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.
Analyst, Organisation for Economic Co-operation and Development
Yes, of course.... I'm sorry. It's quite dark now, because it's quarter to midnight, but it was a very nice sunny, warm day in Paris, with a small amount of showers.
Liberal
The Chair Liberal Francis Scarpaleggia
We're very happy to hear that. Unfortunately, the sound quality still isn't sufficient. Again, we'll expect a written response to one of the questions.
Thank you again.
We'll go now to our second round, which is a four....
Would you like to comment, Ms. Chatel?
Liberal
Sophie Chatel Liberal Pontiac, QC
Mr. Chair, I'd like to point out that all the questions we're asking Mr. Usher could equally be for Mr. Miller, given that they work for two similar organizations. I'm convinced that Mr. Miller might also have some useful things to say to us.
Mr. Miller, if you feel that you could shed some light on a few of the questions that were asked, please give us your point of view.
Liberal
The Chair Liberal Francis Scarpaleggia
In other words, even if we don't ask Mr. Miller any questions because he can't take part in the discussion, you'd like him to send any answers or comments he might have in writing.
Mr. Miller, even though we can't exchange verbally, if there's anything you want to add in writing based on questions to Mr. Usher or anything you think is valuable to the committee, please send it in.
Thank you.
We are now beginning the second round of questions. The speaking times will be four minutes and two minutes respectively, to ensure that we finish on time.
Mr. Kram, please go ahead.
Conservative
Michael Kram Conservative Regina—Wascana, SK
Thank you very much, Mr. Chair.
I guess my questions will be for Mr. Usher.
I look forward to Mr. Miller's submissions in writing, assuming the chair doesn't approve a field trip to Paris in the near future.
Mr. Usher, I wasn't quite clear from your opening statement. What specific, particular and tangible public policy asks of the Government of Canada are you looking for?
Head of UNEP Finance Initiative, As an Individual
Taxonomy would be one, and another would be an expectation around transition planning. Hugh mentioned that the U.K. Transition Plan Taskforce is considered a best practice. Those would be the two steps.
There would also be an expectation for companies to start to disclose based not only on commonly agreed Canadian relevance but also on interoperability with other taxonomies, such as that of Europe, etc., to provide clarity. Then there would be the expectation around providing a plan for how the company will deal with the changing climate.
Conservative
Michael Kram Conservative Regina—Wascana, SK
What does the taxonomy piece look like from your perspective?
Head of UNEP Finance Initiative, As an Individual
If we talk about the European one, which many have followed, for each economic sector there are limits set. Essentially, you have to emit below so many tonnes per whatever the measurable is for that sector—let's say per kilowatt hour—to be considered sustainable, but you have to do it with no significant harm. You have to show as well that you are not creating environmental or social harms in other areas, so that we don't run after something that is really green but creates damage in another way.
That's basically the structure the Europeans and most others follow, but, once again, it has to be specific to the local economic context. As we said earlier, defining “transitioning” is a critical role for the Canadian taxonomy.
Conservative
Michael Kram Conservative Regina—Wascana, SK
What happens if a company is not considered sustainable?
Head of UNEP Finance Initiative, As an Individual
At this point, nothing, because it's a free and open market. It's up to the markets to decide. If the markets start to believe that, with the proper information, an industry is ready for disruption, they will make decisions on that. The best example I have is the Tesla effect. What happened to the value of automotive companies globally when one electric vehicle company, all of a sudden, became what most investors believed was the future of that industry?
Every industry is going to go through or is already going through something like the Tesla effect.
Conservative
Michael Kram Conservative Regina—Wascana, SK
Okay, so it's not considered sustainable in environmental terms but it's considered sustainable in economic terms. Is that correct?
Head of UNEP Finance Initiative, As an Individual
Yes. As we think of environmental issues in a financially relevant way, if you are polluting the environment, the expectation is that an investor will say, “Well, eventually that's going to be priced and made illegal, and your business is going to be outmoded.” You need to properly monitor the impacts you have, including on the environment, and how they will come back and affect you in a financial way.
Conservative
Michael Kram Conservative Regina—Wascana, SK
Okay. The idea of something being made illegal is one I hadn't heard before. It's a way to anticipate the next industry the government will make illegal, and, therefore, investors should not be investing in the company if it's going to be made illegal before the investment is recouped. Is that what you're saying?
Liberal
The Chair Liberal Francis Scarpaleggia
Please give us a yes or no, Mr. Usher. We're really running out of time.
Head of UNEP Finance Initiative, As an Individual
There is a differentiation between physical risks and transition risks. What I'm talking about are transition risks, which include policy change, technological change and consumer change. Any of those can lead—
Head of UNEP Finance Initiative, As an Individual
—to a devaluation of a business model.
Liberal
Liberal
Ryan Turnbull Liberal Whitby, ON
Thanks to both of the witnesses. I'm sorry one of them isn't able to participate fully.
Mr. Usher, it's good to see you. Thanks for being here. Thanks for all the work you do globally, which is essential.
Numerous speakers I've heard speak about sustainable finance have said the strongest economies of the future will be the greenest ones. I think Canada is positioned to be a superpower in leading the energy transition, and greening our financial system is part of that. I think Canada is ready because we have put in place legislative and regulatory pieces like the net-zero accountability act, carbon pricing, an oil and gas cap, and regulations on clean electricity and other things. We also have investment tax credits, which are rolling out, and we have embraced blended finance. What we do not yet have in place are mandatory climate-related disclosures or a taxonomy.
Can you speak to how important it is to create the right enabling conditions for those two pieces to be put in place? You've mentioned them, but what's really at stake?
Head of UNEP Finance Initiative, As an Individual
To my earlier comment, I think it's about creating the sense of inevitability that this transition is under way and is going to be backed and supported by the government. That's what investors will invest against.
As you mentioned, you have world-leading carbon pricing. You have economic leaders in many areas. Mining for critical minerals is a key new industry that has to develop. You have a lot of the resources, but what you lack is the transparency for investors—particularly international investors—to come in and see that this transition is under way and that it makes sense financially to invest in that transition. Other markets are ahead in that way.
Liberal
Ryan Turnbull Liberal Whitby, ON
I am going to share my time with my colleague, Mr. van Koeverden, but I just want to ask you a quick follow-up.
In other jurisdictions around the world where they have put in place mandatory disclosure and taxonomy, are they able to compete better, from your perspective?
Maybe you could give just a quick answer on that one.
Head of UNEP Finance Initiative, As an Individual
Let's take the U.K. In their energy system, 2.3% relies on fossil fuels today. Their largest source of power last year was wind. It bypassed gas. The U.K. economy is similar in some ways. It has a high fossil-fuel sector in terms of gas, yet I think it is outperforming, on a case-by-case basis, the Canadian economy.
Liberal
Adam van Koeverden Liberal Milton, ON
Thanks.
Mr. Usher, I have a really brief question.
Is capital divestment in highly carbon-intensive and polluting sectors, when coupled with reallocations of those funds in innovative, green, sustainable companies, an effective tool for lowering emissions?
Head of UNEP Finance Initiative, As an Individual
We know that in the fossil fuel sector the price of oil is high, so it's very profitable today. The question is, how are they reinvesting those profits?
Only a few companies.... The ideal that we would like to see is that they invest with their expertise in the transition. They have a lot of capacity to do that. We're not seeing as much of that as we would like, but—