Thank you very much.
Mr. Chair, members of the committee, it's an honour for me to have the opportunity to discuss with you climate and environmental impacts related to the Canadian financial system.
As you know, climate change is accelerating at an alarming rate, and it's already having a devastating impact on Canada's economy and financial stability.
As funders of economic activity, financial institutions are on the front lines of climate risk. The insurance sector is particularly vulnerable and yet it continues to finance fossil fuels. Canadian pension plans have increased their investments abroad, particularly in clean energy, while investments here in Canada have stagnated.
Between 2020 and 2022, Canada's big five banks increased their exposure to fossil fuel financing from 15.5% to 18.4%, more than twice that of their European and U.S. counterparts.
Risky fossil fuel investments by our financial institutions are a clear risk to the climate and they are fuelling the climate crisis. Consideration of both the impacts of climate change on our financial institutions and the impacts of financial institutions on climate change is called double materiality. I encourage the committee to explore this concept as part of its study.
While Canadian banks have committed to net zero by 2050, a recent report shows that the big five banks favour fossil fuel investment over clean energy 3.9 to 1. In contrast, global energy investment favoured clean energy over fossil fuels by a ratio of 1.7 to 1. Canada is at odds with global trends.
The Canadian government provided over $18.55 billion in public financial support to fossil fuel companies in 2023 alone, in direct contradiction to its climate commitments and against healthy and free markets.
Despite their net-zero commitments, Canada's public and private financial institutions are increasing their support for fossil fuels. Relying on voluntary measures won't help us achieve our objectives. In fact, these companies are unreliable and are constantly at risk of backsliding, as demonstrated by BMO, which recently revoked its anti-coal lending policies to satisfy the political ideology of the state of West Virginia.
We need to use our parliamentary responsibility to design a financial system that aligns with the public interest and, through legislation, provide a level playing field for all financial institutions in the transition to a low-carbon economy.
I made such a proposition with Bill S-243, the climate-aligned finance act, or CAFA for short, introduced in the Senate in 2022 and currently being studied by the Senate committee on banking. Some actions proposed in CAFA might help inspire your committee study.
CAFA would establish a duty for directors of financial institutions and major Crown corporations to align with climate commitments. In 2019, the expert panel on sustainable finance recommended that the Canadian government clarify that fiduciary duty does not preclude the consideration of relevant climate change factors and that international best practices increasingly require such considerations.
Through annual reporting requirements, CAFA would compel federally regulated corporations, financial institutions and major Crown corporations to develop much-needed action plans, transition plans and progress reports.
CAFA would align market supervision by the Office of the Superintendent of Financial Institutions with climate commitments. It would consider the need for capital adequacy requirements that are proportional to the macroprudential climate risks generated by financial institutions.
It would require the appointment of at least one individual with climate expertise to the boards of Crown corporations, as well as prevent conflict of interest associated with the appointment of individuals who have private interests linked to fossil fuel companies. Today, seven out of Canada's 11 largest pension funds have at least one board member who simultaneously serves as a director or executive of a fossil fuel company.
CAFA would require the publication of a government action plan to help align financial products with climate commitments.
Mr. Chair—