Finance Committee on March 9th, 2023

[The Chair, Liberal, Peter Fonseca]

Go ahead, Madame Chatel.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much.

Mr. Chambers' question is important. However, I see its opposite side, in a way. In fact, the G20 and all the finance ministers who are part of it have made it clear that it is only a matter of time. At some point, we are all going to require financial institutions to make their portfolios net zero. In Europe, some banks have already made that transition or have an action plan to do so.

In this world, the G20 world, financial institutions in Europe, China and other countries are saying they are going to have a net-zero portfolio. What would be the consequences for Canada of not having worked, as you are, to put the infrastructure, information and standards in place to be ready to deal with this issue and succeed in this economy and financial market?

[Robert Sample]

I think I'll answer it in a slightly different way. I believe that in the guideline OSFI released earlier this week, a transition plan is a requirement of a financial institution. I can't speak to whether that's similar to or dissimilar from what the expectation would be in Europe, but that is already occurring. Factually, that will be a requirement of fairly regulated financial institutions.

[Sophie Chatel, Liberal, Pontiac, QC]

So this is already happening. I thought we had more time, but you are saying that we do not. The requirement to have a transition plan to a net-zero portfolio is already being established. We are following Europe, China and the G20 countries.

To answer my Conservative colleagues, I could say that the cost to be considered is not the cost of putting all of this in place, but the cost of doing nothing, which would be catastrophic for Canada. That is my understanding.

You pointed out earlier that the 2022 budget included new funding for the Montreal office of the International Sustainability Standards Board. That's a major development. So there is a centre in Canada—in this case in Montreal—that is working to create international standards to define what sustainable finance is.

We were talking about taxonomy earlier. What is important is to have an international standard.

Why is it so important?

[Robert Sample]

One element—and I think I've mentioned this already—is that having a global baseline that countries can look to and adapt or tailor with their specific jurisdictional considerations is very helpful, particularly for multinational companies that might have regulatory requirements across more than just Canada, the United States, Europe or Asia. With such a global baseline, there can be harmonization, to the extent possible, of disclosure standards, for example.

Just to clarify, my understanding at present with the ISSB is that it's focused on climate disclosure reporting. I think that's what the initial focus is on. It's going to be publishing the final global baseline or benchmark for reporting standards later on in 2023.

[Sophie Chatel, Liberal, Pontiac, QC]

Did you know that the Desjardins Group is already moving forward with an action plan to achieve net-zero emissions?

What impact will the decisions of the G20, countries and major banks of international institutions have on Canadian small and medium-sized businesses with respect to the transition to new net-zero portfolios?

[The Chair, Liberal, Peter Fonseca]

Please give us a very short answer.

[Robert Sample]

Generally speaking, the requirements require scope 1, scope 2 and scope 3 reporting. There's a value chain dimension to scope 3 reporting such that if you're one who inputs into the production of various economic activities or products, that's important to take into account.

As it's being set out, there will be a need for smaller and medium-sized industry to report that type of information. I think there is a recognition, however, that for smaller and medium-sized entities to report that information, they'd need to be on the same scale as a large company or financial institution, so there will need to be some tailoring of those regulatory standards.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chatel.

We will go over to the Bloc. I see that MP Ste-Marie is here, but MP Garon for the Bloc has some questions.

Go ahead, for two and a half minutes.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Mr. Chair.

I very much appreciated my colleague Ms. Chatel's pointing out that Montreal today occupies an important place in setting international standards. However, she forgot to say that, once Quebec becomes independent, it will obviously be Quebec that can shine internationally by providing a tremendous amount of expertise.

In the meantime, I have another question on another topic.

In 2020, the Bank for International Settlements, in one of its studies, reported a significant concentration of so‑called “zombie” firms, which are declining in the mining and fossil fuel sectors. However, banks may be inclined to inject more and more capital into these firms to avoid having to get them off the books, to avoid having loss provisions. I know this is complex, but it may be a behaviour that we would potentially want to regulate.

Is the Department of Finance carrying out an assessment here in Canada on the significance of this phenomenon—that is, the amount of resources that are being reinvested by banks in these firms and the risk that the concentration of zombie firms in the oil or mining sector may pose to our financial system?

Have you worked on this? Do you know what the state of the Canadian situation is in this regard?

If the answer is yes, could you submit to the committee information on what has been done in the department?

[Robert Sample]

Neither Matt nor I has personally worked on that type of analysis. I might point you to the Office of the Superintendent of Financial Institutions and the Bank of Canada from two perspectives. One, they have done some pilot work on climate risk scenario analysis, something that's there to help build out how institutions model and assess risk—

[Jean-Denis Garon, Bloc, Mirabel, QC]

I am aware of that. My question was about the concentration of zombie firms.

[Robert Sample]

On the second part, another reason I point you in the direction of OSFI is that understanding client risk and counterparty risk will be very important for financial institutions, banks, insurance companies and so on. I imagine it would be part of the risk analysis that OSFI will be expecting for financial institutions.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Garon.

We will move now to the NDP.

MP Blaikie, you have two and a half minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Historically, the financial sector doesn't have a great track record of prioritizing decarbonization projects. They're not experts in decarbonization. They are experts in finance.

In terms of the advisory bodies for the minister, or for OSFI for that matter, they will provide advice on the metrics and the transparency requirements for financial institutions and companies to report on to evaluate whether they have a net-zero portfolio. Who sits on the advisory committees that are outside the financial sector and have expertise on the science of decarbonization?

[Matthew Boldt]

The SFAC has consulted. I hear the point you're making that this is the financial sector and it is composed of financial institutions, but they have done outreach with groups outside the financial sector. You can see—

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

I do hear that, but it seems to me that it's a different level of engagement—and frankly a different level of opportunity for education on the part of those in the financial sector who are going to be providing advice on this—to have people at the table who, as part of their deliberations and the decision-making process, will have input on what those standards ultimately are.

It seems to be a big miss not to have some voices at the table who have that as their background. It's not because the financial expertise isn't required, but it seems odd to me that people with only financial expertise would be the decision-makers and that there wouldn't be other voices welcomed into that decision-making process.

[Matthew Boldt]

I understand that members of the SFAC may be called to this committee, so they could elaborate on this. The taxonomy report that we spoke about earlier has been published on the Government of Canada website. The SFAC submitted it to the ministers, and they had a lot of input from the Canadian Climate Institute in developing that report. The Canadian Climate Institute provided some of the scientific expertise that I think you are referencing.

I think it's a very important point. In their recommendations, I think they are trying to put out there that if a taxonomy were implemented, there would need to be other people in the governance of that structure. It could not be just FIs. I think that is one of their recommendations, but they could elaborate on that.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie.

We will now go to the Conservatives.

MP Hallan, you have five minutes.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Thank you, Mr. Chair.

I want to use my time, before I pass it over to Mr. Chambers, to give a notice of motion at the public meeting of the finance committee. It reads as follows:

That given interest rates are at the highest levels since the 2008 recession and mortgages have significantly increased since 2015, the Standing Committee on Finance undertake a study on the impact of inflation and interest rates on mortgages in Canada. And that the study includes, but is not limited to, the increase in the number of mortgages hitting their trigger rate and the number of mortgages that have had their amortization period increased beyond 25 years. That the committee include in its witness list the Canadian Mortgage and Housing Corporation, the Office of the Superintendent of Financial Institutions, and representatives from the “Big 6” Canadian banks. That the committee take no less than 4 meetings for this study, and that the Committee report its findings to the House.

I think this study is very important given the climate of the economy today. We have seen how housing and mortgages have become more unaffordable than ever for Canadians. I hear first-hand from Canadians about the pain they are facing because of rising interest rates and inflation brought on by out-of-control spending by the government, with single mothers unable to make rising mortgage payments, first-time homeowners having their mortgages hitting their trigger rates and the dream of home ownership out of reach for so many young people. We see people making tough decisions on whether they pay for shelter or for food. One in five Canadians is starting to skip meals.

Recently, we also heard from banks such as RBC and CIBC that 20% of their mortgages are at a point where the borrowers' monthly payments are not even covering interest costs. We also know now that mortgages are being extended beyond 25-year amortization periods, with questions about the effect this will have on borrowers and the mortgage market.

All of this is concerning for homeowners and future homeowners. That is why I'm giving notice of this important motion today.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Hallan.

You still have three minutes left. They go to MP Chambers.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

I wanted to talk about nomenclature. In the G20 discussions, is there talk about defining ESG and the certifications? It's an unregulated moniker that's tossed around a lot. Is there international discussion about how to get control over the term “ESG” or what it means to be green?

[Matthew Boldt]

I can take a quick stab at that and say that the G20 sustainable finance working group has been primarily focused on climate over the last couple of years. That group is co-chaired by the U.S. Treasury and by the People's Bank of China. It has been elevated to a working group since 2020. It's been focused on climate.

India has the presidency of the G20 right now. They are interested in broadening the discussion to be a bit less specifically focused on climate and more focused on some of the other sustainable development goals.

I don't know if that directly answers your question. That is the direction the G20 is going in right now.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

I think the challenge people have is this notion that greenwashing happens. You slap the ESG moniker on something....

BlackRock introduced what I think they call a U.S. carbon transition readiness ETF product. They called it “ESG” and raised $1.25 billion in a single day, which is a record. Guess what the top three holdings are of that fund. They're ExxonMobil, Chevron and ConocoPhillips. For the top ESG fund managers in the year 2020-21 in the U.K., the top financial fund managers who manage ESG assets, guess what the top fund managers' top holdings were. They were ExxonMobil, ConocoPhillips, Valiant and Shell.

There is zero consistency or regulation with respect to using the terms “green” and “sustainable”. In some cases, they're used much more as a marketing scheme than they are realistically.... That's something else I'm interested in.

I think that's my time, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

We are going now to MP Dzerowicz, who is with us virtually.

MP Dzerowicz, you have five minutes, please. You'll be our last questioner.