Environment Committee on Oct. 28th, 2024

[Keith Stewart]

I would share some of the frustration that has been expressed about voluntary programs that are asking people to do the right thing because it's the right thing to do. What companies respond to is profit, motivation and regulations—obeying the rules.

What we really need to do is have rules that shape the financial terrain in a way that we are actually investing in climate solutions. Is there a cost to taking action on climate change? Yes. Is there a cost to not taking action on climate change? Absolutely.

There are a variety of things that can be done under existing regulations. Some of my colleagues have put forward detailed proposals on ways in which requiring net-zero transition plans or climate transition plans for companies would help shape that. We have also suggested things like changing capital risk requirements and imposing double materiality.

There are a variety of tools that can be used by governments. We have examples in the EU and other places that we can look to, but we really have to align where the money is going with where we need to be to protect people. That's not happening right now, because of an obsession with short-term interests. It's government's job to take that longer-term perspective and help shape the field so that we're all pulling in the same direction, rather than pouring all of the money over here into things that are going to make the problem worse—fossil fuels—while the government is trying to offset it with its own spending.

We actually need to align private and public finance and things like the climate-aligned finance act or the climate transition plans that have been proposed. These are tools that can be used to bring those two together, move in the same direction and accelerate the energy transition that's going to protect us from those climate risks, and also protect our economy from what Professor de Arriba-Sellier said were the transition risks, one of which is the risk of falling oil demand in the world when oil's our number one export. If we don't surf that wave properly, we will get crushed.

Thank you.

[Shafqat Ali, Liberal, Brampton Centre, ON]

Thank you.

How much time do I have, Chair?

[The Chair, Liberal, Francis Scarpaleggia]

You have about 45 seconds.

[Shafqat Ali, Liberal, Brampton Centre, ON]

Can I pass it to Adam, please?

[Adam van Koeverden, Liberal, Milton, ON]

Thanks, Mr. Ali.

I have two really quick questions.

Dr. de Arriba-Sellier, to the best of your knowledge, is there currently a Canadian law or regulation mandating that big banks say they are net zero?

[Dr. Nathan de Arriba-Sellier]

No.

[Adam van Koeverden, Liberal, Milton, ON]

Okay, thank you.

RBC and TD—all the big banks—say that they will be and would like to be net zero.

Mr. Stewart, RBC is currently funding the oil sands to the tune of about $13.4 billion, and they have about $42 billion or $43 billion in fossil fuels financing. Is that compatible with a net-zero goal?

[The Chair, Liberal, Francis Scarpaleggia]

You have 10 seconds.

[Keith Stewart]

The short answer is no. Canadian banks are among the highest funders of fossil fuels in terms of their ratios, and we need to turn that around.

[The Chair, Liberal, Francis Scarpaleggia]

All right.

[Adam van Koeverden, Liberal, Milton, ON]

If they are saying one thing—

[The Chair, Liberal, Francis Scarpaleggia]

Mr. van Koeverden, your time is up.

Ms. Pauzé, go ahead.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Chair.

Thanks very much to all the witnesses for being here.

Mr. Stewart, my colleagues have already asked many questions that I would have liked to ask you.

So I'm going to ask you another question.

We know that Canadian banks have refused to divest from fossil fuels and that the Liberal government continues to provide them with billions of dollars in subsidies. We can't prevent the government from making promises about climate change, but can we prevent banks from continuing to invest in the sector that's responsible for the climate failure?

I would appreciate a brief answer because I have a lot of questions for Mr. Beaulieu.

[Keith Stewart]

I would just reiterate some of the points I made earlier. If we bring in rules that will shift that, that's the only way it's really going to shift.

We also have a cultural issue in Canada. The CIBC CEO likes to say that oil is the “family business” in Canada, and Canadian banks are really tightly aligned with our oil industry because it's a major export industry, and that also makes us uniquely vulnerable to the energy transition.

I'll stop there.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Stewart.

Mr. Beaulieu, I believe you're a greenwashing expert. We've discussed that at great length at previous meetings.

Could a taxonomy prevent oil and gas projects from being financed?

[Julien Beaulieu]

No. Not at all.

You may wonder why there's so much reluctance to adopt and incorporate it in regulatory obligations. It will prevent no one from investing in any economic sector whatever. Since a taxonomy is just a label, this just creates a label. Then you let the market decide where capital should be invested.

Do you want to invest capital in transition projects or green projects, or do you want to continue investing in conventional assets?

You have to stop thinking that a taxonomy—

[Monique Pauzé, Bloc, Repentigny, QC]

You mustn't think it's going to solve everything.

[Julien Beaulieu]

Yes. This has potential, and it has positive impacts because it clarifies the ground rules.

It actually solves two problems, one of which is a coordination issue. Professor Damodaran discussed it. This causes people to use the same words and definitions, which isn't currently the case. As a result, when you refer to a green project, you understand what that means, and the same is true when you refer to a taxonomy. This can solve disclosure-related information problems by requiring people to disclose the degree to which they're aligned with the taxonomy's objectives.

However, that doesn't prevent the financing of certain activities.

[Monique Pauzé, Bloc, Repentigny, QC]

Can it even encourage greenwashing?

[Julien Beaulieu]

It can encourage greenwashing if the Canadian government adopts an official definition stating that a certain project is green when the science says it's something else. That would cause credibility issues for any taxonomy that would endorse certain activities that aren't green or subject to a consensus.

You can afford to err on the side of caution in this field, even knowing that you won't be preventing financing for activities that are neither green nor transitional. At least you won't be labelling them as such or affording businesses the additional benefit of a “green bonus” associated with a green bond, for example.

[Monique Pauzé, Bloc, Repentigny, QC]

In other meetings that we've held on this subject, many people have told us that Canada doesn't yet have a taxonomy, whereas there are taxonomies virtually all around the world—I'm exaggerating slightly—and Canada is therefore a real laggard in that regard.

Since they exist elsewhere, my colleague Mr. van Koeverden suggested that we do the same to save time, but we've decided to create a committee that won't be struck for another year, even though it seems to me we're facing a climate emergency.

Is there some way we can ensure this frame of reference is put into practice soon?

[Julien Beaulieu]

Yes. As one of my colleagues said, if we create a committee to strike a committee that ultimately adopts something, that could take time, and the framework might not see the light of day or might not be used. That's the problem. We can't create a dictionary that winds up on a shelf, but want a dictionary that will be used by people, investors and financial institutions. A taxonomy that isn't used is utterly useless.

One way to make it useful is to include it in the accountabilities and targets. Many Crown corporations have responsible investment objectives and are required to invest a certain portion of their capital in certain activities. Let's include that in their accountabilities and investment mandate.

There will be accountabilities for federally regulated corporations. Consequently, let's ensure they also disclose the percentage of their assets that meets the taxonomy's criteria. That'll give the taxonomy more teeth.

[Monique Pauzé, Bloc, Repentigny, QC]

So that'll be the case across government.

Bill C-59 concerning the Competition Act was passed in June. Do you think it's strong enough to combat greenwashing?

[Julien Beaulieu]

No, it isn't, for two reasons.

First, it applies solely to voluntary disclosures. If a company voluntarily decides to state that it's green or sustainable or that it meets environmental, social and governance criteria, or whatever, it will have to prove that. However, if a business decides to report nothing, then it provides no information that the market can rely on to make a decision. Consequently, that doesn't solve the information asymmetry problem.

Second, companies are required to provide evidence whenever they state something, such as when they claim that they're green, but they aren't required to disclose evidence to that effect. Imagine if my financial adviser told me tomorrow morning to invest in a product that met environmental, social and governance criteria, or in a sustainable product, and assured me I could do so confidently because those businesses were required under the act to prove that the products in question were green. If I asked him to show me proof of that, he might tell me he couldn't do it.

[Monique Pauzé, Bloc, Repentigny, QC]

I see.

Why are the voluntary disclosure initiatives not enough?