Canada needs climate-aligned finance rules now

The Royal Bank of Canada (RBC) has quietly dropped its $500-billion sustainable finance target, citing recent amendments to Canada’s Competition Act. 

These provisions require companies to substantiate their environmental claims to avoid greenwashing — hardly a controversial demand in an age of climate risk. And it’s worth considering that the Competition Act has a long history of protecting consumers by ensuring an organization does not make false claims about their business or products. Rather than stand by its commitments, RBC walked away. This move raises a stark question: were these targets genuine and were they ever meant to be taken seriously?

RBC’s decision is not just disappointing — it’s revealing. It exposes the fragile foundation of voluntary sustainability pledges that lack legal force and independent verification. And it underscores, with uncomfortable clarity, why Canada needs to move swiftly to adopt legislation like the proposed Climate-Aligned Finance Act (CAFA) — a bill I introduced in the last Parliamentary session to ensure that financial institutions align their activities with Canada’s climate commitments under the Paris Agreement.

What RBC’s retreat tells us

Let’s be clear: the provisions of the Competition Act do not ban environmental claims. They simply demand that companies provide evidence. If RBC cannot — or will not — defend its own sustainability goals under this basic standard of consumer protection, it should alarm regulators, investors and Canadians alike.

This development comes on the heels of all major Canadian banks withdrawing from the Net-Zero Banking Alliance (NZBA) earlier this year. The pattern is undeniable: when voluntary measures encounter even modest scrutiny, they crumble. And when opportunity presents itself, as was the case with the fallout from US President Donald Trump’s re-election, our financial institutions waste no time in abandoning their sustainable finance commitments.

The fact is RBC released its 150-page Sustainability Report during a moment of national political distraction and geopolitical uncertainty. And the report only mentions the “retirement” of RBC’s sustainable finance target in passing. This has only reinforced calls for greater accountability and transparency in the financial sector.

Voluntary isn't working

Sustainable finance advocates and investors have long warned that voluntary commitments are no substitute for legal obligation. RBC's unwillingness, or inability, to provide evidence for its environmental claims, and the parade of banks leaving the NZBA, are clear proof we need more than voluntary pledges. No bank should be allowed to brand itself as sustainable, while continuing to finance fossil fuel expansion, without facing regulatory consequences.

Leading worldwide economists have said it: climate risk is financial risk. Investors know this. Capital is available for companies ready to decarbonize and modernize, but they require credible, comparable climate disclosures. Without legislation, we risk leaving investors — and the broader public — vulnerable to misleading claims. 

Lack of ambition in sustainability and disclosure a concerning trend

Pausing work on climate and ESG (Environment, Social and Governance) disclosure rules, as the Canadian Securities Administrators recently did, sends the wrong signal to global markets and our allies. It’s strategically unwise to align with deregulatory trends in the US when Canada should be showing leadership in transparency and sustainability. 

The approach of the current US administration, which is increasingly hostile to ESG standards, is not only out of step with global expectations, but also increases financial risk. Following the same trajectory could expose Canada to financial instability. Most economic indicators suggest that the US is on the brink of a potential recession — driven in part by its failure to adequately manage systemic risks, including climate-related ones. 

In many parts of the world, climate-related risks are already materializing. Weakening disclosure rules at a time when climate risk is accelerating only increases financial uncertainty, discourages long-term investment, and undermines our competitiveness and resilience.

Climate risk is no longer theoretical

The materialization of climate risk is weakening our economy, our communities, and our long-term competitiveness and Canada is already paying a high price for climate inaction. In 2024 alone, extreme weather events, including wildfires, hailstorms, deep freeze and floods, cost Canadians a record $8.5 billion in insured damages. And these are just the insured costs; the true economic toll, from lost productivity, damaged infrastructure, health impacts and displacement is significantly higher. The Canadian Climate Institute estimates that by 2025, climate change will cost the Canadian economy $25 billion annually — roughly equivalent to 50 per cent of projected GDP growth. These figures are no longer warnings. They are a balance-sheet of realities. 

What climate-aligned finance legislation must do

To be effective and fit for purpose, climate-aligned finance legislation must:

• Require financial institutions to align their portfolios with Canada’s climate targets.
• Mandate disclosures on how they are managing climate-related financial risk.
• Prevent misleading environmental claims by rooting climate finance in science and law.
• Ensure central banks and regulators consider climate risk as part of financial stability.

Had a framework, such as the one I proposed in CAFA, already been in place, RBC would not be able to quietly step back from its climate promises without consequence.

While other jurisdictions like the European Union are already addressing this challenge by implementing a comprehensive sustainable finance taxonomy, mandatory ESG disclosures, and due diligence rules that apply to financial institutions and companies alike, Canada continues to lag. These jurisdictions understand that finance is not neutral in the climate crisis — it is either complicit in deepening it or actively contributing to solutions.

A turning point for Canada's financial credibility

With the recent election of Prime Minister Mark Carney, a globally respected figure in sustainable finance, Canada has a golden opportunity to lead. But leadership will require more than speeches. It demands a robust legislative backbone.

We cannot build a resilient, low-carbon economy while tolerating greenwashing and regulatory arbitrage. We need a financial system that supports, not hinders, the transition. That means enshrining transparency, consistency and climate responsibility into law.

We have the tools. The Climate-Aligned Finance Act stands at the ready for diligent and swift passage through the legislative process. Elbows up for a resilient and prosperous Canadian economy.

Independent Sen. Rosa Galvez chaired the Senate Standing Committee on Energy, the Environment and Natural Resources in the 44^th Parliament and served on the Senate Standing Committee on National Finance.