Evidence of meeting #109 for Environment and Sustainable Development in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was transition.
A recording is available from Parliament.
5:10 p.m.
Bloc
Monique Pauzé Bloc Repentigny, QC
Thank you, Mr. Chair.
I'd like to thank the witnesses for coming.
I'll begin with you, Mr. Usher.
When you appeared before the Senate on May 9, you spoke about the importance of more transparency and interoperable disclosure standards to show where the risks lie. You said that disclosure was essential and that for all commercial corporations, including banks and even possibly investors, it was the starting point for understanding risk exposure and where the risks are. You said that without comparable methodologies among countries, Canadian banks would be exposed to risks.
You said that in Europe, a directive on the publication of information about corporate sustainability would soon be introduced and would apply to 1,000 Canadian companies, including the Bay Street banks.
Could you tell us about the repercussions of this directive on the Canadian banking system?
5:10 p.m.
Head of UNEP Finance Initiative, As an Individual
It's a very important question and topic because, if Canada does not put its own system in place, it's going to be driven by the European system anyway. Large companies that have activities in Europe are required to report in to the corporate sustainability reporting directive, CSRD. Essentially, the Europeans are defining how they will report.
If Canada comes in with an interoperable form of reporting, it allows Canadian companies to get ready to do it, and, essentially, it'll work more efficiently. We are getting, as I think was mentioned earlier, the carbon border adjustment, which is more an issue between countries about pricing economic activities. This is also being applied to corporations through this type of regulation.
Once again, it calls out for the need for countries to work together in coming up with interoperable systems. As you would know about corporates, the thing they hate most is to operate in multiple jurisdictions that have multiple reporting frameworks. That's why the work of the ISSB is so important. That's why CSSB aligning with ISSB is so critical, but that's only part of the puzzle.
5:10 p.m.
Bloc
Monique Pauzé Bloc Repentigny, QC
That's absolutely right.
Could you provide us with a brief overview of some of the best international policies on sustainable funding that have been introduced, particularly from the regulatory standpoint?
5:15 p.m.
Head of UNEP Finance Initiative, As an Individual
I think this is a global trend. I mentioned that 700 more regulations have been established in the financial system.
Central bank mandates vary. Some central banks have a very explicit sustainability as part of their mandate, and some do not. Canada does not. Some have an implicit mandate. An example of a bank that has a mandate is the Bank of England. It has an explicit mandate, as do a number of others. Within the central banks and supervisors, you have some of them that do have regulatory set-ups that allow them to directly address these issues.
In terms of taxonomy, as I mentioned, the Europeans are most advanced, but there are many taxonomies around the world that are developing. We're currently supporting the Brazilian government and, indeed, many countries. Part of the effort is to make them interoperable. The European one starts, because companies are reporting, and you can can start to see how that transparency allows visibility on an economy in transition.
5:15 p.m.
Bloc
Monique Pauzé Bloc Repentigny, QC
Okay.
I have another question for you, Mr. Usher.
You just talked about taxonomy and about what was done in Brazil. I think the fossil fuel sector here does an enormous amount of lobbying, particularly with boards of directors and the government. If the taxonomies are developed by stakeholders that continue to be emitters, we'll never get there, of course.
Have you seen things like that internationally? I mean a strong influence by companies that are emitters and that want to delineate the regulatory frameworks and taxonomies.
5:15 p.m.
Head of UNEP Finance Initiative, As an Individual
I'm not sure I understood your question, but let me try to answer it.
One of the things that's paramount is that the private sector needs to sense an inevitability of the direction of the government. I mentioned the Japanese example. When they see where the world is going, they will invest in helping to realize that world. In the economies that are most successful today, the signals line up.
The challenge in some economies is that you get confusing signals, and then investors do not want to invest, because the 20- or 30-year investment might not actually be allowed to operate. This can be applied to both high-fossil assets and low-energy, low-carbon assets. What's needed is the sense of inevitability about the transition. The responsibility for that starts with the government, but then, of course, involves corporations and the private sector.
5:15 p.m.
Liberal
The Chair Liberal Francis Scarpaleggia
You have 15 seconds left, just enough time to wrap things up.
May 23rd, 2024 / 5:15 p.m.
Bloc
Monique Pauzé Bloc Repentigny, QC
Okay. I'll do that.
You are no doubt aware of Bill S-243, which is being studied in the Senate. Are you in favour of some aspects of this bill?
5:15 p.m.
Head of UNEP Finance Initiative, As an Individual
Yes...to certain parts. I think we have questions about the capital adequacy, but we can answer other elements.
5:15 p.m.
NDP
Laurel Collins NDP Victoria, BC
Thank you, Mr. Chair.
To follow up on that, can you talk a bit about the areas you support in that bill and what strengths you see?
5:15 p.m.
Head of UNEP Finance Initiative, As an Individual
I think the notion, widely, is that we need to start to understand how we align with the societal objective, essentially, of the net-zero transition. Elements of that proposed bill bring in more of the pieces that are required.
A taxonomy and disclosure are steps, but there also need to be responsibilities within the corporation around governance, expectations and transition planning. Essentially, every company needs to be expected to put forward what it believes it's going to do as part of these changes that are under way. The bill covers more elements, so it is a step forward.
As I mentioned, there are some concerns around capital weighting and adequacy, and we believe there's not enough evidence yet to put that into legislation.
5:15 p.m.
NDP
Laurel Collins NDP Victoria, BC
Canada is considering the role of natural gas in the taxonomy. There are a number of organizations and experts who have raised concerns about including natural gas as a transition or something sustainable under the taxonomy.
Do you have concerns with including fossil fuels in the taxonomy?
5:20 p.m.
Head of UNEP Finance Initiative, As an Individual
It all depends on context. What is the natural gas replacing, and are there guardrails around that? For the coming years, there's an expectation that fossil fuels will be required, but 30 years from now, will they still be required? Therefore, if you can put guardrails on investment and for how long an investment is expected to operate....
Potentially, natural gas needs to be part of that transition, but every country will be different and it's up to every country to figure out how to make that transition.
5:20 p.m.
NDP
Laurel Collins NDP Victoria, BC
If other countries exclude natural gas, is it in Canada's benefit to align more closely with, say, European Union countries that might be headed down that route?
5:20 p.m.
Head of UNEP Finance Initiative, As an Individual
A lot of it depends on what becomes a standard. I'm not sure I can clearly answer the question. It really depends. If gas is replacing coal, that's probably a good thing. If, 30 years from now, gas shouldn't be operating because wind is lower cost, the question is why you are putting gas on the grid. In a way, it requires 30 years to pay it back. Maybe you only need 10 years.
These types of discussions are what have come up in Europe because of the Ukraine war. Ultimately, some gas has been brought in, but most of the investment has been in renewables because, at the end of the day, economics have played out and wind and solar are the major sources of new capacity on the continent, even if there have been some gas additions.
5:20 p.m.
NDP
Laurel Collins NDP Victoria, BC
It kind of seems like leapfrogging. If we have the opportunity to invest in renewables that will be long lasting, it seems like both a more climate-friendly and a potentially longer-term, sustainable financial option.
You talked a little about progress in global standards and regional practices for climate-related disclosures. I'm wondering if you could give us some more details about recent progress that has happened.
5:20 p.m.
Head of UNEP Finance Initiative, As an Individual
Maybe I can talk about China for a bit, because I often hear China being put up as the problem. I think the problem in China is that they're a green superpower, and that should be a concern.
Let me give you an order of magnitude: Canada built 2.3 gigawatts of new wind and solar last year. That's about one smallish nuclear reactor. China built 300 gigawatts of wind and solar last year. China passed.... Fifty per cent of their new automobiles are electric vehicles. China is moving very fast.
I think the question for the Canadian economy is how to keep up and compete with that change. Their coal use is going down. It's not what has been reported. They're down to 40% of the electricity system today. The real challenge with China is how you compete with them, which is something most companies have been dealing with for a long time. It's not an environmental question. It's a competitiveness one.
5:20 p.m.
NDP
Laurel Collins NDP Victoria, BC
You have talked in the past about the good progress being made by the private sector, and how that's not necessarily understood or reflected by governments. However, the private sector can't do it on their own. They need enabling frameworks and sound policies.
Can you talk a bit more about how policy-makers and regulators are—or are not—facilitating this integration, and how we can better support the transition to a sustainable economy?
5:20 p.m.
Head of UNEP Finance Initiative, As an Individual
You know, we hear a lot about the IRA in the U.S. and how it has mobilized a lot of investment. I think it has. It's been successful as an incentive. In Europe, it's more of a whole-of-government approach. I think the difference is that, in Europe, every corporate is realizing they have to transition. In the U.S., it's only part of the economy—the green part—that's growing. The rest of the economy has a lot of uncertainty.
Therefore, I think—as you say—the best examples we're seeing are where they combine incentives in new technology with transparency and markets investing across the whole economy, where they're incentivized to do so.
5:20 p.m.
Liberal
The Chair Liberal Francis Scarpaleggia
Thank you.
Mr. Miller, could you tell us a bit about the weather in Paris, where you are? I'm asking because I'm trying to test the sound.