Environment Committee on Sept. 23rd, 2024

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

Thank you.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Chair.

Thank you to our witnesses.

Based on this discussion we've been having this morning, I have some questions around the changes we might consider recommending to the Bank of Canada or to the Bank of Canada Act.

I'm going to start with Ms. Segal.

It's very interesting to see how Senator Galvez's BillS-243 is progressing through the Senate. They passed second reading over a year ago, looking at measures like the reporting requirements, the enforcement of targets with respect to commitments on climate, the additional capital adequacy requirements for banks, the appointment of persons with climate expertise on the boards of reporting entities and the establishment of climate alignment as a superseding duty for directors, officers or administrators of reporting entities. It's definitely not a status quo bill.

Could you comment on how we could possibly include the climate change taxonomy in the Bank of Canada's mandate to promote the economic and financial welfare of Canada, knowing that climate change is a real risk to our economic and financial welfare?

[Julie Segal]

Thank you, MP Longfield.

I'll start off by saying that I appreciate the end framing of taxonomy and the Bank of Canada. I think it's very important to look much broader. The taxonomy is one piece of policy that has gotten quite a bit of discussion, and the Bank of Canada is one financial regulator. I think, when looking at all of the pieces within the package of CAFA, including many that you mentioned, including transition plans and updating the mandates of regulators so that they can hold accountability and can evaluate risk on climate change, that much broader package of policies for coherent progress on climate-aligned finances is what I would encourage the committee to consider.

Regulators in Canada, including the main federal financial regulator, OSFI, and the Bank of Canada, have studied the significant risks of moving too slowly on climate transition. They've highlighted that billions of dollars are at risk of vanishing, essentially, of being lost in the financial institution if they move too slowly on climate change and if the policy environment moves too slowly on climate change.

In moving forward with climate-related financial policies, like transition plans, like all of those mentioned and the other ones mentioned in CAFA, it's very important to create lines of accountability. To ensure the effectiveness of policy and regulation, you need oversight on those, just like in any other policy. That's why modernizing the mandates of financial regulators is such an important piece.

I'll highlight that other jurisdictions have moved forward with that as a core part of not just their climate strategy but also their financial strategy. The European Union, as part of their green deal, introduced a package of climate-related financial policies, including clarifying the roles of regulators to oversee the new climate-related policies they're putting forward.

[Lloyd Longfield, Liberal, Guelph, ON]

Right. I was the Canadian managing director of a European company. This was back in the 1990s, when we had to report, at that time, on our sustainability efforts. We had to show and had to track our movement of waste and how we were recycling, how we were reducing water. Europe seems to have been at this game a lot longer than us. By our delaying, we could actually be at a financial risk if they start back-charging us. If, for instance, we remove the price on pollution, they're going to say, “That's fine, but we are going to put that into a levy, and you will be paying a price on pollution either before or after you're shipping goods.”

Could you comment on how important it is for us to make sure that our taxonomy is to the global standard but that our implementation is at the global speed?

[Julie Segal]

From a business perspective, investors want certainty. Canada being recognized as a low-regulation jurisdiction on sustainable finance creates a competitive risk. It's not attractive for international investment to have policy waffling or policy being behind where other jurisdictions are.

[Lloyd Longfield, Liberal, Guelph, ON]

If I could hold on to that thought half a second, businesses in Canada are having to conform to the European standards already, and government is not keeping up with the pace of business. That's a concern to me as a former business person; the government is going too slow. It would be putting my business at risk because we are going too slow when we're competing in a global market. Do you have any comments on that?

[Julie Segal]

Over 1,300 Canadian companies are already subject to European disclosure regulations on sustainability. This creates unnecessary asymmetry in the market so that it's only the larger companies that are subject to those EU regulations and, in fact, have the benefit of thinking, in terms of their business strategy, about what global investors are expecting to see. Canada should be stepping forward to meet that global standard.

Similarly, California has policies that will likely affect a number of Canadian companies. Having that asymmetry doesn't make sense. Canada should move forward with policies on its own.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you very much.

Ms. Pauzé, it's your turn for six minutes

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Chair.

Mr. Gransaull, your organization defines itself as an NPO run by young Canadians. You aim to contribute to the leadership development of the next generation. I think that's a fine mission, and I applaud it. In particular, you are training these people to design the economy in a way that better serves human and ecological well-being.

Last June, we hosted CEOs from major banks and oil companies. On that occasion, Mr. Kruger, from the oil sector, told us that the idea that “the prosperity of the oil and gas industry comes at the expense of the planet” was a myth. According to him, “it's not true”.

I'd like to reiterate one of the problems that was mentioned, and it kind of ties in with a question posed by my colleague Mr. Longfield. When there is no scientific expertise on boards of directors, for example those of financial organizations, there is a lack of data when it comes to finding suitable solutions for investments supporting the transition. In fact, you gave a few examples of misinformation earlier on.

Given the mission that your organization pursues, what do you think of the statement made by Mr. Kruger, CEO of the Suncor company?

[Gareth Gransaull]

Thank you so much, Madame Pauzé, for the question.

I believe the statement by Rich Kruger is an intentionally misleading one. To the extent that oil and gas companies are misaligned with the recommendations of the International Energy Agency on science-aligned 1.5°C pathways in which no fossil fuel developments are to be sanctioned after 2021, it is very obvious that they are pursuing short-term profit at the expense of the health of the environment.

The interesting thing is that this exact kind of trade-off is something that oil and gas executives are very aware of. Imperial Oil did modelling in the 1990s in documents, which have now been made public, regarding the economy-wide effects of a national carbon price. This information is available in reporting by Geoff Dembicki in his recent book, The Petroleum Papers.

The results of the modelling that Imperial Oil did found that, while a national carbon price would raise the overall national GDP in the long term by stimulating the development of new sectors, it would actually reduce Imperial Oil's profits directly for the business lines it was currently in business for. It then decided to spend the next few decades lobbying against robust climate policy, which is why we're in the situation we're in now—in addition to the behaviour of many other companies in that regard.

[Monique Pauzé, Bloc, Repentigny, QC]

I'll stop you there. Indeed, you did a study on this subject, entitled “Re-thinking Climate Economics”. What I gather from your answer is that, for these people, profit is the only thing that counts. They care very little about the environment. Basically, they don't care about the costs of climate change. It would therefore be important for the boards of these companies to include people with a deeper understanding of environmental issues.

Ms. Segal, the European Union directive on corporate sustainability reporting requires companies to report not only on the risks they face from climate change, but also on the material impact they have on environmental and social factors.

How would you characterize the gap between Canada's position and this European Union directive?

What effect could the establishment of a rigorous framework have on the follow-up to Canada's commitments in the context of the Paris Agreement?

[Julie Segal]

Thank you very much for the question, Ms. Pauzé. I'll answer in English.

The European Union has a perspective that considers both the risks and the impacts of the financial sector when it comes to climate change and sustainability. In Canada, we don't yet have a disclosure premise to even just get information to the market, let alone considerations of how investments affect the environment and climate change.

To some of the earlier discussions today, I'll highlight that, in fact, disclosures do not necessarily affect financial flows one way or the other. They provide information. They're in fact quite benign.

What the European Union does further, and what I encourage for consideration in Canada, is to have policies that look at the actions and impacts of financial flows in advancing what you were highlighting, Madame Pauzé, as a concept of the double materiality of financial flows. Finance does have real impacts on the worsening of climate change or resilience to it.

[Monique Pauzé, Bloc, Repentigny, QC]

In fact, I think Canada has been talking about sustainable finance for seven or eight years, as well as the taxonomy of finance, from which it is inseparable.

However, the European Union adopted an action plan for sustainable finance in 2018, three years after the Paris Agreement.

Do you have any idea what each of the years Canada fails to act on this issue represents?

[Julie Segal]

Thank you very much.

Canada is definitely taking too long to advance policies to align finances with climate.

I'd say that the costs of climate change continue to worsen every year, and the slower we move on implementing climate-aligned financial policy, the more those costs affect people across the country: $100 billion of just insured damages has been calculated over the past three years in Canada.

That is why I ended my comments by really encouraging not just progress on these policies but for the government to prioritize implementing that progress.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Ms. Collins.

[Laurel Collins, NDP, Victoria, BC]

Thank you, Mr. Chair.

Thank you to the witnesses for your testimony.

I want to start with Mr. Gransaull.

In response to something Mr. Dias said, in your comments you noted the importance of keeping LNG out of the taxonomy. Mr. Dias said that was surprising, given the U.S. is using LNG to drive down emissions.

Now, in January of this year, the U.S. announced a pause on LNG export permits, because their analysis is out of date and doesn't account for the greenhouse gas emissions. Can you talk a bit about why it's so important that we do not include fossil fuels—and, in particular, LNG—as part of the taxonomy and particularly why we would not want to label fossil fuels as sustainable?

[Gareth Gransaull]

Thank you, Ms. Collins, for that question.

First of all, there is a myriad of reasons why this is necessary, to the extent that.... Essentially, natural gas, for many reasons, has fugitive methane emissions that are not measured, so a lot of the claims that have been made—that natural gas is the reason why various jurisdictions have actually seen a significant decline in emissions—are oftentimes not accounting for the role of this other greenhouse gas, which is actually, in the short term, 81 times as powerful as carbon dioxide. That's a very important point.

Also , there is another point that's very important to raise. At this point, because of the long-term trajectory in the decline of prices in renewable energy in ways that have been entirely unpredicted by economists—as a result of rapid learning curves and technology adoption—we now know that renewable energy in a lot of places is cheaper than natural gas at this point, which undermines the long-term investment thesis for new LNG in a way that ultimately means that, a lot of the time, new LNG exports will actually displace demand for new renewable energy, particularly in Asia.

The other point about the cost curve that's necessary to know is that this also causes a risk of stranded assets for new LNG as an asset class in a way that is likely to cause significant financial effects in the future.

[Laurel Collins, NDP, Victoria, BC]

Ms. Segal, can you comment on the dangers of including LNG and fossil fuels as sustainable in the taxonomy?

[Julie Segal]

Thank you, MP Collins.

I would highlight the well-put points by colleagues from Carbon Tracker saying that transitioning away from fossil fuels is essential to keep warming to safer levels. Decarbonizing the process of that in fact creates an opportunity cost. As I said, I used to work in finance, and that concept of opportunity cost is fundamental, as is the sunk cost of throwing bad money after bad, which we should not be doing with this taxonomy.

I'll underline again this global perspective and agreement of transitioning away from fossil fuels. The United Nations Framework Convention on Climate Change, which includes just about 200 countries, agreed that we need to transition away from fossil fuels and increase renewable energy and energy efficiency. Just two days ago, the UN Summit of the Future reiterated those points about transitioning away from fossil fuels, scaling up renewable energy and increasing energy efficiency.

That trajectory is quite clear globally and Canada would be entirely remiss to move in a different direction. That's from a climate perspective. From an investment perspective, the credibility of a taxonomy would be incredibly hampered, to put it lightly, if it were to include fossil fuels. For both business and environmental reasons, artificially labelling fossil fuels—oil, gas or coal—as sustainable does not make sense.

[Laurel Collins, NDP, Victoria, BC]

We've heard from climate experts and environmental advocates that no taxonomy would be better than a taxonomy that includes fossil fuels as sustainable. Is that your opinion?

[Julie Segal]

A taxonomy that green-lights activities that are considered greenwashing would muddy the waters rather than clarify them—absolutely.

[Laurel Collins, NDP, Victoria, BC]

Thank you.

You talked a bit about transition plans. Can you tell the committee about how other countries are legally requiring transition plans and about the importance of ensuring that Canada doesn't continue to fall behind these other jurisdictions?

[Julie Segal]

The principal allies of Canada that have been moving forward with transition plan regulation include the United Kingdom, Australia and the European Union. They have regulated this in the EU through what's known as the corporate sustainability due diligence directive, in the U.K. through a landmark initiative called the transition plan task force and in Australia through a comprehensive sustainable finance road map.

All of these have started with very traditional financial regulation policies by requiring transition plans in disclosure. The new government in the United Kingdom has committed to requiring alignment with 1.5°C from those transition plans, so it's saying that you not only must have one but also need to have a credible one for climate action. That is recognized as the gold standard, the benchmark, of transition planning globally. Standard setters, globally, the ISSB, as it's known, has picked up that U.K. progress for transition plans, and it's only proliferating globally. It is happening through traditional financial policy mechanisms and being continuously strengthened, globally, even though Canada has not yet started and certainly should.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

We'll go to the second round. It will be the same thing as last time: a three-minute round.

Mr. Leslie.

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

Thank you.

Mr. Dias, I would like to start with you.

I appreciate the heavy dose of reality regarding how financial markets and companies work in this space.

Do you believe that companies taking a priority focus on ESG initiatives and shifting away from stakeholders is problematic? What are those actual impacts, in real terms?