Environment Committee on May 9th, 2024

[Monique Pauzé, Bloc, Repentigny, QC]

How does Canada currently compare with its peers regarding the financial sector's alignment with sustainable development goals?

What governments are leaders in climate-related financial disclosure?

I ask you those two brief questions in quick succession because we have only 30 seconds left.

[Jerry V. DeMarco]

I think the answer to your first question lies in lesson 4 from our 2021 report, which reads as follows: “Canada risks falling behind other countries on investing in a climate-resilient future.”

Lesson 4 absolutely answers that question.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Go ahead, Ms. Collins.

[Laurel Collins, NDP, Victoria, BC]

Thank you, Mr. Chair.

I want to thank the commissioner for being with us today.

In last year's report on the emissions reduction plan, you said, “The federal government is not on track to meet the 2030 target to reduce greenhouse gas emissions by at least 40% below the 2005 level by 2030.” Do you consider that statement still factual?

[Jerry V. DeMarco]

We'll have more to say on that with our fall report, which will be our second report under the net-zero act.

I haven't seen anything yet from the government that has shown it has bridged the gap between its own estimation and the measures it had in place that were mid-30%. The gap between that and 40%-45% is its target. We also had concerns that even its calculations of getting to mid-30%, whether it was 34% or 36%, were overly optimistic assumptions. We weren't even sure that 34% or 36% was bankable, especially regarding the fact that we've had 30 years of plans and targets, and not one of them has been met.

As I said last week, that may be cause for the government to go for something a little bit more than 40%, knowing that each time it's aimed for a target in the past, it's come up well short. Even the last target, which happened to fall within COVID, was not met, despite the related emissions reductions associated with the economic downturn.

I haven't seen anything yet to indicate it has bridged the gap with measures that will add up to 40%-45%, based on reasonable assumptions. We'll have more to say about that in the fall with our second net-zero act report.

[Laurel Collins, NDP, Victoria, BC]

Thanks so much.

What I'm going to take from that is that the federal government is not on track to meet our 2030 target.

Now, in this report, you talk about how the Office of the Superintendent of Financial Institutions is a key supervisor of Canada's financial institutions. You mention in your report that it should consider whether it's appropriate to look beyond our current approach to find ways to advance Canada's broader climate goals. Now, some governments, like the U.K. and the EU, have aligned financial supervisors' mandates with sustainability objectives.

Can you talk a little bit about the impact of Canada not doing this?

[Jerry V. DeMarco]

Canada has set out what's called a whole-of-government approach to tackling climate change. Another analogy is “all hands on deck”. It's open to Canada, as responsible for meeting its own target, to determine which institutions are going to be involved in that whole-of-government approach to meeting the target.

Most recently, the list of institutions subject to Canada's Federal Sustainable Development Act moved from only 20-something to approximately 100. The OSFI is now within that 100, and our own office is now within that 100. We all have a potential part to play in meeting whole-of-government targets or objectives, like the climate target of 40% to 45%.

We do point out in our report that, thus far, the OSFI has taken a narrow view of its mandate and stuck to the stability of the financial system, while other countries have chosen to have their equivalents of the OSFI take a more active role in contributing to climate change mitigation efforts. It's a policy question that's open to the government to answer.

[Laurel Collins, NDP, Victoria, BC]

You talk about how action is overdue and is now urgent. To what extent do our current financial systems and the lack of climate alignment play a role in our overall greenhouse gas emissions?

[Jerry V. DeMarco]

Canada's overall trend in greenhouse gas emissions has not been positive, as we just spoke about. It's up from 1990 to now, whereas the other G7 countries have decreased their emissions.

As for how much of that is attributable to the lack of climate-related disclosures, I haven't seen any analysis that's been able to pair those two variables in terms of figuring out what the contribution is. I wouldn't know how much of Canada's historical failures to meet targets can be attributed to its relatively slow pace of change on climate-related disclosures.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

We'll go to Mr. Deltell now.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you very much, Mr. Chair.

Commissioner, gentlemen, I'm very pleased to see you again so soon. Your comments are always appropriate, and we thank you for that.

I'd like to ask you a very simple question: How do you define greenwashing?

[Jerry V. DeMarco]

I believe we used the definition of that term in both the recommendation I just referred to and in our report.

I'll ask my colleague to find it, which he should be able to do quite quickly.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

I just asked you that question to show how greenwashing can be used to mean many things.

That's why I'm asking the most neutral authority there is in Canada, the commissioner of the environment and sustainable development, for his definition.

Personally, I think we engage in greenwashing when we take a plane, when we travel a lot and then buy credits. It leaves us with a clear conscience, and we then speechify about it, but the reality is that we're polluting. So I'd like to know your exact definition of greenwashing.

In addition, how do we determine what constitutes greenwashing? How can we know whether an investment we want to make in a business is right and whether or not that business is engaged in greenwashing?

[Jerry V. DeMarco]

The definition appears on page 17 of our 2023 Report 4, which is entitled, “Supervision of Climate-Related Financial Risks—Office of the Superintendent of Financial Institutions Canada”.

We used the following definition: “Greenwashing—The process where a company or a project inaccurately or misleadingly claims to represent a green investment. It is also sometimes called sustainability washing.”

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

I want to thank you and to commend you once again for your intelligent manner in handling a question.

The word very much invites scrutiny and, especially, is highly subjective. What, in the eyes of some, may be greenwashing in certain instances may not be so for others. Earlier I mentioned the Quebec project that's highly controversial but that also enjoys considerable support. Some people are absolutely opposed to it, others absolutely in favour.

How do you think greenwashing can be accurately assessed?

[Jerry V. DeMarco]

I heard only the last part of the first hour of your meeting today, but I believe you heard some experts discussing taxonomies. They are a method, an approach, that provides a framework within which to determine whether something is green or not, and to what degree.

It's not up to us at the Office of the Auditor General of Canada to decide what's green and what isn't. If an institution like the Office of the Superintendent of Financial Institutions decides to do so, that will be good for everyone. We can then simply look and see if it's in column 1, which means it's green, or in column 2, which means it isn't.

We need that or else it will be hard for the public and investors to decide what's green and what's not.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Let's hope you're consulted, if necessary.

Thank you very much, Mr. DeMarco.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Go ahead, Ms. Chatel.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much, Mr. Chair.

Welcome to the committee, gentlemen.

Our witnesses in the first hour told us that we urgently need taxonomies and financial disclosure for the climate. I looked at the statistics and the latest data, and 250 financial institutions should soon be releasing transition plans that are consistent with the framework of the Glasgow Financial Alliance for Net Zero.

In addition, the world's leading economies are a year ahead of us, perhaps even two, in developing requirements for their financial institutions designed to establish a regulatory framework that provides certainty and promotes investment. The United Kingdom, the United States, the European Union and even Australia still produce oil. Then there's Japan, Hong Kong, Singapore and Switzerland. Canada will significantly lag behind in these areas if it doesn't act now.

I'm trying to understand what's slowing us down. I know we have a resource-based economy, but that kind of economy hasn't prevented Australia from evolving. British Petroleum is investing $65 billion in the U.K.'s transition. What's holding us back? Is it Conservatives and other voices telling us we need to hang on to our old economy and not evolve?

If we don't evolve, billions of dollars in investments will pass us by. For the moment, they're going to China, which is investing in its battery sector, motor vehicles and clean energy, for example.

What can we do to take quick action?

[Jerry V. DeMarco]

It's really a matter of will because we can move faster. One of the reasons we decided that the Office of the Superintendent of Financial Institutions would be audited was that, in the report we released in the previous year, we said that Canada risked falling behind other countries on investing in a climate-resilient future. So it's a matter of will.

I would even say that our lesson 1 is related to the question you raised. More effective leadership and coordination are needed to advance commitments respecting the fight against climate change. We need more leadership and more coordination, and we need the will to act. This isn't just about acknowledging that there's a climate crisis; we also have to act in a manner consistent with that crisis. It's easy to say there's a crisis, but it's harder to act promptly and diligently enough to handle the situation in a manner consistent with that crisis.

[Sophie Chatel, Liberal, Pontiac, QC]

I don't understand why Europe is in the process of achieving carbon neutrality. It's changing its economy and financial system, and also becoming more attractive to investors. What does Europe have that Canada doesn't? I know it's hard for the western provinces such as Alberta, for example, where the Prime Minister has a very strong voice and the Conservatives say they don't want to go in that direction.

[The Chair, Liberal, Francis Scarpaleggia]

That's a big question, Ms. Chatel, but you've exceeded your speaking time. Someone else will have to ask that question and get an answer from the commissioner.

Ms. Pauzé, you now have the floor for two minutes.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Chair.

Mr. DeMarco, I'd like to go back to what we discussed earlier regarding the fact that we also need to consider the environmental and social impact, not just the financial impact. Thanks to our analysts, we've learned that the Hon. Joe Oliver told the Financial Post on February 14 that the Office of the Superintendent of Financial Institutions should go back to its field and focus on finance instead of climate politics. So his view of the situation is diametrically opposed to yours. I share yours.

What risks are associated with separating the financial system from consideration of climate change risks?

[Jerry V. DeMarco]

It's up to the government and Parliament to decide whether the Office of the Superintendent of Financial Institutions will play that role or not, and whether amendments must be made to its enabling statute.

To answer your question, the risk is that the policies of the various federal organizations may be inconsistent. If we consider a horizontal approach, as we say at the federal level, and certain players don't help, that could undermine efforts to reach the goal. If there are inconsistencies, there's a risk we may not meet the goal, since not all organizations will be headed in the same direction.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Ms. Pauzé.

Ms. Collins, the floor is yours for two minutes.