Thank you for the opportunity to meet with the committee this morning.
My remarks today focus on four policy insights from the Canadian Climate Institute's research and our work with the sustainable finance action council on developing a green transition taxonomy in Canada.
The first insight is that climate change and the global response to it is quickly transforming the fundamentals of economic competitiveness. The costs of climate change are increasing rapidly and already costing Canadian households billions of dollars. These costs will continue to rise as extreme weather events become more frequent and will be a drag on the financial system and economic growth.
At the same time, a combination of markets, technology and policy is accelerating the energy transition faster than what most experts thought possible even just a few years ago. Renewables such as wind and solar are being deployed faster and cheaper than any other source of electricity in history. Over 70 countries have now committed to net zero by mid-century, which covers over 90% of global GDP, 80% of global oil demand and 75% of global natural gas demand. All of these trends are reshaping what competitiveness means in the global economy.
The second insight is that the architecture of the global financial system is aligning with this new economic future through standards for climate-related disclosure, taxonomies and transition plans. On climate-related disclosures, countries representing more than half of global GDP have either adopted or are in the process of adopting the ISSB's standards. This includes the European Union, the United Kingdom, Japan, Australia and Brazil. Thirty countries have either adopted or are developing their own sustainable taxonomies. This list includes most of the G7 and G20 countries, plus many developing economies.
Efforts to standardize corporate transition plans for businesses and financial institutions are also well under way. The U.K.'s transition plan task force has set a gold standard for what credible transition plans look like, while the IFRS—the body responsible for setting global accounting standards—is now adopting this work in full. These developments are standardizing and improving information in capital markets, ensuring transition and physical risks from climate change get priced into how capital gets allocated. This helps reduce greenwashing and drives investments that are genuinely aligned with global climate goals, both of which help reduce systemic risk in Canada's financial system.
The third insight is that falling behind on these emerging global standards will compromise Canada's ability to attract capital. Transitioning Canada's economy to compete in the global energy transition requires an additional $80 billion to $115 billion annually. Most of this capital will need to come from the private sector and foreign investors in particular, given the relatively small size of Canada's economy. The U.S. Inflation Reduction Act is amplifying the competition for attracting these investment dollars.
These facts stress why it's imperative that Canada keep up with global standards in climate-related disclosure, transition plans and taxonomy. On one hand, investors and lenders looking for opportunities within Canada will expect the same level of high-quality and consistent rules set internationally. Without complete and comparable data, investors and lenders will underinvest due to this higher risk. On the other hand, Canadian multinationals are increasingly exposed to more stringent reporting and disclosure standards in other jurisdictions. A 2024 report by the Institute for Sustainable Finance found that over 1,300 Canada-based companies will be subject to the EU's new sustainability reporting standards.
The fourth and final insight is that strengthening Canada's financial architecture coupled with strong climate policy can improve the country's long-term competitiveness. So far, Canada has been slow to adopt global standards in all three areas and should accelerate these efforts. On disclosure, the Canadian sustainability standards board is in the process of adopting globally aligned disclosure standards, but it's facing pressure to weaken them. Canada has also been slow to develop a green transition taxonomy. The sustainable finance action council's 2023 “Taxonomy Roadmap Report” was supported by the country's 25 largest financial institutions. However, efforts to establish a national standardized taxonomy have yet to get under way.
Overall, maintaining and growing Canada's market share in the energy transition will hinge on its ability to attract capital. Matching or surpassing international standards will help the country get there. In fact, Canada is well positioned to take a global leadership role in these areas. The SFAC taxonomy road map provides the first sophisticated framework for labelling transition investments, designed to help Canada transition its existing emissions-intensive engines of growth. Done well, Canada could play an outsized role in promoting the adoption of this framework in other emissions-intensive economies. Having one of the ISSB offices located in Montreal also gives Canada a unique leadership platform and responsibility.
In addition to accelerating these foundational pieces of financial architecture, other key policies are important complements to improving Canada's long-term competitiveness. Among these, Canada's industrial carbon-pricing system is driving the bulk of emissions reductions in the Canadian economy, while also protecting the competitiveness of individual sectors and helping to attract low-carbon investment.
Thanks for the opportunity to discuss these important issues, and I look forward to your questions.