Environment Committee on May 30th, 2024

[Faith Goodman]

One of the jurisdictional lessons learned is that in leading countries, there are opportunities for SME frameworks that can guide SMEs with respect to what they need to report on. Again, these are voluntary. However, if an SME is not part of a supply chain, there are voluntary opportunities.

I think what's important and what maybe also underpins the theme of your question is that as global rules do become clear—and even in the case of Canada, we have the ISSB and the Canadian Sustainability Standards Board rules unfolding—scope 3 is in front of us. As SMEs look at what they need to do, getting ahead of this and planning their investment horizon and accessing capital will be very important considerations.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

You talked about certainty. When we see, politically speaking, the Conservatives saying they want to axe the carbon tax and we look at what impact that could have on businesses that are trying to compete globally in a market that's asking for evidence of going towards net zero, there's a conflict there. Could you comment on that?

[Faith Goodman]

I think, as I alluded to in my original comments, that when SMEs think about competitiveness, it's often global competitiveness and the linkages to the supply chains in which they operate. I think the way I would really look at this issue is to ask what the road map is for access to financing, access to markets and access to skills and knowledge and an enabling environment, a digitized environment.

I think all those levers together roll up with respect to how SMEs are eventually going to have to participate in moving this agenda forward. I think it's a complicated issue, but my preliminary comments really homed in on how we can't forget about SMEs; they're an important cohort.

[Lloyd Longfield, Liberal, Guelph, ON]

Absolutely. Thank you for that.

Ms. Bak, I'll turn it over to you.

I think of quality management systems. When the ISO 9000 was introduced, and then ISO 9001 and ISO 14000, businesses looked at those as costs, but ultimately they saw that there were financial benefits as well as supply chain benefits. Is there a parallel situation here in terms of accountability and transparency in carbon markets?

[The Chair, Liberal, Francis Scarpaleggia]

You have 20 seconds.

[Céline Bak]

Our research suggests that there is, and that the number of sectors in which the capital markets are rewarding greater GHG productivity is already substantial, and it could grow over time.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

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

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Chair.

I have a question I'd like to put to the three witnesses who are here. We have two minutes for everything.

When we started this study, I talked about how Canada is lagging behind other countries. Things picked up in Europe shortly after the Paris Agreement; it's Europe and it's a federated exercise.

In your opinion, what are the obstacles on Canadian ground? What's at stake for Canada if we delay putting in place a robust regime that aligns the financial system with our national objectives?

I would ask Mr. Van Acker, Ms. Bak and Ms. Goodman, in that order, to answer the question.

[Daan Van Acker]

Climate change risk has significant financial risk, be it transition or physical, for the financial sector. If the Canadian system does not adjust and falls behind other economies in adjusting to this transition risk, we could certainly see significant financial costs associated with that.

[Céline Bak]

Our research suggests that the cost of capital for companies that are performing better than their peers is lower because their valuations are higher. Therefore, if further delays occur, it's possible that the cost of capital for Canadian companies that are not leaders will increase.

[Faith Goodman]

Certainty and clarity for the cohort I was talking about earlier, SMEs, are important, as are a level playing field and a fit-for-purpose set of solutions. However, I also referenced that it's more than that: It's also the institutions that govern the policies and the implementation, how we experiment and how we leverage global jurisdictional best practices and bring them here.

Competitiveness matters and access to low-cost capital matters, but it's a lot more than just financing.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

[Faith Goodman]

I also mentioned digitization and AI. They're huge enablers.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Ms. Collins, you have two minutes.

[Laurel Collins, NDP, Victoria, BC]

Ms. Goodman, if you want to take another 15 seconds to finish your thought on certification and AI, you can.

[Faith Goodman]

I mentioned the work of an entity called the SME Finance Forum, which is part of the World Bank, as just one of many. It's done some really great work on understanding globally which jurisdictions are ahead and how they've helped key segments of the economy, like SMES, for example. It's looked at countries that have moved quickly on digitization and certification.

There really is a link between smart policy, the digital environment and the institutions—the public-private partnerships—that also enable it. I mentioned the puzzle piece in my earlier remarks. It really is a lot more than just the financing piece. It's all of the above.

[Laurel Collins, NDP, Victoria, BC]

I'm curious about the difference between certifications by non-profits, like a B Corp certification, compared to rules and standards set by the government.

I'll go to Ms. Bak first and then to Ms. Goodman, if you have answers about either of those things.

[Céline Bak]

Certification isn't an area that I'm an expert on, so I'm going to pass on that one. Thank you.

[Faith Goodman]

In the earlier question you asked me, we were talking about digital certification, in other words, as distinct and apart from a benchmark. Are benchmarks important? Ultimately, absolutely, because they enable any SME or any company to know how it fares against its competitors.

You asked about B Corp and other models. There are a plethora of models globally. When I referenced “fit for purpose”, what I was really drilling down to is that for a variety of benchmarks, accreditations—

[The Chair, Liberal, Francis Scarpaleggia]

Thank you. We're going to have to stop there.

[Faith Goodman]

—and certifications, it depends on the sector and the size of the firm.

[The Chair, Liberal, Francis Scarpaleggia]

We're going to have to go to Mr. Leslie for four minutes.

[Branden Leslie, Conservative, Portage—Lisgar, MB]

Thank you, Mr. Chair.

I'll start with Mr. Brossard.

A paper written by your institute stated that if businesses have to disclose ESG information or sustainability reports, it will “artificially create winners and losers”. It went on to say that “Many entities lack sufficient resources to be able to fully comply, especially small and medium-sized enterprises.” In your opening remarks, you also mentioned that the U.S. Securities and Exchange Commission estimates that a similar disclosure proposal in the United States would cost between $490,000 U.S. and $643,000 U.S. for the first year of compliance, although some believe those costs may actually be substantially higher.

Could you please outline for us, with as much precision as possible, what these costs actually are, how they are downloaded to the business and whether they will stay with that business or be passed on to customers and consumers?

[Renaud Brossard]

Absolutely. Thank you for the question.

In terms of what those costs are, a lot of it them will be for consultants and a lot of them will be for time. Because not a lot of small businesses have the expertise in house to be able to do that sort of accounting, they will need to hire some consultants to be able to walk them through those different steps. They'll then need to have some proper measuring of their processes put in place so that in the future, they will know roughly what every activity emits in terms of emissions. Essentially, it's consulting fees.

I'm sorry. I don't remember the second part of your question. Can you remind me?

[Branden Leslie, Conservative, Portage—Lisgar, MB]

Sure. It was just on whether or not that business will eat the entirety of those costs or if you can anticipate that they would be passed on to their customers further down the supply chain and/or directly to consumers.