Environment Committee on Oct. 30th, 2024

[Anne-Marie Hubert]

The answer is clearly no. Instead, we need to support the transition of our industries.

Our Canadian investors even managed to get gas included in the European taxonomy. You've seen the sustainable finance action council report. The Canadian investors who have inquired about the taxonomy want us to have a pathway to our 1.5°C target by sector that reflects the economic reality and to be able to support companies that are transitioning towards the targets. It's not a matter of doing it overnight, but rather over time. Replacing coal with gas now is positive. In 2030, we may have to move on to other things. However, there has to be a transition. We're not at all saying to ban oil and gas tomorrow morning.

[Adam van Koeverden, Liberal, Milton, ON]

Thank you.

[Anne-Marie Hubert]

Transition plans must be supported to hit the targets.

[Adam van Koeverden, Liberal, Milton, ON]

Thank you very much, Ms. Hubert.

Mr. Dubey, could I ask you the same question? Do you feel as though a taxonomy leading towards more information and better definitions for these types of things would halt production in the oil sands, or somewhere else?

[Akshay Dubey]

I'd say that, overall, providing information through things like disclosure is important for the investment community and the finance community, so they can look at the investments they're making.

Regarding the taxonomy, I think it really comes down to the details of that taxonomy and how much flexibility it provides so that solutions like ours aren't all put in the same bucket as things that may be viewed as the fossil fuel industry. It's about having that flexibility.

[Adam van Koeverden, Liberal, Milton, ON]

Thank you.

Do you think investors or people in the oil and gas sector should be concerned about criminality, as the Conservatives just suggested, with respect to having a clearly defined taxonomy?

[Akshay Dubey]

Again, I don't have the background on the bill that was brought up and the details behind it, so I can't answer that question.

[Adam van Koeverden, Liberal, Milton, ON]

Okay.

I have a couple of other questions for you about the oil sands.

We had the CEOs of the banks here, and the CEOs of a couple of the energy companies. I asked them about emissions intensity over the last 15 or 20 years, particularly for oil sands products. We saw that the oil and gas sector's emissions have gone up by about 11% or 12% since 2005. That's been driven by oil sands emissions intensity. That means per barrel of oil. I know you know this, but that is a lot more emissions. You mentioned that methane is a key driver of those emissions in the oil sands.

Do you think the industry and the companies operating in the oil sands region are likely to reduce their emissions intensity on their own, out of the goodness of their hearts, in the absence of a truly well-defined taxonomy, or will regulation and proper disclosure drive that transition?

[Akshay Dubey]

Yes, I watched the testimony from the oil sands CEOs who were here as well, and I think, similar to what they said, that having the right regulatory framework is key to driving those decisions. I think businesses need long-term stability to make the investments to decarbonize their own operations. Pathways Alliance is, obviously, something they have been talking about quite a bit, which has large carbon reduction claims. Similarly, we can also deliver a 5% to 10% carbon intensity reduction per oil sands site.

There are significant technologies that are available to these companies but, certainly, having the right incentives and regulatory framework would help move them ahead.

[Adam van Koeverden, Liberal, Milton, ON]

Thank you very much.

In an article here it says, “Regulation will complement existing suite of financial incentives on offer for oil and gas companies that invest in projects to reduce emissions”. At the same time, we see that emissions intensity has gone up and that Canada's oil sands have grown by 142%, largely driven by increased oil sands production, and that's, as it says, in the absence of regulation and a taxonomy. Is that your understanding?

[The Vice-Chair, Conservative, Dan Mazier]

Give a very short answer.

[Akshay Dubey]

Well, we certainly don't have a taxonomy in place, and those emissions have gone up, but I don't know if I would draw that direct link.

[The Vice-Chair, Conservative, Dan Mazier]

Thank you, Mr. van Koeverden.

Thank you to the witnesses for coming in.

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

On a point of order, Mr. Chair, I would like to offer an apology. When I was discussing Bill C-372, Charlie Angus's NDP bill, I said “prison”. However, upon reading the text, it's actually “a fine not exceeding $1,000,000 or...imprisonment” of under two years, which is technically a jail, not a prison. I'm sorry for being incorrect in my verbiage.

[The Vice-Chair, Conservative, Dan Mazier]

Thank you for clarifying that.

Thank you to the witnesses for coming out this afternoon.

We'll take a short recess to get ready for the next round.

[The Vice-Chair, Conservative, Dan Mazier]

Welcome back, everybody.

I call the meeting back to order.

We're going to start with Mr. Guénette for five minutes.

[Jasmin Guénette, Vice-President, National Affairs, Canadian Federation of Independent Business]

Good morning.

My name is Jasmin Guénette, and I am the vice-president of national affairs at the Canadian Federation of Independent Business, or CFIB.

I would like to thank the members of the committee for this kind invitation. I will deliver my opening remarks in French, but I will be able to answer questions in French and English.

The CFIB represents 97,000 business owners from all sectors of the economy across the country. Among our member businesses, 70% have nine or fewer employees, and 28% have between 10 and 49 employees.

Currently, the optimism index among Canadian entrepreneurs is very low. This is according to our monthly “Business Barometer” survey, which we have been using for a few decades now to assess optimism.

Not only is the optimism index low, but the majority of entrepreneurs would not recommend that Canadians start a business because of the very high operating costs, economic uncertainty and tax burden.

When we ask our members what factors are limiting their business's growth the most, a majority indicate that demand is not there. In other words, consumers are spending less.

When asked about the top costs putting pressure on their business, our members cite insurance, taxes and regulations and payroll taxes as the top three biggest costs.

It is important to note that borrowing costs have risen sharply in recent years. What's more, the proportion of financing requests from small and medium-sized businesses, or SMEs, has increased significantly over the years. It went from 35% to 58% between 2012 and 2022. In addition, the approval rate for these applications is 94% for medium-sized business owners, compared to only 77% for microbusiness owners.

When the Bank of Canada began raising its key interest rate to combat inflation, the share of small business owners struggling with borrowing costs jumped from 21% in January 2022 to 39% in May 2023.

To ensure the success of our entrepreneurs and our SMEs, public policies, such as environmental ones, must avoid increasing the regulatory, administrative, tax and financial burdens of our SMEs. If we force environmental, social and governance criteria on financial institutions or large businesses, they in turn could force them onto their clients, which could lead to higher costs for SMEs and make financing less accessible and more expensive.

We therefore ask parliamentarians not to impose new legislative provisions on SMEs that would increase their costs and red tape.

Thank you.

[The Vice-Chair, Conservative, Dan Mazier]

Thank you, Mr. Guénette.

Ms. Taylor, go ahead for five minutes.

[Heather Taylor, Partner, Climate Change and Sustainability Services, EY Canada]

Thank you, Mr. Chair.

I'd like to begin by acknowledging that I am in Toronto, which is the traditional territory of many nations, including the Mississaugas of the Credit, the Anishinabe, the Chippewa, the Haudenosaunee and the Wendat peoples, and is now home to many diverse first nations, Inuit, and Métis people.

Thank you for the opportunity to speak with committee members today and contribute to your study on environment and climate impacts related to the Canadian financial system.

I am an EY partner who is leading our sustainability work for all levels of government in Canada. I have a public sector experience that includes serving as the City of Toronto's chief financial officer, and as an assistant deputy minister and chief administrative officer in the Province of Ontario. I currently sit on the Canadian Public Sector Accounting Board, and I'm working with the International Public Sector Accounting Standards Board to help develop sustainability standards.

Many see environmental sustainability standards as a compliance exercise or a “nice to have”, but they are a powerful economic tool that is essential to grow Canadian companies and increase our productivity and international competitiveness. Over 20 countries, representing 55% of global GDP, including Canada, have announced timelines for alignment to these standards or are already using them as a basis for their own regulatory frameworks. In addition, the EU corporate sustainability reporting directive is reshaping how companies evaluate the risks and opportunities of environmental, social and governance issues. This impacts both European companies and companies with substantial economic interests in the region.

EY works with financial institutions across the globe to identify the sustainable business opportunities, to consistently and transparently engage with capital markets and to help them transition to the economy of the future.

The private and public sectors must work in lockstep to ensure that regulatory systems are aligned so that we can fully harness the power of this economic opportunity. We know that markets don't like uncertainty, and what we've seen is investors in capital markets driving the need for increased disclosures to help assess risks. We know with certainty that globally recognized and adopted financial standards have created a consistent language that has enabled a global marketplace.

Sustainability standards for both the public and the private sector are needed to create a similar platform that allows comparison of data and information. They provide clarity, help eliminate stakeholder confusion, and decrease uncertainty.

Over the last year, I have been working with some of the world's largest pension funds and asset managers. They are committed to invest in transition projects and seek jurisdictions that are committed to transition investment and sustainability disclosure. They also want the confidence that the investments will drive the intended outcomes. Sustainability standards are already being used by investors and banks to determine access to capital and cost of capital. It's a simple supply-and-demand issue. More capital supply leads to more affordable capital. A smaller access pool means less attractive rates and more expensive costs that put Canadian businesses at a disadvantage.

As jurisdictions around the world adopt sustainability standards more quickly than Canada does, they are demanding transition and risk disclosures. Canadian companies that participate in the disclosures will be more competitive from both a market share and a growth perspective. Companies that do not participate in disclosures run the risk of being unable to participate in supply chains. Canadian companies that export to jurisdictions that are further advanced in the adoption of sustainability disclosures are at risk of becoming ineligible for these business opportunities and losing market share.

In closing, the alignment of public and private sector sustainability standards is essential for the economy. It will increase comparability, decrease uncertainty, and increase access to capital at competitive rates. Sustainability disclosures are essential for the economy and also good for the environment. I recommend that Canada harmonize and adopt both the private and emerging public sector sustainability standards.

Thank you so much for the opportunity to appear today.

[The Vice-Chair, Conservative, Dan Mazier]

Thank you, Ms. Taylor.

Now we have Mr. Scott, for five minutes.

[Adam Scott, Executive Director, Shift Action for Pension Wealth and Planet Health]

Thank you very much for having me.

I'm Adam Scott, the executive director of Shift, a non-profit education and advocacy project focused on aligning Canada's financial sector with climate. I'm joining you from Toronto, the traditional territory of many first nations, including the Mississaugas of the Credit, Anishinabe, Chippewa, Haudenosaunee and Wendat peoples.

I'm a career climate expert with more than 20 years of experience working to solve this issue through research, policy and solutions. Along with many other colleagues who have provided testimony here, I was an author of a policy road map for a sustainable financial system in Canada.

I'll start with the bottom line, reflected by many other experts you've heard from: We simply cannot achieve Canada's climate obligations without new policy to align our financial system with science-based targets. The stability of our financial system and the long-term growth of our economy are very much at risk here.

This isn't just a moral argument. It is a financial one. As you will all appreciate as lawmakers, many of the most critical decisions that determine Canada's progress on climate aren't actually made by politicians. These decisions are made behind the closed doors of financial institutions and corporations in their day-to-day business. Wherever capital is allocated, money borrowed, debt issued and financial investment decisions made, that's often where the rubber hits the road on climate every single day in this country. How many everyday financial decisions are being made through the filter of a credible, science-based climate plan?

According to Oxford University's net-zero tracker, roughly two-thirds of Canada's largest corporations have made a commitment to net zero. However, that number is far lower when we look at the wider corporate sector. Unfortunately, even among companies and institutions that have made those commitments, they're rarely followed up with credible climate transition plans for achieving them. Every single day, financial decision-making in Canada largely continues with business as usual, financing climate failure and putting the stability of our entire financial system in danger.

Expert colleagues at these hearings have highlighted, in particular, the failure of Canada's largest banks to back up their net-zero commitments with credible climate plans, especially with the obvious requirement to end new finance for coal, gas and oil, while also directing adequate capital towards credible climate solutions.

At Shift, we focus on the climate plans of pensions, Canada's largest asset owners. As long-term buy-and-hold investors, pensions are acutely vulnerable to climate risks and stranded assets. While we're starting to see voluntary leadership and climate plans emerging among some pensions—proof that credible climate plans are real and very achievable—we also still see far too many pension plans, like the Canada pension plan, refusing to set interim targets, while continuing to make investments in fossil fuel expansion that directly bet against climate safety.

We are also troubled by obvious governance failures on climate, in particular the prevalence of directors cross-appointed to the boards of fossil fuel companies and financial institutions at the same time, creating the obvious potential for serious conflicts of interest when discussing this topic. This is an issue raised by others.

I hope that, by this stage in your study, you fully appreciate the dangers of climate failure for Canada and the economy. This is already causing damage to our economy, the global economy and our ability to grow GDP. It is a headwind against GDP growth that, without action, will get worse every single year. Canadian financial institutions are highly exposed to stranded assets, which can lose value suddenly as the energy transition already under way continues to accelerate.

Thankfully, we have the tools available to modernize our financial regulations on climate. The first building blocks are under way—you've been talking about them already—and so is putting in place a credible green taxonomy that excludes fossil fuels from green or transition labelling. Greenwashing is already widespread in financial circles, and we can't allow new loopholes for that to continue.

Climate disclosure rules are also essential. It's very good to see first steps announced to amend the Canada Business Corporations Act for major companies to align with international climate reporting standards.

This trend will need to continue at full speed. Those baseline moves are not enough alone to align financial flows with climate safety.

Along with many other experts, I'd direct this study toward the need to adopt the measures found in the climate-aligned finance act, which, as we heard, is a detailed, ambitious and practical blueprint for moving past disclosure into regulating alignment directly through a variety of measures.

I'll remind you again that this is an unprecedented situation. The climate crisis continues to get worse, carrying with it complex and potentially cataclysmic financial risks. Our brittle and dated regulatory system is not fit in its current state to ensure that Canada's financial sector lives up to its reputation for stability and prudence.

I'll conclude by urging this committee to understand that the policy reforms that we're calling for should really be seen as inescapable, because they're ultimately required to protect the financial system and to meet our climate goals. The question, really, is when we will put them in place. Will it happen quickly enough?

Thanks very much.

[The Vice-Chair, Conservative, Dan Mazier]

Thank you, Mr. Scott.

Dr. Sarra, we're just going to do a little test with you. Maybe just say where you are so that the translators can see how the levels work.

[Dr. Janis Sarra, Professor of Law Emerita, Canada Climate Law Initiative]

Good afternoon. I'm tuning in from Bowen Island, British Columbia.

There's a very big echo.

[The Vice-Chair, Conservative, Dan Mazier]

You might have to put up with that.

How are things in translation?

Are you switched over to English on the interpretation part of it, on the app, Dr. Sarra? Down at the bottom is interpretation. You click on that.

[Dr. Janis Sarra]

Yes, I was on English, but they've had control of my computer for the last 20 minutes. The tech people have been trying to be helpful.

We had none of these troubles during the test.

Is it better now? Okay.

Well, if that's the hardest part of the afternoon....