Environment Committee on June 13th, 2024

[David McKay]

I'm sorry, but could you repeat your question? I didn't quite get it.

[Michael Kram, Conservative, Regina—Wascana, SK]

Yes. In an earlier question, you were asked about taxonomy and you spoke out in favour of a standard taxonomy. How does it work? How much would it cost? Who would pay?

[David McKay]

The work has been ongoing for a number of years. It's a multi-industry group that's working with various levels of government to come up with recommendations. It's vetted through the Canadian government. The cost is being absorbed by all the participants who are donating their time to come up with what is a very important part of the overall success of our journey.

[Michael Kram, Conservative, Regina—Wascana, SK]

However, that could all be done through Canada's financial institutions. There's no need for the federal government to mandate that. Would you agree?

[David McKay]

My understanding is that the government has absolute authority for deciding at the end of the day on the taxonomy released to Canadians. We are making recommendations. There are multiple constituents at the table, from asset managers to pension funds and insurance to banks. We're just one participant in the overall stakeholders in the framework.

[Michael Kram, Conservative, Regina—Wascana, SK]

Certainly every financial institution does a thorough analysis before investing millions or billions of dollars in an initiative. This standard taxonomy is something that the banks could get together and do on their own if they really wanted to without government intervention. Would you agree?

[David McKay]

No, I wouldn't agree. I think their taxonomy requires a broader group of stakeholders to agree. Don't forget, investors are coming in all shapes and forms and from all sectors of the economy, inside and outside of Canada. They're seeking broader agreement on how Canada looks at the framework.

I do not believe that if the banks got together on their own and came up with the taxonomy, the investment community would necessarily adopt it per se. I think a broader consensus is important.

[Michael Kram, Conservative, Regina—Wascana, SK]

What can the government do on taxonomies that the banks are not capable of doing?

[David McKay]

The government is acting as a convener and helping bring together multiple sectors to try to find agreement where there are very differing views between some sectors.

They're convening. It's multi-sector. I think that's the very definition of the role of government: to help convene on tough issues, think through policy, get input and make recommendations. That's the process we're going through. It's not a simple task and outcome.

[Michael Kram, Conservative, Regina—Wascana, SK]

Wouldn't it be fair to say that if there's a difference of views among the financial institutions, there would also be a difference of views among the potential investors, and that those differences of views would not necessarily go away just because the government says so? It that correct?

[The Chair, Liberal, Francis Scarpaleggia]

I would ask you to give a brief response, Mr. McKay.

[David McKay]

No. I think that's why you talk. That's why conversation is important—to understand different perspectives, to explore them and to explore solutions as part of a multi-stakeholder group. I think that's how you build a better country.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Mr. Longfield, it's your turn to close off the second round of questions.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Chair, and thank you to the witnesses.

It's incredibly valuable for us to have the senior executives from our major banks at the table all at the same time. I don't remember that happening in a committee in the last eight and a half years, so thank you for taking the time to discuss this important issue.

Mr. McKay, I know you've had a lot of questions, but I want to drill down a little in terms of the sustainable financing, the sustainability-linked loans and bonds, the SLLs and SLBs, to the oil and gas companies that RBC is employing. How do those funds work, and how are you measuring success toward net zero using those funds?

[David McKay]

When you look at the whole emerging industry of sustainability-linked loans, this is a very important issue. It's an emerging category that investors have really focused on quite significantly globally.

Each loan, each facility, is tailored to the individual issuer according to what sector they're in and what they're trying to achieve from a sustainability perspective. They have to articulate that. It's embedded in the overall prospectus and rules. Therefore, it's very important that one size does not fit all. This is a highly customized sector, and reporting is required as they go along. That becomes the issue for the companies that we help finance. It becomes their issue to report that clearly in their notes to their bank group and to the investors.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

That links to the disclosure, so that we could show the targets that they're working towards, that you're agreeing on through your financial instruments. I'm seeing a nodding head, so thank you for that.

I'm sorry to stay with you, but, because of some of the other questions, I'd like to clarify one or two things.

When we're looking at stability, we had the oil executives here last meeting or a few meetings ago, and they talked about the importance of stability in terms of the instruments that they're dealing with, either through the government or through financial institutes.

The Canadian banking industry is known for stability and regulations that are agreed on and publicly managed, I can also add, which is unusual for a banking industry in the world. When you look at the political pressures that we put on you of firing the Bank of Canada president, axing the tax or things that could have a real impact on Canadian businesses or businesses investing in Canada, how important is it for us to be as stable as you are?

[David McKay]

What a wonderful question.

Stability is the essence of investing—predictability. When you talk to the energy industry, when you talk to the manufacturing industry, when you talk to the EV battery industry, and when you talk to the banking industry, we're making long-term commitments. These aren't one-year commitments or two-year commitments. We make four-, five-, 10- and 20-year commitments; therefore, the predictability of the world we operate in is very, very important. The tax predictability, the operating, the rules, how stable are they? The government in Canada should take pride in its banking industry. We have the top banking industry in the world, and we have to protect that. It's so important to the prosperity of our economy.

[Lloyd Longfield, Liberal, Guelph, ON]

I think, in terms of the disclosure and what we're looking at working on together through taxonomy, you have branches in Texas and all over the States. They have a regime of taxonomy that we need to also look at so that, as we develop, capital doesn't flow out of the country.

You've just highlighted very clearly the role of governments, and I think maybe we have to take back the role of politicians and look in the mirror a bit so that we can help you reach some of that.

The pressure is that we just got a pipeline to the coast. The oil and gas companies are going to have better margins; they said that in their meeting. They could have the same profits without production escalating faster than their reductions in greenhouse gas emissions. When you look at the net-zero goals, is that something that could be considered, increasing profits being reinvested into greenhouse gas reductions?

[David McKay]

I'll leave that specific question to you, the energy and the role of government to play with each industry and understand the overall ecosystem you're trying to build.

We do have to get on with carbon emissions reduction. We have opportunities to invest in carbon sequestration and carbon capture that have to move through. There are projects that we're talking about that can have a big impact; therefore, I think that discussion goes hand in hand with the discussion you had. How do we finance that? There are different ways of financing—

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

We must now move on to the third round of questions.

Mr. Leslie, you have the floor for five minutes.

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

Thank you, Mr. Chair.

I'm going to pick on somebody different, because Mr. McKay has taken a lot. Maybe I'll look to BMO.

To make this simple for any Canadians watching, when a bank lends money to a project, to a company, they are, of course, considering risks, but they basically want to make sure they're going to get the loan repaid. Is that a simple way of saying how this money flows?

[Darryl White]

It's an important consideration, yes.

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

In your view, should Canadian energy projects be held to a different standard from that?

[Darryl White]

I don't think energy projects should be held to a different standard. We look at any project, whether it's energy or otherwise, through the lens of risk and return, to your point just a moment ago, Mr. Leslie.

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

After any of these banks are funding a project that has been approved by the federal government.... We've talked about predictability. Well, when cabinet decides that a pipeline that's been approved through the robust regulatory process this country has...that's not exactly predictable. I think the government needs to look itself in the mirror when it talks about predictability. At the end of the day, you are lending money to provide capital for a project that has been through a robust regulatory process. Does it seem unreasonable to have the government decide to impose additional red tape on you when you are simply funding a project that the government itself approved?