Bill S-243

Enacting Climate Commitments Act

An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts

Part 1 enacts the Climate-Aligned Finance Act which, among other things, establishes climate commitments and obligations of various entities in relation to them. Subsequent parts establish further obligations on entities — primarily financial entities — in relation to the climate commitments provided for under the Climate-Aligned Finance Act .

[Sophie Chatel, Liberal, Pontiac, QC]

A response provided within 30 days of receiving the letter would allow us to do an even better job of finalizing our report.

To get back to what I was saying a little earlier, I would like to point out that several initiatives relating to green finance are happening right now. First, there is what the government proposed in October regarding the taxonomy and disclosure. There is also Bill S‑243 introduced by Senator Galvez. And then there are these recommendations, and there will be our report.

I would like there to be some harmonization of these initiatives. I am taking the opportunity this letter presents to ask the committee to reduce the time from 45 days to 30 days, so that our analysts can take the responses into consideration when we receive them, for the benefit of our recommendations.

[Branden Leslie, Conservative, Portage—Lisgar, MB]

Thank you, Mr. Chair.

I would like to echo some of the points of my colleague Mr. Deltell, which he articulated extremely well.

The analysts have yet to do the work of compiling over 20 hours of testimony over the course of nine meetings, much of which I do not see reflected in the specific priority recommendations outlined in this letter, as proposed by my Bloc Québécois colleague, including alignment with Bill S-243. We heard a number of witnesses say it is terrible legislation. I would find it extremely disheartening to discount that via a letter on behalf of the environment committee. I think a report, at least, is a more thorough overview of all of the pieces of information that have been gathered throughout this very lengthy study. It could provide balance between two or more different views, and will, of course, include recommendations.

Largely for that reason, I will not be supporting this motion.

I also hope my name is not on it. Hopefully, it will not come from the environment committee. I will happily write my own letter to the environment minister sharing some of my views on these rather insane ideas that are clearly meant to starve our oil and gas sector. We've heard comments from members of this committee today attacking certain provinces, which highlights the division sowed by the current federal government. We've never seen more division among people in this country. We've never seen more division across provinces in this country. Comments like those I've heard today—reflecting why we should be sending this letter to try to gut control of public sector pension plans and the livelihoods they will support, now and into the future, of our retirees—are on the basis of purely ideological, radical, activist viewpoints, as reflected by some members of this committee. I do not think this is an accurate representation of either this committee or all Canadians.

I will happily be opposing this letter.

Should the will of the committee be to send such a letter, I will individually send a letter following up and disputing the views on this. That will more accurately reflect the dual opinions that will undoubtedly emerge from the great work our analysts will do. In the new year, we'll finally receive the summary of information heard during this study, and the recommendations that stem from it.

I will be voting against this motion, Mr. Chair.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Chair.

First of all, thank you to Madame Pauzé. This was a very creative way of bringing the will of the committee into the public eye.

We have had testimonies that would reinforce these recommendations. I was also thinking of our analysts. Normally, we look at a report and we base our recommendations on the background that the analysts include in our report. We're going on a different route, but I think it's also very consistent with what we've heard. I don't think there would be any problem having a report align with these recommendations because we did hear them over and over, and, in particular, in getting Bill S-243 completed.

When Parliament gets hung up, we do need to find other ways of getting our signals to the market. I think having this discussed at committee in an open forum...and thank you for bringing it to an open forum instead of in camera. Having our comments either in support of these recommendations or not—I support every one of them—is important.

We have a sustainable finance forum coming up on November 28 and 29. It's put on by MP Turnbull. I know there will be about 1,000 people in that room who would be very interested to know what signals are coming out of the environment and sustainability committee, so getting this out there before the middle of February is a brilliant move, I think.

It's a little unusual, but given the delays we're seeing in Parliament and in committees, I think it's important, given the urgency of, first of all, the climate emergency we're in, but also because sustainable finance is a topic that we have had an extra-government committee look at. They've also been saying that we did all of this work two years ago, we'd like to see what the government is thinking. This gives us a chance to express that.

I know some of the people who worked internationally on this would be very interested to see that our comments are in alignment with their comments.

It's a great way of putting a signal to the market. I commend Madame Pauzé for her creativity. I haven't seen this before, but committees can be creative. I think it's good news for Canadians that we can find ways to work together on important issues, like the climate crisis we're in.

I'm fully in support of these four recommendations. As Madame Pauzé said, there will be others that will come from our study, which was an extensive study. I won't start picking at it, because we don't have it in front of us, but once we see the study.... There were some very key elements to that study that I would like to see recommendations on, but we're not studying the study, we're actually studying this letter, and so I would love to put my support behind this, Mr. Chair.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you, Mr. Chair.

Thanks also to Ms. Pauzé, who is very familiar with my abiding interest in sustainable finance. I was quite pleased that she was introducing a motion in connection with this study, which I too am very eager to get to.

I am going to take a moment to say that I agree with Ms. Pauzé's motion, because I support the idea that the government has to pay attention to this in short order rather than wait for the committee's report. I do have some concerns, but they do not actually need to be stated in this letter. That said, I would still like to let my colleagues know what they are.

In October, the government announced major changes relating to sustainable finance. We finally have a science-based taxonomy, or path to a taxonomy. The government also announced rules concerning voluntary disclosure by big corporations, federal corporations. This is a very important adjustment and these are very important announcements.

Several aspects of the recommendations suggested in the letter are in line with the initiatives the government presented in October. For example, transparency, accountability and effectiveness in the financial system to support a net-zero transition are to be more robust. The taxonomy will also help considerably in addressing greenwashing. When the taxonomy is based on science, we can obviously expect that it will be implemented properly.

There are differences, and so there is the potential for tension, between our recommendations and the measures the government will be taking based on the announcements made in October regarding the taxonomy and disclosure.

I see that Ms. Pauzé has made suggestions relating to transparency and accountability. I think the government is also planning amendments to the Canada Business Corporations Act, to make climate disclosure mandatory. For its part, the committee recommends enhanced transparency, particularly as regards pension funds and climate transition plans. These initiatives would make the government's proposal more robust.

Regarding the Canadian taxonomy, the purpose of creating voluntary guidelines for green and transition investments is to provide clear definitions and thereby reduce the risk of greenwashing, which is consistent with the committee's recommendation that there be a robust, science-based regulatory framework to combat greenwashing. I do not see any problem with that, nor do I see any problem with mobilizing private capital, because both initiatives, the government's and the one suggested by Ms. Pauzé, are intended to encourage the private sector to target its investments on climate objectives, basing decisions on a green, sustainable transition. A review of green obligations at ten years is a concrete step for funding sustainable projects, in line with the committee's objectives, and this is good.

I began by talking about what is aligned, about what is good. However, there are some potential discrepancies. The government has focused on voluntary guidelines relating to the Canadian taxonomy, while the committee seems to be recommending a robust regulatory framework to be provided in bills like Bill S‑243. This difference might create confusion while we wait for stakeholders to implement it. I wanted to point that out. I do not have any proposal to make, but I do still want this distinction to be recognized.

The government also did not mention an express review of the role of the Office of the Superintendent of Financial Institutions, while the committee recommends an expanded interpretation of its mandate to include climate risks and transition plans. This is a new element that had not really been considered.

Third, there are gaps when it comes to public pension funds. The recent developments, in October, did not lay out specific measures concerning investments by public pension fund managers such as the Canada Pension Plan Investment Board, which seems to be a priority for Ms. Pauzé. I am simply pointing out that this is an element on which we differ.

Last, the proposed amendments to the Canada Business Corporations Act do not expressly provide for the governance structure needed in order to ensure that transition plans are consistent with climate commitments. The committee would therefore recommend a more complete and binding framework. This is not something I am opposed to, but I do want to mention that there is a difference. In other words, action is taken more directly on finance by adding obligations.

I do not really have any amendments to propose at this stage. However, for the draft report that will be tabled in February, it will be important to point out that there are various measures and proposals at this time. I do want to thank our analysts in advance; they always do terrific work. One of these proposals is the bill introduced by Senator Rosa Galvez, which is excellent, but differs from the announcements made in October. The committee is probably also going to write a letter in which it proposes certain measures.

In conclusion, I think a strong, consistent approach must be taken that will attract more potential investments to Canada in our 21st century economy.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you, Mr. Chair.

Thank you to my colleague Madame Pauzé for putting forward this motion.

I think it's a very good idea to be doing this. We've worked on this study for quite a while now. The time frame to get our sustainable finance legislation in place was yesterday, or last year. The climate-aligned finance act is already there. We have some good legislation, and I think we need to move more quickly.

Unfortunately, we've had a number of delays in this committee over the course of this study, which have caused us to not move as quickly as we would have liked to get this study and the report completed. Some of them were necessary, like our study on the Jasper fire. I believe sending a letter to the ministers would help expedite some of the things that need to be undertaken and at least have them considered by the bodies.

With regard to OSFI, since it's in the middle of reconsidering it and it can start looking at what it should be doing to align with it, we should definitely have that recommendation there.

We've talked a lot about the climate-aligned finance act in this committee, and we need to have that science-based regulatory framework in place. Asking to have these particular recommendations in place and having the federally regulated public pension funds—the CPPIB and the Public Sector Pension Investment Board—disclose their investments, starting as soon as possible, would be very important.

I note what's happening in Alberta with its pension fund right now. There's the move toward less transparency and a very bizarre way of running a pension plan. I think the example set by the federal government in the pension plans that we regulate would be good for other pension plans across Canada.

The working group in the Competition Bureau is also an excellent idea, Madame Pauzé. We need to do what we can to combat greenwashing in the financial sector as well as we have in the real economy.

For all those reasons, I say that we should do this. I think there could be more in this letter, but given that the report will be going forward in January and we can supplement it with other recommendations, these are some of the key ones that we should put in place and put forward.

I will just thank you for this. Sustainable finance is something we have not moved on quickly enough. The taxonomy is very important. Disclosures are important, obviously. I believe that the sooner we can get these in place, the better.

We had unprecedented cross-party support for climate-aligned financial regulation in 2023, with motion 84. We already know we're all behind this. We want our financial sector to be in support of the real sector when it comes to meeting our environmental goals. The more we can do to expedite that, the better it will be.

I know our analysts will do an amazing job working on the full report that will be forthcoming. We will certainly add other recommendations to this. This is something that should be done, especially in light of the FES coming forward, if we are able to actually do some real work in the House of Commons and if the Conservatives allow us to actually move on from debating a privilege motion—which we've already agreed to, but they've changed the terms of it now—so that we can get to some of the other work we have to do, it would be helpful. In the absence of that—we don't know when the FES will be coming forward—having other things like this go directly to the environment minister is important, as is trying to get some of this work started.

Bill S-243, which Senator Galvez put forward, has a lot of good material in it. Referencing that and trying to move forward on some of those issues is also important.

We have a climate emergency. Canadians across the country are concerned about the level of pollution that is continuing with the level of investment that is being made by our financial institutions and our pensions in the oil and gas sector for new production. They're not investments that would actually reduce emissions, as they like to say they want to do; they're for new production, which actually increases emissions.

The oil and gas sector in Canada right now is contributing, I think, less than 6% to our GDP. A lot of our oil and gas industry is foreign-owned and is contributing over 31% to greenhouse gas emissions in Canada. It's the only sector that has not contributed to the decrease we've seen in our emissions over the last while.

The sooner we can get the financial sector online, the sooner we will understand, along with the public, whether these investments are helping us meet our climate goals, are transitioning us to our environment goals, or are doing nothing or hurting us when it comes to our climate goals. I think all Canadians should have that information; certainly, when I look at investments or I look at companies, that is something I think about. I know many of my constituents in Aurora—Oak Ridges—Richmond Hill also look at that information and have found it difficult in the past to ascertain, in fact, where the investments are being made and whether a fund that says it's green is actually green.

This is an excellent motion you've put forward. Thank you for doing the work on this; I will certainly be supporting it.

Thank you, Mr. Chair.

[Monique Pauzé, Bloc, Repentigny, QC]

You're familiar with Bill C‑243, moved by Senator Rosa Galvez.

In your opinion, should the government pass it? Is it a good model that could be used as a basis for regulating banks?

[Alice Chipot]

Excellent.

We are seeing a lot of momentum in Europe when it comes to making transition plans mandatory. They have to be detailed, sound plans that set out significant requirements. There is also a lot of momentum around establishing penalties. That requires thinking about the institutional process that's needed to do those checks and penalize bad actors.

In Canada, in recent years, we've seen some good work with the legislation Senator Galvez introduced, Bill S‑243. It sets out a series of ambitious obligations, including in relation to transition plans, both to control the behaviour of financial institutions and to regulate large companies regarding their disclosures.

[Adam Scott, Executive Director, Shift Action for Pension Wealth and Planet Health]

Thank you very much for having me.

I'm Adam Scott, the executive director of Shift, a non-profit education and advocacy project focused on aligning Canada's financial sector with climate. I'm joining you from Toronto, the traditional territory of many first nations, including the Mississaugas of the Credit, Anishinabe, Chippewa, Haudenosaunee and Wendat peoples.

I'm a career climate expert with more than 20 years of experience working to solve this issue through research, policy and solutions. Along with many other colleagues who have provided testimony here, I was an author of a policy road map for a sustainable financial system in Canada.

I'll start with the bottom line, reflected by many other experts you've heard from: We simply cannot achieve Canada's climate obligations without new policy to align our financial system with science-based targets. The stability of our financial system and the long-term growth of our economy are very much at risk here.

This isn't just a moral argument. It is a financial one. As you will all appreciate as lawmakers, many of the most critical decisions that determine Canada's progress on climate aren't actually made by politicians. These decisions are made behind the closed doors of financial institutions and corporations in their day-to-day business. Wherever capital is allocated, money borrowed, debt issued and financial investment decisions made, that's often where the rubber hits the road on climate every single day in this country. How many everyday financial decisions are being made through the filter of a credible, science-based climate plan?

According to Oxford University's net-zero tracker, roughly two-thirds of Canada's largest corporations have made a commitment to net zero. However, that number is far lower when we look at the wider corporate sector. Unfortunately, even among companies and institutions that have made those commitments, they're rarely followed up with credible climate transition plans for achieving them. Every single day, financial decision-making in Canada largely continues with business as usual, financing climate failure and putting the stability of our entire financial system in danger.

Expert colleagues at these hearings have highlighted, in particular, the failure of Canada's largest banks to back up their net-zero commitments with credible climate plans, especially with the obvious requirement to end new finance for coal, gas and oil, while also directing adequate capital towards credible climate solutions.

At Shift, we focus on the climate plans of pensions, Canada's largest asset owners. As long-term buy-and-hold investors, pensions are acutely vulnerable to climate risks and stranded assets. While we're starting to see voluntary leadership and climate plans emerging among some pensions—proof that credible climate plans are real and very achievable—we also still see far too many pension plans, like the Canada pension plan, refusing to set interim targets, while continuing to make investments in fossil fuel expansion that directly bet against climate safety.

We are also troubled by obvious governance failures on climate, in particular the prevalence of directors cross-appointed to the boards of fossil fuel companies and financial institutions at the same time, creating the obvious potential for serious conflicts of interest when discussing this topic. This is an issue raised by others.

I hope that, by this stage in your study, you fully appreciate the dangers of climate failure for Canada and the economy. This is already causing damage to our economy, the global economy and our ability to grow GDP. It is a headwind against GDP growth that, without action, will get worse every single year. Canadian financial institutions are highly exposed to stranded assets, which can lose value suddenly as the energy transition already under way continues to accelerate.

Thankfully, we have the tools available to modernize our financial regulations on climate. The first building blocks are under way—you've been talking about them already—and so is putting in place a credible green taxonomy that excludes fossil fuels from green or transition labelling. Greenwashing is already widespread in financial circles, and we can't allow new loopholes for that to continue.

Climate disclosure rules are also essential. It's very good to see first steps announced to amend the Canada Business Corporations Act for major companies to align with international climate reporting standards.

This trend will need to continue at full speed. Those baseline moves are not enough alone to align financial flows with climate safety.

Along with many other experts, I'd direct this study toward the need to adopt the measures found in the climate-aligned finance act, which, as we heard, is a detailed, ambitious and practical blueprint for moving past disclosure into regulating alignment directly through a variety of measures.

I'll remind you again that this is an unprecedented situation. The climate crisis continues to get worse, carrying with it complex and potentially cataclysmic financial risks. Our brittle and dated regulatory system is not fit in its current state to ensure that Canada's financial sector lives up to its reputation for stability and prudence.

I'll conclude by urging this committee to understand that the policy reforms that we're calling for should really be seen as inescapable, because they're ultimately required to protect the financial system and to meet our climate goals. The question, really, is when we will put them in place. Will it happen quickly enough?

Thanks very much.

[Karine Péloffy]

I've been with my organization for six months, so I'll use a lot of caveats, but I'm pretty sure the answer is yes.

However, to answer the question you didn't ask, that is not what the climate-aligned finance act does. Actually, it encourages engagement, and divestment is the last—

[Monique Pauzé, Bloc, Repentigny, QC]

So you're telling us that although banks rely on voluntary commitments and continue to fund fossil fuels, Bill S‑243, if passed, could require them to take climate action and be held accountable for their operations.

[Richard Brooks, Climate Finance Director, Stand.earth]

Good afternoon.

I'm honoured to appear before the committee today. I'm appearing from the territories of the Haudenosaunee, the Wendat, the Anishinabe and the Mississaugas of the Credit in Toronto.

My name is Richard Brooks, and I'm the climate finance director at Stand.earth, which is a binational NGO working on climate protection. Our climate finance program, supported by our one million members, works to transform financial institutions from climate laggards into champions advancing the energy transition.

As you all know, there's no community untouched by the devastating fires, floods and smoke of climate-caused disasters. When one-third of Jasper burns, when Toronto, our financial centre, floods repeatedly and when our country racks up over $5 billion to date in climate-related damages this year alone, it's a risk to our economy.

Just today, the World Health Organization endorsed the call from The Lancet, the world's foremost medical journal, urging financial institutions to divest from fossil fuels “to save lives”. The WHO's director, Dr. Maria Neira, stated:

We are seeing record-breaking heat waves, droughts and food insecurity affecting millions of lives worldwide. Yet, we continue to pour trillions of dollars into fossil fuels, which are driving these crises. It’s time to stop funding harm and start investing in health.

Earlier this month, the University of Toronto's climate observatory released a groundbreaking report. It studied the financed emissions of 18 banks, pension funds and asset managers. These 18 financial institutions have financed emissions that are double Canada's reported emissions and 100 times those of the city of Toronto. Their $1.2-trillion of financing and investments in fossil fuel companies in 2022 account for 1.4 billion tonnes of CO2 emissions. If they were a country, these 18 financial institutions would be the fifth-largest emitter in the world.

In June, the CEO of the Royal Bank of Canada appeared before this very committee. You'll recall he could not remember what his salary was when asked repeatedly. He stated that 80% of RBC's clients have transition plans, but he neglected to say that only 2% of those clients have 1.5°C-aligned transition plans. That's the magic number.

Dave McKay also couldn't recall that the bank had disclosed that RBC's emissions from financing oil and gas companies are equal to the emissions from all cars and light trucks in Canada every year.

CEOs from the other banks mentioned the need for a slow and “orderly” transition, but there's nothing orderly about Canadians fleeing fires. There's nothing orderly about towns being evacuated and thousands being unhoused, yet our banks continue to finance the cause of the problem—fossil fuel emissions—and claim that phasing this down would be disorderly.

A report released just today, Urgewald's “Global Coal Exit List”, revealed that over the last year, RBC, TD and BMO actually increased financing to coal-exposed companies. Canada is a founding member of the Powering Past Coal Alliance. Why are our banks enabling new coal deals?

Indigenous nations and disenfranchised communities in Canada disproportionately bear the brunt of climate impacts. They're also on the front lines of many of the financially risky, polluting oil and gas projects that banks are financing and enabling. These include projects like PRGT, Coastal GasLink, Rio Bravo and the pipelines and gas lines associated with these.

A couple of weeks ago, Exxon issued a new bond. This was long-dated to 2074. This bond is for general corporate purposes to facilitate the company's drilling and digging for another 50 years, long past the date of any net-zero plans and commitments in Canada and beyond. There were four banks that underwrote this bond. The Royal Bank of Canada, which has a 2050 net-zero commitment, was one of them. This is a clear example of a bank's CEO misleading you, the public and investors by professing to help its clients transition. That's a false rationale to enable fossil fuel giants to pollute long past 2050. It is not orderly. It is not just. It is just greedy.

We cannot reach our national climate goals, meet our international commitments and protect our communities if our banks are not on side with us.

Of the banks you heard from in June, TD is now known as the top money launderer for drug cartels. RBC is under investigation by the Competition Bureau for allegedly misleading consumers about its climate claims and greenwashing. CIBC and BMO have been fined for improper record-keeping, and Scotiabank was fined for unlawful commodities trading.

We cannot trust voluntary actions by our banks. To date, they have proven to be neither trustworthy nor accountable.

Here are the actions that my organization proposes you support in your report and recommendations.

Embolden the commissioner of the Competition Bureau to use his enhanced powers to investigate all of the banks. Move forward and support the climate-aligned finance bill. Mandate climate transition plans that are standardized and credible for all banks. The banks have record profits right now. Tax them with a climate impact tax and have those funds dedicated to compensation for the climate damages, which I named earlier. Incentivize further investments by financial institutions in renewables and climate solutions.

I urge you to issue a formal report and to include these recommendations in your findings.

Thank you for your time.

[François Delorme]

Transparency needs to be properly documented and increased. To that end, passing Bill S‑243 on climate-aligned finance would be an excellent thing when it comes to disclosure, which would be voluntary, but with robust guideposts regarding the environmental, social and governance criteria for the financial sector.

[Keith Stewart, Senior Energy Strategist, Greenpeace Canada]

Thank you, Mr. Chair.

Thank you for the opportunity to address you today.

My name is Keith Stewart. I am the senior energy strategist for Greenpeace Canada and a sessional lecturer at the University of Toronto, where I teach a course on energy and environmental policy.

I've been meeting with Canadian banks about their funding of fossil fuels since 2008, so if I seem a trifle impatient, it's because after the first decade or so of delay, a certain amount of frustration does set in.

It's also been nine years since Mark Carney gave his “tragedy of the horizon” speech on how the financial sector has a short-term focus built into how it operates, wherein three years is considered long term.

This structural myopia makes bankers largely blind to climate risks or, worse, they can see the risks and have even begun to measure them, but their incentive structure doesn't allow them to respond appropriately, so we stumble towards disaster. This myopia can be overcome, but it will require elected officials to step in. This is not new terrain for governments, as we've been regulating banks to protect them from themselves since 1929.

On climate change, the banks have been very clear: They are not going to be leaders. They are not going to do this on their own. We see it in their balance sheets. Canada's big five banks are still among the largest funders of fossil fuels in the world. According to a recent international report, they funnelled more than $130 billion to fossil fuel companies in 2023 and have put over $1 trillion into oil, gas and coal companies since the Paris Agreement was signed. That's a trillion dollars dedicated to making the climate crisis worse, which dwarfs what the federal government has been spending to try to put out the climate fire.

We also see their unwillingness to lead in their backing away from their net-zero commitments in the face of an assault on ESG investing in the United States. They can claim to have the courage of their convictions, but those convictions seem to change, depending on whether they are writing to a Republican state treasurer in Texas about how much they support funding fossil fuels or testifying before this committee last spring about how much they care about stopping climate change.

We also see a lack of leadership in their lobbying efforts, which have sought to slow down the energy transition. They say they want an orderly transition even if the greatest source of disorder is climate-fuelled extreme weather that results in fires, floods, roads washed away, homes destroyed and drought-stricken fields.

Whether it was Jasper in July or Florida last month, the costs of inaction are all around us, and we should not look away.

A wise women once said that when someone tells you who they are, believe them. Banks are telling us that they are committed to follow, not lead, on climate change, yet financial regulation is still a missing piece in Canada's climate strategy.

We are here today asking you to once again save the bankers from themselves, and thereby help save the rest of us from climate chaos, by using all of the regulatory and legislative tools at your disposal to align Canada's financial system with the Paris climate agreement.

To this end, I join with my colleagues in the environmental movement to express our hope that your report will include recommendations to, first, keep fossil fuels out of any sustainable finance taxonomy; second, develop regulations under existing law to require all federally regulated financial institutions and large federally regulated corporations to implement climate transition plans that align with the 1.5-degree goal of the Paris Agreement; and, third, support the adoption of comprehensive legislation such as Bill S-243, which is the climate-aligned finance act.

We recently saw some movement on the taxonomy that's under development. The taxonomy and disclosure rules are important, but as planned, they will only provide information that others can use to hopefully do the right thing.

We need to stop hoping big money will do the right thing and make it mandatory for them to stop being a part of the problem and start becoming a big part of the climate solution.

Thank you for your time and consideration.

[Dr. Nathan de Arriba-Sellier, Director, Erasmus Platform for Sustainable Value Creation, Rotterdam School of Management, Erasmus University, As an Individual]

Thank you, Mr. Chair.

Thanks to the committee for inviting me to appear and to contribute to its study. I can only express the hope that other parliaments around the world will follow your example and tackle this subject.

My name is Nathan de Arriba-Sellier. I work as the director of the Erasmus Platform for Sustainable Value Creation, as noted by the chair, in the Netherlands, from where I join you today.

I have a Ph.D. from Leiden University and Erasmus University Rotterdam. Before my current position, I was the research director of the Yale initiative on sustainable finance and a lecturer in financial law and policy at Yale University, just somewhere south of where you stand.

To introduce this testimony, I would like to recall a few facts.

Since 2005, Canada has reduced its greenhouse gas emissions by 7%, performing well below other countries in Canada's peer group. Furthermore, Canada is not yet on track to uphold its legal commitments under the Canadian Net-Zero Emissions Accountability Act. In fact, Yale's environmental performance index—the EPI—ranks Canada 166th in the world when it comes to projections of reaching net zero by 2050.

In the meantime, climate change continues unabated, and the window for limiting global warming to 1.5° Celsius is closing, as mentioned by the United Nations no later than this weekend.

Partly as a result, the Canadian financial system is highly exposed to climate risks, both physical and transition risks. I don't need to remind you of the examples of physical risks that regularly and increasingly in a most exponential way threaten your constituents.

Transition risks are also on the rise, regardless of what Canada decides to do or not. The Canadian economy and financial system is and will be influenced by external initiatives, such as the U.S. Inflation Reduction Act, the European Green Deal and the policies of the People's Republic of China, which have rapidly made it the world's largest producer of renewable energy and electric vehicles.

Solutions will not come from the market. Already in 2007, as Lord Nicholas Stern, professor at the London School of Economics, rightly pointed out, “Climate change is a result of the greatest market failure the world has seen.” ESG hype or not, the market has been incapable, so far, of addressing its own failure. This fact has been most recently evidenced by the so-called “Big Five” Canadian banks who, in spite of their net-zero commitments, have increased their financing of fossil energies, unlike their European or American counterparts.

Solutions must therefore be dictated by public authority, all the more so as the Government of Canada, not corporations, is bound by the Paris Agreement.

Timid prudential supervision initiatives such as guideline B-15 of the Office of the Superintendent of Financial Institutions, or OSFI, have been established in the financial sector.

I would like to review with you several of the initiatives now under way.

First, let's discuss the sustainability disclosure standards proposed by the Canadian Sustainability Standards Board, the CSSB.

It is vital that there be accountability for greenhouse gas emissions, including scope 3 emissions, because failure to do so would be tantamount to distorting the true carbon footprint of the companies concerned. There's a strong consensus on this.

As a result, the International Sustainability Standards Board, the ISSB, has unanimously adopted that standard. Are those standards alone enough? The answer is no, but they are a necessary first step because you can't manage what you haven't measured.

We must also ensure that financial and sustainability disclosures made by companies are consistent.

Then there's the Canadian taxonomy.

First, I encourage you to take advantage of the reform of the Canadian Business Corporations Act to ensure that the taxonomy is included in the publication obligations for enhancing transparency. This does not mean that all companies must comply with the taxonomy, but rather that they must publicize the degree to which they invest in taxonomy-aligned activities.

Second, I draw your attention to the fact that it's important to exclude fossil energy activities, whatever they may be. Why? Because a taxonomy sends a signal to investors and businesses regarding economic activities that support the transition to carbon neutrality. Including fossil fuels undermines the credibility of the Canadian taxonomy, as was the case of the European taxonomy with regard to gas. I refer you to the scientific conclusions of the International Panel on Climate Change. Every year counts, and fossil fuels are not part of the solution.

Lastly, Senator Rosa Galvez introduced Bill S‑243, An Act to enact the Climate-Aligned Finance Act. I support that bill, and I encourage the committee and the House of Commons to take it up as soon as parliamentary procedure permits. Once passed, it will advance Canada toward carbon neutrality and significantly reduce the transition risks to which the Canadian economy and financial system are exposed.

In conclusion, I wish to draw your attention to monetary policy, which is often a blind spot in these debates. Monetary policy has a role to play in the strategic framework of government as a whole. Acting within its mandate, the Bank of Canada can assist in preventing and reducing climate risks while supporting the transition to carbon neutrality.

I will be pleased to provide you with further details on these various aspects and to answer any other questions you see fit to ask.

Thank you.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Chair.

Thank you to our witnesses.

Based on this discussion we've been having this morning, I have some questions around the changes we might consider recommending to the Bank of Canada or to the Bank of Canada Act.

I'm going to start with Ms. Segal.

It's very interesting to see how Senator Galvez's BillS-243 is progressing through the Senate. They passed second reading over a year ago, looking at measures like the reporting requirements, the enforcement of targets with respect to commitments on climate, the additional capital adequacy requirements for banks, the appointment of persons with climate expertise on the boards of reporting entities and the establishment of climate alignment as a superseding duty for directors, officers or administrators of reporting entities. It's definitely not a status quo bill.

Could you comment on how we could possibly include the climate change taxonomy in the Bank of Canada's mandate to promote the economic and financial welfare of Canada, knowing that climate change is a real risk to our economic and financial welfare?