financial institutions align with federal climate targets.
“As yet, those recommendations have not been answered,” Carney said. “My point: the world is moving forward on a transition [and] Canada has a good — I'd suggest, great — roadmap.
“We need someone to drive the car.”
Advocacy organization Environmental Defence’s senior manager for climate finance Julie Segal told Canada’s National Observer that as Ottawa plans a series of climate policies, like the oil and gas emissions cap or electric vehicle mandates, there is a “missing hole”: climate finance policy.
“The climate plan will not succeed without that gap being filled,” she said, adding “a lot of the policies sit on Minister Freeland's desk and are genuinely under her remit.
“To succeed on the climate plan, Prime Minister [Justin] Trudeau has put forward, him and the whole team need to move very quickly on climate-aligned finance policy,” she said. “So Minister Freeland and or Prime Minister Trudeau should commit to a net-zero financial system … and then everything else can follow.”
Sen. Galvez, one of the figures on Parliament Hill advocating for climate finance policy, last year tabled the Climate Aligned Finance Act in the Senate. The act spells out numerous ways to help align the financial sector with Canada’s emission reduction targets by defining the fiduciary duty of corporate directors to take into account climate change, as well as measures to eliminate fossil fuel conflicts of interest and introduce climate expertise on a board of directors.
She says Canada is a laggard when it comes to climate action and it’s time to take a preventive approach to stop climate change’s worst impacts. Practically, that means setting credible science-based targets for financial institutions to stay onside with government’s climate commitments. If done properly, this shouldn’t cause financial pain to the Canadian economy. In fact, it would be a massive windfall to transition to a sustainable economy, she says.
“For every dollar that we invest in nature-based solutions, in land restoration, in renewable energy, we can have a return of between $10 and $30,” she said. “This is huge, so there is a big opportunity that we are just wasting.”
Building on Galvez’s work in the Senate, Liberal MP Ryan Turnbull filed a motion in the House of Commons this year calling on Ottawa to use every legislative and regulatory tool at its disposal to align the financial sector with climate commitments. He says we’re in a “pivotal” moment and need to capitalize on the country’s low-carbon potential. In his view, that means better leveraging the private sector.
“It's very clear to me the problem is there is no Canadian government that is ever going to be able to finance the transition to a clean or green economy alone. We have to leverage the private market,” he said. Capital markets “need transparency, consistency, data [and] credibility,” he added, pointing to the need for clear regulations and definitions about what counts as sustainable finance.
“Our government has looked at the [SFAC taxonomy roadmap], I just think it's time to act,” he said. “We cannot let other jurisdictions around the world be the ones that set the standard, we should be setting the standard for our own economy,” he added, noting Canadian standards should still align with other important trading partners.
“But to hear that Canada is lagging behind other countries is concerning, we need to stay competitive,” he said.