Environment Committee on May 23rd, 2024

[Adam van Koeverden, Liberal, Milton, ON]

May I intervene?

What about when pension funds and large capital investment organizations divest?

[Eric Usher]

That's the divestment you're referring to.

I think I would agree with other views that divestment as a vehicle sends a signal, but in liquid capital markets, every divestor normally finds an investor. It makes more sense, at least initially, for an investor to engage with a company, engage with the governance, put directors in who they believe are going to be responsible to manage the company forward and, only as a last resort, consider divesting from the company.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you very much.

Go ahead, Ms. Pauzé.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Chair.

Mr. Usher, our problem is that organizations are often contaminated by private interests that want to dictate the rules.

Have other countries come up with provisions to prevent boards of directors and committees responsible for setting investment policy from being disproportionately made up of company directors or former executives from the oil and gas industry?

[Eric Usher]

There are some movements around responsible lobbying. Expectations are being set from some asset owners and others to basically expect that companies do not lobby against certain developments. It is definitely a concern.

In terms of the governance of the Canadian oil and gas industry, I don't have too much to comment on. I think companies need to be responsibly run and investors in companies need to ensure that they have the boards and the oversight that will allow them to operate. I think it's up to stakeholders to decide whether their investors are doing the right job in steering the companies they own, including in the oil and gas sector.

[Monique Pauzé, Bloc, Repentigny, QC]

Who do you think should be making the rules? Who should be at the decision-making table?

[Eric Usher]

Coming back to your comments in terms of the bills under consideration, putting expectations on governance in terms of the role and the experience of boards, I think there is certainly some role in regulatory oversight of that. A range of issues are already expected of directors. There are liabilities on directors.

This is an area of concern for directors if they don't perform their functions responsibly, so I think that's an area where it does require further development in responding to this issue.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Ms. Collins.

[Laurel Collins, NDP, Victoria, BC]

Thank you, Mr. Chair.

I was just wondering. You mentioned China. Are there other countries you would want to highlight that we either can learn lessons from or should be watching? Are there lessons from folks who are doing it right or doing it wrong?

[Eric Usher]

This is a very dynamic space.

Australia has a resource-intensive economy. It has a lot of coal, yet they have had a renewable energy revolution in just the last couple of years, partially driven by a very well-run pensions industry and a lot of domestic investment but also by securing outside investment. Actually, Australian banks are global investors in the renewable energy industry. That would be one example.

You can also go to Brazil, South Africa, Japan, which I mentioned, and northern Europe and other parts of Europe—France. There are many examples and, in a global economy, this is not a trend that is situated in any one jurisdiction.

[Laurel Collins, NDP, Victoria, BC]

Thanks so much.

I had a few questions for Mr. Miller. Maybe I will say them in case you have time for or an interest in following up in writing.

One of them is that I know the OECD has been working on biodiversity finance for over a decade and, in particular, on incentives for conservation and the sustainable use of biodiversity. Recently, a government think tank published a report on biodiversity loss and ecosystem collapse: that these are the second most likely future threat to Canada and the world in the coming years.

Could you write to the committee and talk a bit about how efforts by Canada's financial institutions to address biodiversity loss connect to efforts to address the climate crisis and climate change, and how these are overlapping and intersecting?

Also, then—

[The Chair, Liberal, Francis Scarpaleggia]

No, no. We're done. I'm sorry.

Mr. Kram.

[Michael Kram, Conservative, Regina—Wascana, SK]

Thank you, Mr. Chair.

Mr. Usher, I wonder if we could revisit the taxonomy and the logistics from a company's perspective.

If you have one factory that makes gas-guzzling SUVs, another factory that makes bicycles and another factory that makes something else, how does each company go about getting its particular classification in the taxonomy system?

[Eric Usher]

It's a breakdown based on industry classifications. NACE is one of them. There are some different classification systems, and the taxonomy has to choose which one they use, but they exist. Then, essentially, there is a threshold for each economic activity of what is considered sustainable.

Most taxonomies started with climate, climate mitigation, but some of them are expanding into some other areas. It takes the bicycle manufacturer to go in and look at their activity and ask, “Are our bicycles considered sustainable?” They will be, I think, in most instances.

An auto manufacturer will go in and see that they need to sell autos below a certain percentage of carbon per mile driven to be considered sustainable. They probably have a mix of vehicles. Essentially, they have to consider how they are going to apply the taxonomy based on the mix they have, but they have the expectation, if they want to secure investment, that they probably need to transition their fleet over time to get into what's considered the sustainable form of automotive transport.

[Michael Kram, Conservative, Regina—Wascana, SK]

Okay.

Do the companies have to approach the Bank of Canada to become classified, or is the Bank of Canada going to have inspectors with clipboards coming out to all these companies? How does that work?

[Eric Usher]

These companies already report. Essentially, as part of their disclosures, they will be expected—this is what's happening in Europe and this is what's coming to Canadian companies that operate in Europe—to do various disclosures as part of being in the financial markets. There is a cost associated with such disclosures. It depends on the type of company, but it's true that there are activities involved in being able to do this. I'm sorry if I can't give more detail, but essentially that's a rough description.

[Michael Kram, Conservative, Regina—Wascana, SK]

Do you have a high-level estimate of the cost associated with these disclosures?

[Eric Usher]

No. Companies already know how much they spend on disclosures, and there's a whole audit industry built up around financial audit. It's going to depend significantly on the type of company.

One of the requirements is.... Someone mentioned that SMEs are an important part of the Canadian economy. You typically have to think about that. If you have initial legislation, you probably don't go for the SMEs to start with. You go with large companies that are more capable of doing this work, but large companies source much of their product from small companies over time. If they are expected to do scope 3 disclosures, which is essentially carbon in the value chain, eventually they need to source that information including from SMEs.

It is a whole-of-economy approach, but disclosures are something that the whole economy already does. This is adding in one more objective.

[Michael Kram, Conservative, Regina—Wascana, SK]

Is this for every company in the country?

[The Chair, Liberal, Francis Scarpaleggia]

Give a brief answer, please, Mr. Usher.

[Eric Usher]

In Europe, it started with 277 large companies, but now it's growing. It's the larger companies to start with. It now includes 1,100 Canadian companies that have to report to Europe, because they operate there.

[The Chair, Liberal, Francis Scarpaleggia]

Thanks very much.

Mr. van Koeverden.

[Adam van Koeverden, Liberal, Milton, ON]

Thanks very much, Mr. Chair.

I'm also going to try to share my time. Could you signal when I have a minute and a half left or something?

[The Chair, Liberal, Francis Scarpaleggia]

Yes.

[Adam van Koeverden, Liberal, Milton, ON]

Thank you.

I'd like to follow up on that. What I just heard is that Canadian companies operating in Europe are subject to disclosures and those sorts of things. When they're operating here in Canada—I presume a lot of them probably do business in both places—they have different reporting requirements. That must be frustrating and annoying.

What would there be to lose? Why wouldn't Canada simply adopt the European Union's taxonomy for reporting on these things, incorporating some of our own assurances and priorities with respect to transition, given that we're a resource economy?