The 2021 budget allocated $17 billion for cleantech investment, carbon-capture tax credits, green bonds, building retrofits, severe weather mitigation and the transformation of carbon-intensive industrial processes in the oil and gas, concrete and steel sectors. (The same month the budget was released, however, Environmental Defence reported that, in 2020, the federal government provided or announced $18 billion in oil and gas subsidies).

And last May, the feds minted the Sustainable Finance Action Council to help chart the course to a net-zero future. Former environment and climate change minister Jonathan Wilkinson says a thorough plan is imminent.

“When people look back on 2021, they’re going to say this is the year when the world pivoted to a green economy, and Canada has to be there,” Finance Minister Chrystia Freeland said earlier this year. “We have to be in the lead of that transformation.”

But Canada is not in the lead — far from it. Research by Carbon Brief reveals the country produces more greenhouse gas emissions per person than virtually any other country in the world. According to data from investment research firm Morningstar, though a record $139 billion flowed into sustainable funds worldwide in the second quarter of 2021, only $1.6 billion of those investments were in Canada.

“It’s no big secret that Europe and the U.K. have been moving faster than Canada,” says Sean Cleary, executive director of the Institute for Sustainable Finance (ISF), an organization based out of Queen’s University that aims to align mainstream markets with the transition to a sustainable economy.

Where climate meets capital

A recent RBC report estimates that in order to catch up and meet its climate targets, Canada will need to invest $70 billion per year into green technologies such as electric vehicle (EV) infrastructure, green hydrogen, carbon capture and renewable energy production. As it stands, the country falls well short of that figure, investing just $10 billion annually.

To bridge that gap, climate advocates contend the financial sector needs to step in. “This is not going to happen from government finance alone,” says Cleary. “We need to unlock private capital.”

At the moment, huge amounts of private capital are instead propping up carbon-intensive industries. RBC, TD and Scotiabank are among the 12 banks worldwide providing the most financing to fossil fuel industries. Additionally, a recent Canadian Centre for Policy Alternatives report criticized two of the country’s largest public pension funds — the Canada Pension Plan Investment Board and the Caisse de dépôt et placement du Québec — for their heavy investment in fossil fuels, calling their climate commitments “more walk than talk.”

A recent RBC report estimates that in order to catch up and meet its climate targets, Canada will need to invest $70 billion per year into green technologies

And there has been a lot of talk. In the past year, dozens of high-profile Canadian companies — including Blackberry, Canada Goose, Enbridge, Telus and Indigo — have committed to net-zero or carbon-neutrality goals, sometimes backing those pledges with multimillion-dollar investments. Despite their less-than-green track record, so have each of the Big Five Banks, and Caisse has vowed to sell its oil assets by the end of 2022. “The private sector has really moved forward on this,” says Cleary. But will they deliver on their promises?

Like government, these businesses now find themselves in the messy stage between oath and execution. “Companies are making commitments realizing that their customers, employees, investors and lenders all want them to get there. That’s good,” says Cleary. “The next question is: how are they going to get there?”

Since 2019, Cleary has been canvassing financial leaders across Canada, asking what’s prevented them from getting greener. Earlier this month, he and the ISF released a report assessing Canada’s progress on implementing recommendations made in the Final Report of the Expert Panel on Sustainable Finance, which was released in 2019. “The general consensus,” the report states, “was that the private financial sector is now moving faster than the government and regulators in Canada.”

Cleary adds that, “in basically every conversation I’ve had with people in industry over the last few years, they tell me that capital is locked, loaded and ready to go, but they need better information.”

Climate disclosure, data and what it means to be green

Sustainability advocates within the financial industry are asking government for “better information” in at least three forms: environmental, social and governance (ESG) disclosures; robust and reliable climate data; and a green taxonomy.

ESG disclosure, arguably one of the most urgent milestones on the road to sustainable finance, refers to the way companies publicly report non-financial data regarding their impact on their environment (e.g., greenhouse gas emissions, exposure to climate risks, waste management strategies), their performance on social issues (diversity, labour rights, Indigenous relations) as well as their governance (board composition, executive compensation, lobbying efforts).

Until recently, ESG factors were considered to be outside the scope of reporting duties. While some companies voluntarily report on ESG factors, there is no standardized approach to measuring, calculating or presenting this information. As a result, it can be difficult to know whether a company — or an investment in that company — is truly sustainable.

There is now a widespread push for mandatory disclosures. In November 2020, the CEOs of Canada’s Big Eight pension funds issued a rare joint statement calling for companies and investors to provide “consistent and complete” ESG information. And on Oct. 25, a collection of three-dozen major Canadian institutions — including banks, pension funds, investment management firms and others, with a total of $5.5 trillion under management — issued a statement vowing to, among other things, integrate climate risks into their investment process, provide annual climate-related disclosures and demand similar measures from their investees.

Progress is underway, albeit slow. On Oct. 18, the Canadian Securities Administrators, an umbrella group representing the country’s provincial and territorial regulators, proposed to mandate climate-related disclosures by 2023. This move is in line with recommendations made by the Task Force on Climate-related Financial Disclosures, which is emerging as the leading international standard.

“It’s a big milestone for Canada,” Ontario Securities Commission vice-chair Wendy Berman told BNN Bloomberg. “It’s going to be very decision-useful information to investors, but more importantly...our public companies can attract more capital once they’re reporting under this framework.”

The exact details of the proposed disclosures will be fine-tuned through a consultation period that wraps up in January 2022. According to Andrea Moffat, vice-president of the sustainability-minded Ivey Foundation, one purpose of the consultations is to try to find an approach that all provinces and territories can agree upon. “If the consultation results in a mandatory disclosure plan, then each (provincial) commission would have to decide if they implement a regulation or not,” she says. She hopes provinces will act uniformly, “but that’s not a given.”

The Expert Panel on Sustainable Finance also recommended the public and private sector team up to create a Canadian climate data centre, which would authoritatively collect accurate environmental data, analyze it and disseminate it to Canadian businesses. Its datasets — including climate scenario modelling, risk analysis, carbon pricing info and more — would help companies complete their ESG disclosures and make sustainable business decisions. The ISF report found little progress has been made on this front, though the Sustainable Finance Action Council has set up a subcommittee dedicated to the issue.

Finally, the expert panel urged the creation of a green taxonomy, a comprehensive series of definitions that dictate what does and doesn’t count as sustainable investment. A green taxonomy is essential to avoid “greenwashing” — that is, fraudulently labelling securities as environmentally friendly to attract funding from sustainability-inclined investors. After more than two years of deliberations, the CSA Group, an organization that helps determine these standards, is expected to unveil a draft taxonomy this fall.

A foundation for sustainable finance

For grassroots environmental activists, all this talk of disclosures, data and taxonomies might seem like a snail’s-pace approach to solving urgent and existential climate crises. Can’t investors and companies simply embrace sustainability, instead of obsessing over how to define it?

David McGown, a former CIBC and Insurance Bureau of Canada executive who recently helmed an advocacy group called the Canadian Business Coalition for Climate Policy, contends there’s “no switch to flip that can turn us from today to tomorrow.” He likens disclosures, data and taxonomies to plumbing — not sexy, but essential. “These are foundational pieces that will be so critical to help define the role that the Canadian financial sector will play in supporting the transition of the real economy to a lower-carbon world.”

Another foundational piece of that transition: redefining fiduciary duty. The term describes financial advisers’ and investment managers’ obligation to act in the best interest of their clients. For years, that meant ensuring returns on investment, end of story. And for years, investing sustainably seemed like an unnecessary risk, a do-gooder luxury that might not yield profits.

But a growing body of evidence — “like, thousands of studies,” as Cleary puts it — shows that, in the long run, investments that consider ESG factors actually outperform those that don’t. Plus, severe weather, a lack of diversity and other ESG factors can now put a company and its assets at risk. “Widely used interpretations of fiduciary duty…are lagging behind the evolving reality of climate change and its financial implications,” the expert panel wrote in its final report. “This stems largely from a legacy perception that ESG factors, such as climate change, are non-financial and therefore outside of, or in opposition to, the remit of fiduciary duties.”

The expert panel recommended the minister of finance issue a direct statement articulating that the “consideration of climate change is firmly within the remit of fiduciary duty” and should therefore factor into risk management, business strategy, board composition, performance metrics and disclosures. To date, Freeland has made no such statement. (The Department of Finance did not respond to requests for comment by deadline.)

Waiting around on policy-makers

Absent disclosures, data, taxonomies and a revised understanding of fiduciary duty, even green investors seem stuck chasing short-term profits. According to a recent RBC report, three-quarters of Canada’s sustainable investments are in renewable energy projects, which have the potential to yield quick returns. The same report identified a dire lack of private investment and government subsidies for vital, long-term emissions-reducing projects, which can take 20 years to generate positive cash flows. “That’s a problem in attracting investors,” the report states.

McGown says, until the government delivers clear and consistent climate policy, investors will continue to hesitate. He cites as a negative example Ontario Premier Doug Ford’s sudden decision to scrap the province’s cap-and-trade system, which burned those companies that had signed up, planned and spent around it. Businesses who want to avoid that fate, he adds, are waiting until policies are finalized. “The lack of certainty with respect to climate policy continues to absolutely get in the way of business confidence and its ability to plan, invest and innovate,” says McGown. “There’s an extraordinarily important role for government in helping with that transition.”

Andy Chisholm, an RBC director and member of the Expert Panel on Sustainable Finance, warns the private sector can’t afford to wait for government to set everything in stone. “It’s very easy to say, ‘Geez, disclosure is not there. Data is not there. Therefore, we can’t rely on any of this stuff, so I’m not going to act until everything is firmly in place.’”

This attitude, Chisholm says, not only puts Canada’s climate goals in jeopardy; it may also soon damage companies that think this way. “It’s becoming clear that if you run your company without proper consideration of your impact on society…then you run a big risk of falling afoul of your stakeholders’ expectations, and they will penalize you.” Employees, customers and investors may jump ship, he adds, and regulators may fine companies that fail to meet future ESG requirements.

The international community may also soon turn its back on companies — and countries — that fail to act sustainably. The European Union and U.K.’s significant progress on disclosures, taxonomies and fiduciary duty prove that other jurisdictions are taking sustainable finance seriously. If Canada doesn’t follow suit, Cleary argues, we may be left behind, starved of international investment. “We’re definitely not out of the game, but we can’t let others get too far ahead,” he says. “If they’re moving in one direction and we’re stilling sitting here, we’re in trouble.”

Updates and corrections

| Corrections policy
April 1, 2022, 10:30 am

This article's headline was changed and it was tweaked slightly today.

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My instant reaction to the headline: No. Short of nationalizing some key banks, you cannot get finance to do anything but chase the highest profit. That's their job, that's capitalism, that's what they are going to do. Period, full stop, anything else is PR.
What government CAN do is make sure it is clear that the highest profit will not be found in the fossil fuel sector, by regulating the heck out of them, taxing the heck out of them, and strongly promoting alternatives. If that's in place, finance will follow because it has no choice.

The private sector needs to get its act together regarding the environment, but this article is flawed because it assumes private financing is essential. Central bankers will confirm that currency-issuing countries like Canada can never run out of their own money, and can always make the necessary investments.

The practical limits to federal spending are not a lack of federal dollars but the availability of domestic real resources that can be purchased without sparking inflation. Since Canada has plenty of spare capacity, including over one million Canadians actively seeking work, the government can immediately initiate projects such as retrofitting all buildings, reforestation and erosion control, and accelerating sustainable energy projects.

To start the Green New Deal, we need not wait for private financiers expecting profits. The federal government owns the Bank of Canada and can never run short of money. It can only run short of political will.


1. Alan Greenspan, former U.S. Federal Reserve Chairman, 1997

"[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit."

Being realistic is hard. Reality is that we live on a finite planet with finite resources. Our life styles have been predicated on existential growth. That was sustainable as long as Nature's checks and balances prevented that growth from exceeding the planet's resources. Our success in overwhelming those checks and balances, and continuing growth is now using up the remaining planet resources. If you do not believe that, just look around. Where are we not destroying our sustaining Biosphere? If live as we have know it is to persist, our species must cut back it's impact on the Biosphere, and fast. 2050 has been set by the UN IPCC as the critical date to have in play, a sustainable social order globally, else the future for us and most other higher order species will end in a catastrophe. What will currency or structures mean then??