Environment Committee on Oct. 30th, 2024

[The Vice-Chair, Conservative, Dan Mazier]

Okay, go ahead, and let's see what happens here.

[Dr. Janis Sarra]

Okay.

There's nothing like a little tech problem to throw you off. I apologize; I haven't heard my co-witnesses as a result of that.

Honourable members, thank you for the opportunity to appear before the Standing Committee on Environment and Sustainable Development.

I'm a professor of law emerita at the University of British Columbia, and I'm principal co-investigator of the Canada Climate Law Initiative, or CCLI. It's a collaboration of the law faculties of UBC and York University that analyzes the legal obligations of corporate directors and pension fiduciaries to manage climate-related risks and opportunities.

We publish sector guidance working closely with national industry organizations, for example in real estate and mining, etc. We have 70 Canadian climate governance experts, who comprise CEOs, accountants, actuaries, lawyers and others, who volunteer their time to give presentations to corporate boards on effective climate governance.

The importance of this committee's work, I think, cannot be overstated. You've already heard evidence about the devastating economic impacts of climate change, including that, last year alone, climate-related events in communities across Canada cost more than $3.5 billion in insured damage. Ensuring that we have the policies to mitigate future harms and transition to a more sustainable economy is something that I think we can all agree on, regardless of political affiliation.

First, the CCLI applauds the Office of the Superintendent of Financial Institutions, OSFI, for its guideline B-15 on climate risk management. It sets out key governance requirements for more than 400 federally regulated financial institutions. This guidance, which was undertaken after extensive consultation with the financial sector, sets the benchmark for what federal policy could achieve, and that is creating transparency, integrity and certainty in the financial system.

CCLI believes that three additional federal policies are necessary to protect the Canadian economy.

The first is to amend the Canada Business Corporations Act, CBCA, and/or its regulations. Since we submitted our opening statement, of course, there's been an announcement that the government will move forward to enact legislation to require the largest Canadian companies to disclose climate plans.

For us, what's really important is to make sure that financial statements include a transition plan to reach Canada's climate goals no later than 2050, with five-year targets for emissions reductions and annual reporting of progress. Disclosure of transition plans is what will equip investors with the information they need to finance such a decision at the speed and the scale required—and you've heard some of that today—ensuring that we remain competitive in the global economy.

Just as an example, if we applied it to the largest 1,102 companies that have an average income of $389 million annually and average assets of almost $1.5 trillion, and then, a year later, to another 6,000-plus companies, we would shift the Canadian economy, but we would leave untouched 98% of all businesses. In other words, we're not trying to suggest a burden on small businesses or micro-businesses, but rather that the big players, who really do move our economy, need to have a plan in place.

The second policy change would be to amend the pension benefits standards regulation and to require that plan administrators, under their current obligations, have a written statement of investment policies and procedures, or SIPPs, as they're affectionately known, to determine how their climate resilience policies pertain to the plan's portfolio of investments and loans. They already have a fiduciary duty to invest the pension funds' assets prudently and impartially and balance intergenerational interests—people my age and my grandchildren coming forward—in determining both short- and long-term investments. It's really important, though, that they be required to put their minds to this, and this policy change would be very significant.

The third is to press for a rapid development of Canada's green and transition finance taxonomy. It's important to remember that this is a classification system. This is not a standard that's being imposed. Rather, it identifies, as 40 other countries have already done, what will constitute green finance and transition finance. An estimated $115 billion annually is required for Canada's low-carbon transition, and a science-based taxonomy will create the market integrity, clarity and interoperability, globally, necessary to accelerate global capital to come and invest in Canada's businesses.

Investors are already looking for investment opportunities, and Canada offers resources and expertise in critical minerals, clean tech and a host of other areas that are sustainable. However, without a common classification system for investing in that transition, capital will definitely flow to other jurisdictions that are ahead of us in adopting it. More than 26 Canadian financial institutions have already endorsed the sustainable finance action council's road map, and it's important now to get that council in place before the end of the year so that they can do their work.

With those comments, I'll leave you for the discussion.

Thank you.

[The Vice-Chair, Conservative, Dan Mazier]

Thank you, Dr. Sarra.

We'll start with the first round for six minutes.

Mr. Kram.

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

Thank you very much, Mr. Chair.

Thank you to all the witnesses for being here today.

My questions will be for Mr. Guénette, from the CFIB.

Mr. Guénette, if I understood your opening statement correctly, even though this proposed taxonomy system would not directly impact small businesses, because it's being imposed on the financial system, there is still a great deal of potential to have negative impacts on small businesses. Is that correct?

[Jasmin Guénette]

Yes, it's correct. We are particularly concerned because some of these environmental standards would make it harder for SMEs, especially in some sectors like agriculture, to access funds, because they would have to do additional reporting, which would increase the amount of red tape and the cost associated with accounting and accessing funds with financial institutions.

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

What do the members of CFIB think about additional red tape, additional paperwork when you apply for a loan, additional disclosure forms and that sort of thing?

[Jasmin Guénette]

When we ask our members what is limiting their sales and growth, often the answer we get from small business owners across Canada, across sectors, is that the level of red tape and the level of taxes make it harder for them to keep their heads above water, especially in the current climate. Any policies that would directly or indirectly impact businesses by adding red tape or costs are not to be pursued, from the point of view of our members.

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

We have had quite a few witnesses at this committee study say that businesses are not doing enough to reduce their environmental impacts, and therefore the government needs to start imposing laws and regulations on small businesses. What do you think the membership of CFIB would think about that approach?

[Jasmin Guénette]

They would say that it's not fair to say this statement to a small business owner.

We have done a report on environmental policies. Last year, we released the report. Many of our members say that they care deeply about the environment and that they do everything they can to reduce their environmental footprint. However, it's not by adding red tape or costs to their operation that they would be able to continue what they are doing to reduce their environmental footprint.

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

I believe the report released last year that you referred to is called “Working Together: Developing Environmental Policy with Small Business in Mind”. Is that the report?

[Jasmin Guénette]

That's correct.

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

In this report, small businesses said that they have their own environmental priorities. Can you elaborate on what the environmental priorities are?

[Jasmin Guénette]

Yes, and I have the report with me. One is to increase recycling, for example. They want to make sure that they recycle as much as they can or reuse as much as they can. Renovating and reducing their electricity consumption, their energy bills, is another measure that they take to reduce their environmental footprint. There is reducing the usage of plastic and buying or renting equipment that is greener. These are the kinds of things that our members are saying they are doing to reduce the environmental footprint of their small businesses.

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

In this report, you identified that one of the major reasons that small businesses are reluctant to reduce their emissions is that they are uncertain if their efforts will make a meaningful impact. Do you feel that this proposed taxonomy system would do anything to alleviate that uncertainty?

[Jasmin Guénette]

I'm not sure that it would. We have to understand the reality for small business owners. They run small shops. They are taking care of everything from financing to marketing to HR. Many of them feel that, year after year, they just have to deal with additional red tape and costs, making it more difficult for them to have successful enterprises.

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

In the conclusion of this report, you state, “A small business lens should be applied to all environmental policies to ensure minimal impact on small businesses”. Do you feel that this should be the case with this proposed taxonomy system?

[Jasmin Guénette]

Yes.

[The Vice-Chair, Conservative, Dan Mazier]

That's perfect. Mr. Kram is out of time.

Mr. Longfield, you have six minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Mr. Chair.

I'd like to start my questions with Ms. Taylor. It's great to have a representative from a multinational that's involved in finance, because the harmonization globally is something that we've been looking at within this study.

You made a comment about the harmonization standards between private and public sectors. Could you elaborate on that harmonization between private and public sectors, and possibly on other harmonizations that we're facing?

[Heather Taylor]

The harmonization that I'm referring to is under financial reporting standards. Currently, the international standards, as well as the proposed Canadian standards, are all aligned to the private sector. What is going to be released tomorrow—as early as tomorrow—is specific standards that align to those, but they are actually adjusted and tweaked and cater to the public sector—to government, government entities, etc.

It is important that those two standards, in actual fact, are very consistent because, at the end of the day, if we consider who our stakeholders are, they are investors. Ultimately, it's about access to capital and the attraction of investments into Canada, attraction for governments or businesses, and to ensure that investors avoid confusion and that investors are privy to consistent language, information and data. It allows for increased comparability. That actually decreases risks, and that is why I was stating that I felt it was incredibly important that the harmonization be considered.

[Lloyd Longfield, Liberal, Guelph, ON]

That's great. Thank you for that.

I'd like to expand on that, and then I'll go to Dr. Sarra for the last part of my question.

When we look at programs we have around climate change pricing.... We have a carbon-pricing program within Canada, and there are other carbon-pricing programs globally that, in the international market, have consideration when we're looking at sustainability programs. If we get out of step with the international community with regard to that or these taxonomies, what's the risk that we're then transferring to capital markets?

[Heather Taylor]

I just want to clarify that taxonomies and standards are different. The taxonomies are the classifications of information. The standards are the frameworks and the guidelines as to how to report. Those standards, in actual fact, don't take into consideration political policy or what different jurisdictions are doing. It is really about trying to come up with the foundation of how information should be gathered and communicated to capital markets, and that is all to assess risk.

[Lloyd Longfield, Liberal, Guelph, ON]

However, it's within the language of a taxonomy. I understand that standards are different from taxonomy, but they both work together.

[Heather Taylor]

They do complement each other. The foundation starts with the taxonomy, and then standards evolve from that.

You're correct. The language is very important, and it is consistent, but the guidelines that we follow and that the international community is following are really around standards.

[Lloyd Longfield, Liberal, Guelph, ON]

Great, thank you.

We won't go back and forth on taxonomy, because they're also working on that, and Canada is quite involved with getting the international taxonomy straight.

Dr. Sarra, I was very interested in your comments around the Net-Zero Emissions Accountability Act and how accountability right now is on the public side but not as rigorously applied in the private sector in terms of audits and requirements to meet the goals of 2050. Could you expand on that? Am I reading you right on that?