This year’s news cycle has been dominated by stories of prime ministerial resignations, presidential inaugurations and rollbacks to vital federal climate, environmental and social justice policies south of the border.
Missing from the conversation — perhaps by design, given it was buried on a website without fanfare — was the release of the federal government’s first-ever report on Climate-Related Financial Risk Management.
The long-awaited report, required by Canada’s landmark climate change legislation, the Canadian Net-Zero Emissions Accountability Act, mandates the finance minister to publish an annual report detailing the key measures taken by the federal public administration to address financial risks and opportunities linked to climate change.
Unsurprisingly, it recognizes what we already know to be true: climate change is “creating financial risks for Canadians, including Indigenous Peoples, companies, communities and all orders of government.” It also highlights some positive measures government entities are taking to protect against the threats brought by the climate emergency.
The obligation to produce this report was delayed without explanation by two years, compared to the rest of the act. The government also missed its 2024 publication deadline — quietly releasing it in January 2025 instead. The government has since delayed responding to access-to-information requests by Canada’s National Observer about its public release.
What's even more worrisome than the delays is the report’s lack of self-examination.
In a critical oversight, it fails to address how the government’s own role in financing fossil fuel supply and expansion is actively making climate change worse. This is because the report does not integrate (beyond providing hyperlinks to separate disclosures) Crown corporations into the analysis.
A truly accountable risk assessment exercise should include an honest look at how the federal public administration, including through its Crown corporations, contributes to climate risks and how it is managing that risk contribution in its journey toward net zero. Without an integrated approach, there is no way for the federal government to understand, never mind manage, its financial exposure to climate risks — costs that taxpayers will ultimately bear. With estimates projecting that climate change already costs the average Canadian household over $700 per year, this has direct implications on our wallets.
Fossil fuels are the main driver of climate change, and investments in fossil fuel companies pose increasing financial risk to our economy. As climate emergencies present physical threats to fossil fuel operations, the world’s transition to a low-carbon economy threatens their longevity. Continuing to finance fossil fuels packs a double punch: it exposes the government to financial risks, while simultaneously worsening the climate crisis.
As one of the G20’s largest financiers of fossil fuels, Canada funnels massive investments into oil and gas projects through the Crown corporation Export Development Canada (EDC). Last year, it poured hundreds of millions of dollars into Enbridge (U.S.) Inc., Cedar LNG and the Coastal GasLink Pipeline.
In its own separate report, EDC claims a 69 per cent reduction in carbon exposure, suggesting it exceeded its climate target ahead of schedule — but that target only applies to direct financing. For oil and gas, 88 per cent of EDC’s support is indirect, in the form of insurance and bonding, highlighting one of the ways the government muddies the waters about the extent to which it’s subsidizing fossil fuels.
Another case in point: the government-owned Trans Mountain (TMX) oil export pipeline, the most expensive infrastructure project in Canadian history, is glaringly absent from the report. Despite two Parliamentary Budget Officer reports concluding the project is a net loss, the government decided to keep its head in the oilsands rather than fully investigate the climate risks that may worsen the financial debacle.
Currently, the pipeline exports oil at a loss, with costs ballooning more than four times over the initial estimated cost — equivalent to $800 per Canadian, due to insufficient levies granted to foreign-owned fossil fuel companies.
The Canada Account, managed by EDC but controlled by the cabinet, has funded the pipeline from the beginning and lacks any public climate-risk analysis. Recently, it issued an additional $20 billion loan guarantee, on top of $19.2 billion in loans and $11.5 billion in guarantees from 2023.
While a hyperlinked Canada Development Corporation (CDEV) report does a decent, albeit slightly optimistic, job of qualitative climate-risk analysis, the government fails to provide any quantitative financial climate-risk analysis of its own assets, even where such relevant information exists.
For example, while the CDEV report pays lip service to the significant risk of stranded assets — the potential for Canada’s fossil fuel assets to become liabilities due to climate change mitigation efforts — it fails to mention that peer-reviewed science estimates this could cost the country up to US$100 billion. Asset-stranding would greatly increase the risk of default on the myriad of government-backed insurance, loan guarantees and bonds to the industry.
Beyond its astronomical costs to taxpayers, the government also fails to recognize the climate impacts of financing the project. Recent peer-reviewed studies show the TMX pipeline’s upstream GHG estimates, initially conducted by Environment and Climate Change Canada in 2016, were likely grossly underestimated. Downstream emissions were never estimated, despite overall downstream emissions from exported fuels significantly eclipsing Canada’s domestic emissions.
TMX should be a cautionary tale of what happens when our government willfully ignores important risks and how it contributes to them.
All of this makes one thing clear: the federal government does not yet have a real plan to address the financial risks posed by climate change, to which it chose to remain blind by failing to conduct a rigorous assessment.
This superficial report highlights the dire need for a comprehensive package of legislative measures to align Canada’s public and private finances with our climate commitments. Last month, individuals and organizations across Canada urged Prime Minister Mark Carney to adopt forward-thinking, climate-aligned finance, which could allow us to leapfrog the US on clean energy and genuinely future-proof our economy.
Karine Peloffy is a lawyer and sustainable finance project lead at Ecojustice. She comes from the office of independent Senator Rosa Galvez, where she authored the groundbreaking Climate-Aligned Finance Act introduced in 2022. She also worked hard to ensure the passage of the Canada Net Zero Accountability Act, which the senator sponsored.
Comments
An important piece to read and understand.
Thank you.
May it help spur positive action.