Environment Committee on May 30th, 2024

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

So you're comparing apples to apples. You don't have a separate category for high-tech companies.

[Céline Bak]

Absolutely, we're comparing apples to apples, internationally and domestically.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

How do you calculate emissions?

Let me clarify. As we all know, this is, in a way, a productivity issue. If a company increases its productivity, it can increase its efficiency while lowering its carbon footprint. Let's say it normally takes a company four hours to produce something. If it can boost its efficiency and reduce production time to two hours, it can double its daily production.

Do you calculate the carbon footprint per unit produced or for everything produced in a day?

Obviously, if a company doubles its output, its total footprint will be larger. However, if its doubles its production rate, it will be much more efficient.

As such, how do you calculate a company's efficiency and carbon footprint?

[Céline Bak]

In the second part of our research, we simply looked at emissions divided by revenue. It's standardized by sector.

I think that answers your question. Carbon emission efficiency is calculated on the basis of a firm's total economic activity.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

My next questions are for Mr. Brossard, from the Montreal Economic Institute.

Good afternoon, Mr. Brossard.

The Montreal Economic Institute is located in Quebec. Every year, HEC Montréal publishes figures about energy in Quebec. According to figures published early this year, Quebec consumed 19 billion litres of fossil fuel over the course of the previous year, which was a 7% increase. As long as we need fossil fuel, it will have to be produced somewhere.

To your knowledge, if banks are ever asked to stop supporting the Canadian energy sector, what will happen to our producers, who help supply the 19 billion litres of fossil fuel consumed annually by eight million Quebeckers? As I mentioned, consumption is on the rise. What could happen to those companies if banks are no longer allowed or invited to finance them?

[Renaud Brossard]

For starters, financing costs for these Canadian companies may increase, because they'll lose access to stable funding from a good source that wants to finance them.

Such a measure will likely change absolutely nothing for Canadian fossil fuel consumption, because people still need to get to work and put gas in their vehicles regardless of whether that gas is produced here or elsewhere.

This kind of measure would bring a lot of economic pain and very few environmental gains, as we like to say.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Let's remember that, in Quebec, demand rose by 7% in one year. People need fossil fuels all year, every year.

Mr. Brossard, there's mandatory disclosure and voluntary disclosure. What is your opinion on that?

[Renaud Brossard]

We have absolutely no opinion on voluntary disclosure. In fact, we think companies that are prepared to disclose their numbers on their own to do so because they think it will benefit them. If they decide to disclose, so much the better.

In our view, mandatory disclosure is problematic, because it would impose significant costs on businesses. The main problem, as we explained in our presentation, is that these costs would be passed on to the companies' suppliers.

We know that Canada has a productivity problem. Productivity is declining, and that has a direct impact on our standard of living. We also know that we're having trouble attracting the investment we need to boost productivity.

Let's contrast that with our neighbours to the south. The U.S. Securities and Exchange Commission examined scope 1, scope 2 and scope 3 emissions disclosure and determined that scope 1 and scope 2 emissions should be disclosed, but it wasn't prepared to require scope 3 disclosure, which is the most expensive.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Mrs. Chatel, you have the floor.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much, Mr. Chair.

Thank you to the witnesses. I welcome them to this very important study on green finance. The committee has already held a few meetings on the subject, and we understand that Canada is lagging behind. As such, we need to do more if we want Canada to remain competitive in all sectors.

Ms. Bak, your study is very interesting. It shows that Canadian companies that invest in disclosure and transparency to their investors earn more revenue than other companies.

Can you elaborate on that? Is that true for all sectors?

I'm really interested in that data.

[Céline Bak]

Our analysis looked at all the companies in Canada that we could identify that have made sustainable capital investments.

In 2019, the sustainable capital investments made by companies that, coincidentally, disclosed their emissions were, on average, six times higher than those made by companies that did not.

We also found that, three years after those investments were made, those same companies had sustainable revenues that were almost six times higher than those of companies that had not disclosed scope 1 and scope 2 emissions.

[Sophie Chatel, Liberal, Pontiac, QC]

That's impressive, Ms. Bak.

It means that if the Canadian government moves forward on taxonomy and disclosure for businesses, the economy will keep growing. Actually, we're going to stimulate growth in our businesses.

[Céline Bak]

The past is no indication of the future. Obviously, that's a political decision. The government must take a stand.

Our research nevertheless gives us a perspective suggesting that companies that publish disclosures have the opportunity to compare themselves to their peers in terms of their carbon intensity and, potentially, the proportion of their capital investments aimed at growing the sustainable qualities of the company.

One of the witnesses talked about the fact that Canadian SMEs are part of global production and value chains. By publishing these disclosures, they can understand how they compare to their peers in terms of carbon intensity. In other words, we're comparing apples to apples. The management teams then decide on the investments they want to make to try to find markets that would be profitable for them.

So it's circular: After disclosure, investment decision-making leads to new business and, as a result, it can lead to more investment.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much.

I note that disclosure does come at a cost to businesses. However, there is a cost to inaction as well, and that is lost investment and opportunity. So it's very important to analyze the issue as a whole.

Speaking of small and medium-sized businesses, I will now turn to Ms. Goodman.

Earlier, you and another witness talked about the importance of considering small and medium-sized businesses. You cited OECD data and examples. We're not the only ones making the green transition. Several countries are also moving forward and achieving excellent results. I think we need to adopt best practices.

Can you tell us about best practices for supporting SMEs in the transition, so that they don't miss the opportunities we were talking about earlier?

[Faith Goodman]

Thank you for the question.

As I think some of the other panellists mentioned, the global rules for sustainability are bearing down on supply chains.

As everyone knows, the EU has tabled its frameworks and models. For SMEs that are part of global supply chains, the idea of disclosures, of sustainable investing and getting ready, is a fait accompli. It's here. As was mentioned by some of the other panellists, it's about scope 1, scope 2 and scope 3.

The point I was making was that SMEs make up such a very significant, material portion of Canada's GDP in their in-aggregate contribution to greenhouse gases. It's close to 50% of business greenhouse gases. We have to find solutions that are fit for purpose for all sizes of firms.

[The Chair, Liberal, Francis Scarpaleggia]

We'll have to stop there.

Madame Pauzé is next.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Chair.

I'd like to thank all the witnesses for being with us, both in person and remotely.

Ms. Bak, since we don't have a lot of time, can you give us a quick overview of the best policies put in place internationally from which Canada could draw inspiration? It could be legislation, it could be regulation. According to what Mr. Van Acker said earlier, we don't seem to have such measures.

[Céline Bak]

I will stick to the results of our research, which provide a certain perspective.

On the one hand, disclosures are associated with a greater tendency to invest. On the other hand, carbon intensity performance in a number of sectors is now associated with better value added by the capital markets. Different countries have policies that can support these two conditions. I will leave it to the government to take note of those policies.

[Monique Pauzé, Bloc, Repentigny, QC]

What can you tell us about the importance of predictable regulations? I think that, for a business, that's very important. Can you speak to the positive impact that predictability can have when economic actors implement ESG policies?

[Céline Bak]

Predictability is an important concept in this environment, which is evolving and complex.

In our research, we've observed that it's often in sectors where regulations have already been in place for some time that businesses with the best carbon intensity performance also find the best value. So those two things go hand in hand.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you.

Mr. Van Acker, earlier you painted a rather bleak picture of what Canada isn't doing. You talked about what Canadian banks aren't doing compared to what's happening internationally.

I understand that your organization, InfluenceMap, is very credible and that it conducts major studies. In your 2024 report, “Canada's Big Five Banks: Heading to Net Zero?”, you note that Canadian banks are failing to put in place credible climate strategies. That's like saying we're unable to do it in Canada, but other countries are able to do it.

Can you please describe the various ways Canadian banks choose to present the action they are taking in relation to their products and policies?

[Daan Van Acker]

Sure. Thank you.

We've seen some level of integration of climate factors into the banks' disclosure and their top-line processes. This is in parallel with these top-line net-zero commitments that they've set. However, this seems to be relatively limited to setting high-level board and management oversight and disclosing some risk management practices. We're not really seeing this carrying through when it comes to having concrete metrics and transition plans that would credibly align the banks' activities with net zero.

Then, going even further into the actual financial activities, while I think I described those in detail earlier, there we see a big level of misalignment with how the banks are financing the economy and a potential net zero by 2050 pathway. The Canadian banks really underperform their U.S. and European peers in this regard.

[Monique Pauzé, Bloc, Repentigny, QC]

I'm sorry, Mr. Van Acker, but I couldn't hear the last bit of your answer. Could you say it again?

[Daan Van Acker]

Sure.

I said that in terms of looking at the actual financing activities—truly, the lending and investment activities of the banks—no, we are not seeing the level of climate ambition we would expect, compared with their own top-line commitments. They're really underperforming compared with international counterparts who have set similar commitments.

[Monique Pauzé, Bloc, Repentigny, QC]

If I understand what you're saying correctly, the banks have climate commitments, but they're not credible because they are unable to meet their commitments.

Is there a lack of transparency? What's the reason behind all this?