Environment Committee on May 9th, 2024

[The Chair, Liberal, Francis Scarpaleggia]

Personally, that doesn't bother me. I have to say that we have had excellent testimony and excellent answers today, but yes, sometimes when time is limited and a witness decides to speak at length, we have to politely stop them. Things are going very well today, however, and I am very pleased with the pace of the meeting.

So I now give the—

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

Come on, Adam.

[The Chair, Liberal, Francis Scarpaleggia]

Pardon me? We are wasting time.

We are going to continue. I give the floor to Ms. Chatel.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you, Mr. Chair.

I am going to continue in the same—

[Some hon. members]

Oh, oh!

[The Chair, Liberal, Francis Scarpaleggia]

Comments go through the chair.

You may start over, Ms. Chatel.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you, Mr. Chair.

I would like to continue in the same vein.

Both witnesses said something that is very important to consider: What is the price of doing nothing? Canada has a lot to offer to attract investment from all over the world. Unfortunately, I note that we are falling behind in comparison with the European, American and Australian financial markets. So we need to have the tools as soon as possible to create an environment that, as was said, will give investors certainty that they can invest in our economy.

I would like you to give us some more examples of the consequences of Canada doing nothing, but also do a comparison with the other countries. Canada does not exist in isolation. We are competing with the big financial markets.

What is happening in Europe? Why are those countries ahead of us when it comes to taxonomy and disclosure? What can Canada do to speed things up and stay in the race?

I would like to hear Ms. Zvan's answer first and then Mr. Chisholm's.

[Barbara Zvan]

Let me start with Europe. They published their report in 2018. They have a fully functioning taxonomy and disclosure regime, broader than that of the ISSB, the International Sustainability Standards Board. They're actually doing dual materiality under the European sustainability reporting standards. It's much more extensive, the reason being that they're trying to funnel money to green opportunities. They very much wanted to make sure that the average person knows how their money is being managed and whether it's being managed in line with climate.

There are funds now very specifically aligned to that taxonomy. That's very much their mindset. They are using that taxonomy to assess a company's capex, so they are able to say that the capex of oil and gas companies, writ large, is aligned to 15%, while the rest of the sector as a whole is only 8%. The oil and gas companies using this framework can demonstrate their greater alignment.

When you look at Canada, what are the implications of not doing this? You have a lack of clarity, so money doesn't come, and you're employing a taxonomy.... The other option is that you're employing a taxonomy from another region. That means the thresholds are not going to be relevant for Canada. Also, Canada will continue to fall behind international expectations. When we compare Canadian high emitters to global ones, not a single Canadian company today can articulate in their disclosures how their capital is aligned to the 1.5 °C scenario, whereas over 40% of the high emitters globally can.

You have to realize that capital will go to where it's easiest. This is a competition where capital goes. The total capital for Canada is $115 billion. McKinsey estimates that the capital needed globally for the transition in 2030 is $9 trillion to $12 trillion. It will go wherever it is easiest to ascertain good-quality investments, along with the clarity that it's aligned to the transition.

The additional—

[Sophie Chatel, Liberal, Pontiac, QC]

I want to point out something extremely important that you mentioned: If Canada does not act now, it will lose billions of dollars in investments over the next few years. Have I understood that correctly?

[Barbara Zvan]

Yes. In terms of other costs, the financial institutions will each make their own taxonomy or bespoke version of it. It will never be as detailed or done with the same level of public consultation. That will contribute to confusion. You will have a lack of green bonds that have credibility. Green bonds issued with a credible taxonomy can save anywhere from one to 10 basis points, so if you issue a $10-billion bond and you have a savings of four basis points, that means $4 million each and every year for the life of that bond.

Then you have the ability to leverage OSFI. OSFI would like to align capital, which would align investments from the banks with the climate transition. That would ultimately go back to GDP, enabling investments in Canada.

You will have a continued reputational risk from greenwashing because no investor will be able to know if the investment made by company X is aligned with Canada's transition. You'll also have a lack of ability to be in international dialogues. I can tell you that I get invitations from the World Bank and all sorts of groups to participate for Canada, but I cannot.

Last is ultimately your ability to finance the transition in Canada.

[Sophie Chatel, Liberal, Pontiac, QC]

You spoke just now about the Office of the Superintendent of Financial Institutions of Canada. Do you think that would be the best place for managing our taxonomy, which, I hope, will be coming soon?

[The Chair, Liberal, Francis Scarpaleggia]

You have about 20 seconds.

[Barbara Zvan]

Okay.

In terms of international comparisons, we did a full review. Most taxonomies are overseen by the monetary authorities in different countries. The equivalent in Canada would be OSFI. They have all the powers today to do that. They just need a letter from the Department of Finance.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Ms. Pauzé, the floor is yours.

[Monique Pauzé, Bloc, Repentigny, QC]

Thanks to the witnesses for being with us to discuss a subject…

Just a moment, I am hearing myself echo, Mr. Chair.

[The Chair, Liberal, Francis Scarpaleggia]

It is probably because the interpreters are working remotely rather than on site. Sometimes that has an impact on the sound.

[Monique Pauzé, Bloc, Repentigny, QC]

In that case, I will ask my questions without the earpiece and then put it back on to hear the answers.

I apologize for the hold-up.

May I start over at zero, Mr. Chair?

[The Chair, Liberal, Francis Scarpaleggia]

Yes, absolutely.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you.

This is not an easy subject. You are here with us to help us understand it better.

Last year, when you testified before the House of Commons Standing Committee on Finance, you said:

In Canada right now we have 37 Canadian financial institutions engaging with the 40 top emitters for that reason of having a dialogue with the same consistent message of “Think about your long-term strategy, your governance, your targets.”

You then added that you wanted to help them with the transition, so you suggested that they be included in the taxonomy work plan.

Do you not think, though, that it is the role of the government to make laws and regulations, and businesses will then have to adapt to them?

I recall that this is exactly what Lord Deben said when he was on the United Kingdom's climate change committee: We have to make laws, and corporations will follow them.

Would it not be better to do that first, rather than inviting all the major emitters to make their own recommendations for a taxonomy?

[Barbara Zvan]

I would say that they're very different tools. You absolutely need all of the different tool kits. You need the regulation. Regulation feeds into taxonomy. It is not the other way around.

Taxonomy governance usually has the official sector monetary authority at the top of the house, which leads it. In Canada's case, we recommended the provinces. We recommended that the financial community take a step back and take a minor portion of that. You also have a secretariat with the skills to do the work, and then you have industry working groups. That is where industry and finance will pull together the recommendations that go to public consultation to be ultimately approved.

Policy regulation feeds into taxonomy, and that feeds into Canada's transition. It's a translation tool.

[Monique Pauzé, Bloc, Repentigny, QC]

I want to come back again to the major emitters you spoke about before the Standing Committee on Finance. We know that, in any event, they are going to want to continue what they are doing with no change. What we think is rather that things have to change if we want it to work.

In your speaking notes, you say that investors are looking for policy certainty around Canada’s net-zero transition priorities. At present, however, the government has given no legislative or regulatory framework. So that is harmful to investors, is that right?

[Barbara Zvan]

Policy certainty would absolutely be very helpful for seeing what the transition priorities are. We put that in the expert panel, and Andy can take a turn in answering. That was the first recommendation of the expert panel. That work has not necessarily been done by the federal government. It would be nice to have.

I agree that it would make it a lot easier to do the taxonomies, but taxonomies are ultimately aligned with 1.5°C scenarios. That is the work, and it will take Canada's regulatory framework.

[Monique Pauzé, Bloc, Repentigny, QC]

Could you tell us what the government should be requiring in order to make up for that?

Are there particular things that you could suggest?

[Barbara Zvan]

I'm going to look at Andy.

Do you want to take that one?

[Andrew Chisholm]

From my perspective, I think there are a number of things there.

First of all, making sure that the disclosure regulations in play right now get nailed down will be very important.

Number two is the taxonomy we talked about. Taxonomy is not a silver bullet, but it is part of the systems change that can be useful.

A third aspect, which we have not spent enough time on and the country has not spent enough time on, has to do with data and being able to have much-improved data systems for measurement and transmission. How we use environment data together with business data on a sectoral basis can be strategically important and feed in very well—