Thank you.
Hello. My name is Ellen Quigley and I am a research professor and special adviser to the chief financial officer at the University of Cambridge. However, I speak in a private capacity as an academic today.
It is after 10 p.m. my time, but it is well worth working late to have a chance to speak with you. I have one central message to share with you today, which is that we are behind, but we have the opportunity to lead.
I'll start with how we're behind. As a country, our emissions are still rising, while wealthy country peers, including the U.S., have seen significant decreases in recent years. Our major banks are substantially more exposed to fossil fuel financing compared with international peers, as has been mentioned, with figures ranging from 14% to 23% of total balance sheet exposure. These are eye-popping figures that regulators should already be concerned about. These numbers may be so high precisely because global banks and investors have already pulled out of Canada's oil and gas sector—Barclays and HSBC being two of the most salient examples—rendering it increasingly a provincial industry, quite literally, that is heavily concentrated in our own domestic financial institutions.
We should be asking ourselves why investors from other countries consider our reserves too risky and what level of concentrated risk we're willing to be left with.
On top of that, we face serious reputational harm on the international stage. I have to say that I am now embarrassed to be a Canadian working abroad, where we are increasingly—and, I'm afraid, justifiably—seen as a global pariah in climate terms.
Our negative climate impact is disproportionate and rising, but so is the financial risk to our country as a result. Our most significant increases in emissions come from oil and gas, and our oil and gas are relatively expensive, emissions-intensive and largely for export. That makes us vulnerable. Two peer-reviewed academic papers by former Cambridge colleague Mercure and co-authors find that Canada is particularly exposed to stranded asset risk by global standards, especially on a per capita basis.
However, as someone who was born and raised on the Prairies, I also worry about stranded workers and communities if we continue with fossil fuel expansion at this stage. These risks continue to rise without our ability to even account for them, because we don't yet have the necessary legislation and regulation in place to do so.
However, we have before us CAFA, which would allow us to leapfrog other jurisdictions and become the global leader in climate finance. CAFA is consistent with other jurisdictions' requirements—which will increasingly be necessary anyway, especially as EU regulation extends to a border adjustment mechanism—and interjurisdictional measures, while also going a step further to maintain and enhance Canada's reputation as a steady hand in this area. We're known for being a particularly skilled regulator of the banking system, and we are also the envy of the world when it comes to pension fund governance. CAFA would simply add to the perception that the world should look to Canada for financial sector legislation and regulation.
Yes, that's right: This legislation is going to make us look prescient to global observers in future years, because it recognizes climate as a systemic risk that must be attended to at a macro-prudential level. I say we will look smart if we do this now, but the flip side is also true: We will look like idiots if we fail to do this, as one of the most exposed economies in the world. I personally would love to see Canada leading again, and CAFA would make that happen.
Finally, here's a word about transition plans. I know the federal government is currently considering how to regulate disclosure, as noted in the recent fall economic statement, and anticipates presenting options on this. Defining and regulating credible transition plans should be a key part of this.
One of my own research strands involves analyzing the credibility of banks' and fund managers' climate targets and transition plans. In that work, I find so many loopholes and evasions that I've written a paper, soon to be published, that includes bingo cards to help people identify the most common ones. Transition plans are not worth the paper they're printed on unless they are regulated and standardized. Currently, the quality is simply not high enough to be usable by investors. CAFA would address this issue too, and is therefore likely to be imitated the world over.
As I said, we are currently behind, but CAFA gives us the opportunity to leapfrog to the forefront. In doing so, we would have a more robust framework in which to understand and prevent the systemic risks from climate change we currently face.
Thank you.
