Finance Committee on April 20th, 2023

[Christine Bergeron]

Yes, we are supportive of including climate risks in broad regulation.

[Sophie Chatel, Liberal, Pontiac, QC]

You were one of the first financial institutions to become a member of the Net‑Zero Banking Alliance. I was intrigued and I did a bit of digging. Can you tell us about the work that the Alliance is doing on a global scale? My colleagues should know that the Alliance's meetings are held under the auspices of the United Nations. Can you tell us more?

[Christine Bergeron]

Yes, we were one of the first to sign on, and we are one of the first to have a net-zero target that is more advanced in timelines. This is, first of all, to ensure that we are credible in our own work as we move this forward, because we see the risks to the economy.

With the Net-Zero Banking Alliance, and then more broadly with the work with the U.N., the value is in first collaboration with institutions around the world. There are many doing really great work around disclosure, product innovation and collaboration with government. It's also about working toward better standardization and better disclosure. Those are elements that I know were spoken to in a previous panel. We agree on the importance of transparency, but we also think that standardization and the ability to have those discussions outside of our own jurisdiction are also very important. That's why we contribute.

We are not as large a financial institution as many others in Canada, so it takes our resources to do this, but we think it's important, and it's why we were doing the work for many years prior to its becoming more understood in terms of longer-term risks to our own membership.

[Sophie Chatel, Liberal, Pontiac, QC]

You spoke of transparency and the importance of disclosing our risks and our progress in the transition towards a greener economy. If we compare ourselves to England and Europe, who have made much progress in this field, Canada is lagging behind. Are you concerned? Are we starting to catch up?

[Christine Bergeron]

I think we have been making significant progress. With the different councils in place and the work being done by regulators, we are catching up.

We have certainly heard from other jurisdictions that they want to ensure we're at that same level, but we have seen tremendous progress.

[Sophie Chatel, Liberal, Pontiac, QC]

If we are not able to catch up, will we run the risk that foreign investments will flow towards Europe instead?

[Christine Bergeron]

That's difficult to say, but we know that money and funds want to flow to areas that have certainty and good disclosure, and where there is understanding of those longer-term risks.

Depending on how Canadian institutions disclose, there would then be outcomes that would flow from that.

[Sophie Chatel, Liberal, Pontiac, QC]

Thanks to financial institutions with wonderful leadership such as yours, I think we will catch up and be able to attract and retain foreign investments that will help our economy grow.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Madame Chatel.

Now we will go to Mr. Ste-Marie, for six minutes, please.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good morning, Ms. Bergeron, and thank you for being here. I will ask you some questions in a bit, but first of all, I have two comments to make.

Firstly, I know that the motion that Mr. Chambers tabled here with the committee will not be debated today, but I just want to remind people that we were contacted before the labour dispute by accounting firms that were already swamped, particularly due to a lack of staff, and that the deadline of May 1 would already have been hard to meet. Then, when the big icestorm hit Montreal and the surrounding area, many municipalities went without electricity for a week. Accounting firms in those towns contacted us to tell us that on top of the hell of trying to do their clients' returns before the deadline with staff shortages and week-long blackouts in many places, they aren't able to get any immediate answers to their questions because of the labour dispute. I just want to tell my colleagues that for all these reasons, we will be supporting the motion.

Secondly, I would like to once again give my sincere thanks to the analysts, who are doing a tremendous job providing background documents to committee members. This is always true in general, but it is particularly true in the field of green finance.

Ms. Bergeron, back to you. Is your financial institution governed by the Office of the Superintendent of Financial Institutions, whose representatives have just spoken, or does it fall under provincial authority?

[Christine Bergeron]

We are provincially regulated by the BCFSA. We have a fully owned subsidiary bank called Vancity Community Investment Bank, which is regulated by OSFI. However, it is small by comparison, on an asset basis, to the credit union.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Right. Thank you very much.

In that case, I would like to hear what you have to say about guideline B‑15 on climate risk management, in the category on sound commercial practices and prudential limits. What do you think of this guideline and how do you interpret it? What is the viewpoint of smaller financial institutions that come under provincial jurisdiction, such as yours, when it comes to this guideline?

[Christine Bergeron]

Thank you.

Although we are regulated by the BCFSA, we often take into account OSFI's guidelines. We are still a large financial institution. For example, we do stress tests and we are supportive of the B-15 guidelines.

We already disclose our emissions, and we have been doing a lot of work to better understand scope 3. We do not yet have the best data, so we are working on that. We have conversations with other financial institutions across the country. Yes, it does take resources, but it's important.

For us, it's extremely important as we think, twofold, about climate risks on us as an institution, and then about the emissions we are part of in the lending we provide to our members.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

That is most interesting to hear. Thank you for your answers.

Therefore, given the information that you have just provided, do you believe that the deadlines set by the Office of the Superintendent of Financial Institutions for the disclosure of information or data are reasonable and that institutions can meet them?

I will ask the following question once again: do you think that the smaller financial institutions are treated fairly by the office?

[Christine Bergeron]

From our perspective—if I understand the question, so please correct me if I'm not answering your question—we feel that the timelines are sufficient.

Does that mean we are going to continue to need to improve our data collection? Yes, we need to continue to improve data collection.

An issue that comes with that is that we need to find a lot of that data from small businesses and from our membership. That will continue to be something that needs to occur. We are supportive of those timelines.

In terms of whether small institutions are treated fairly by OSFI, I can speak only to the small bank that we have as a subsidiary. We don't have any issues in how we are treated by OSFI.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I am thrilled to hear that. I still have a minute left.

I would just like to make sure that I have understood correctly. The costs incurred to meet these new standards are perceived by yourself as necessary and are not an issue. Can you please confirm that these costs are necessary and that the institution has no problem absorbing them, given the concerns regarding the climate crisis?

Moreover, in your statement, you said that it is important to have an energy transition plan, at least that's what I understood. Can you please tell us again about the importance of having such a transition plan?

Thank you very much.

[Christine Bergeron]

Certainly, thank you.

On cost, it's difficult for me to speak on behalf of other financial institutions. I can say that we believe it is important given the overall risks that we'll see in the long term, as we think of the long-term sustainability of a financial institution. We've also been working on it for many years. We've had these costs over time. If someone is coming in new to it, that will be a different piece of work that they will need to think about, and they will need to resource that accordingly. I can't speak to where they are in that work, but for us, we think it's important.

Secondly.... I'm sorry. Your second question was—

[The Chair, Liberal, Peter Fonseca]

I'm sorry, we've actually surpassed the time. We're going to move on.

Thank you, Mr. Ste-Marie.

We're moving to Mr. Blaikie for six minutes, please.

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

Thank you very much.

First of all, I just want to thank you for being here. I think it's really inspiring to see a financial institution that is taking climate risks seriously, not just from the point of view of its own interests, but also, as I'm hearing in your opening comments and already in some answers to questions in terms of a sense of responsibility for the economy-wide effects of climate change, and a sense of the role that financial institutions can and I would go so far to say ought to play in the economy-wide mitigation of the costs of climate change. Thank you for that.

I have a question in line with that. We just had folks from OSFI here. We were talking a little bit about the work that financial institutions—some are just beginning to do it and others have been doing it for longer—are doing to develop climate scenario analysis, and how that could be mobilized eventually in order to try to figure out the role that financial institutions can play in lowering emissions economy-wide.

I'm wondering what you think about that. We can certainly imagine folks saying, that's not really the business of financial institutions—they should just pay attention to the bottom line and they should only be concerned about climate risk to the extent that it hurts their own return on investment. What I heard from you, though, is that your institution is engaging in some work to try to help clients lower their emissions. I got the sense that maybe it's not just to protect Vancity's own return, but also that there's a sense of larger responsibility there.

I'm wondering, if financial institutions are interested in being a positive force in reducing emissions economy-wide, does that mean it's a zero-sum game? Is that just a cost they have to take on out of the goodness of their heart, or do you think they can do that by developing products that realize a reasonable return for the institution and for its share owners, whether they are share owners of a credit unit or share owners in the more traditional sense?

[Christine Bergeron]

As a credit union, Vancity is member-owned, so we know our members want us to think about climate transition broadly, and about getting to net zero.

We also know that we cannot hit those targets on our own, and we need our members to act. Ultimately, as a financial institution, we are the intermediary. The member needs to be the one to act. We are working very hard on products, services and partnerships that will allow them to act and make those changes, which many want to do but don't know where to start.

I think that broadly there's a very large opportunity. Opportunity is always the other side of risk and vice versa, so yes, we believe there are going to be new ways to think about products and about how to enable and help business owners and individuals. Even though thinking about the risks is extremely important, it's one element of the work ahead.

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

You mentioned in your opening comments, I believe, the need for a more universally accepted building standard in respect of R-value and emissions overall.

I'm just wondering, if we were to have that in place—and I'm not suggesting that we have to wait for it either—is there opportunity? If we're thinking about a mortgage product, for instance, is there an opportunity to try to think about structuring a product that consults the purchaser of a new home proactively about the cost involved and incorporates some of those costs into the mortgage of upgrading insulation in a house, changing the heating system, installing solar panels, particularly if there's a two-directional metering system? Is developing a product like that just a risk for a financial institution, or is there some real opportunity in that?

I think we're used to seeing this as an extra expense and something that is just going to cost money, but is there a way...? Particularly if the industry comes along with better standards, and if it's incorporated more into the regulatory environment, are there opportunities for money-making for financial institutions in this, and are there opportunities for savings for consumers, even as the financial institution that's funding these things is making money?

[Christine Bergeron]

Our view is yes. I would say that largely those products are certainly being put together and thought through.

We've done a few. Again, we're piloting and trying to really understand what fits for an individual or a small business. For example, we know that our members really want to retrofit their homes, but typically it's very complex, and people don't know where to start. We've piloted a program that says, “We will give you a free consultation on what that could look like for your home.” There are no strings attached to that.

Certainly, yes, we are a business. We would hope that perhaps they would then come to us for that lending, but ultimately our goal is to see emissions drop, first and foremost. There are products whereby we can look at that.

It's been difficult to look at lowering a price. For example, 18 months ago, when our mortgage rates were very, very low, those are different mechanisms, terms, conditions, etc. Ultimately, that pulls in risk, doesn't it? Financial institutions price for the risk, and I think what we are seeing is much more thought around short- versus long-term risk and what that looks like.

Consumers are getting much smarter as well, and doing their own math to find that yes, there's an upfront cost, but over time that life cycle cost ends up being a savings to them.

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

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Blaikie.

We're going to try to get through a second round here.

We're starting with Mr. Chambers for five minutes, please.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Welcome to the finance committee, Ms. Bergeron. I appreciate your testimony here this morning.

I also want to publicly thank the analysts, who did some good work in the briefing note to help committee members prepare for this meeting, as they do for many meetings.

We just had OSFI in here talking about one of their guidelines for financial institutions, and there was a bit of a discussion around whether it should be up to financial institutions themselves to decide the kind of risk that they would like to disclose to their members. I note that, in Vancity's circumstances, obviously you have some shared values that you probably share with your members.... It's a source, maybe, of competitive advantage for you as you try to collect members and position yourself against other similar entities.

Would you view that as an appropriate observation?