Evidence of meeting #129 for Environment and Sustainable Development in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was banks.
A recording is available from Parliament.
Professor of Law Emerita, Canada Climate Law Initiative
I'm not sure. I apologize, because I didn't hear the other speakers, but I didn't refer to the net-zero act at all, so I'm not sure about your question. I'm sorry.
Liberal
Lloyd Longfield Liberal Guelph, ON
I made a translation error. You were talking about accountability and auditing every five years and making sure that you're on target—which is the basis of the Net-Zero Emissions Accountability Act, something this committee worked on.
I kind of jumped in mid-conversation for you. I'm sorry.
Professor of Law Emerita, Canada Climate Law Initiative
No, that's wonderful.
It's very similar, in the sense that, in order to have an effective climate transition plan to meet 2050 goals, there should be a stock-taking at least every five years that would ask if you have met the targets and if you are on track for interim targets. That should be part of climate transition plans.
Again, just to emphasize, what we're talking about are the largest corporations in Canada. According to the Forbes Global 2000 list from the summer of this year, 90% of the big companies in Canada by assets and profits are federally regulated.
Liberal
Lloyd Longfield Liberal Guelph, ON
Regulations would be matching, in terms of how we audit ourselves and how business would be audited, so that we match regulations.
Thank you very much.
Conservative
The Vice-Chair Conservative Dan Mazier
Thank you, Mr. Longfield.
Madame Pauzé, you have six minutes.
Bloc
Monique Pauzé Bloc Repentigny, QC
Good morning. I'd like to thank all the people who are here to help us move forward with this study, which isn't simple, but is extremely interesting and important.
Mr. Scott, in May 2024, Canada's National Observer published the results of an investigation into the overlap between bank directors and directors of fossil fuel companies. You yourself specialize in pension funds, among other things.
Can you explain in more detail how having the same people appointed to both the board of directors of a fossil fuel company and the board of a pension fund can create a conflict of interest?
Executive Director, Shift Action for Pension Wealth and Planet Health
Thank you for the question. It's an important one, and it's one we're seeing as a real challenge to governance for large financial institutions in Canada, which are trying to make difficult decisions internally about how to change the way they're operating in light of addressing the climate crisis.
It's a particular blind spot when you have somebody who's appointed as a director for a fossil fuel producer. They have a legal responsibility to the shareholders of that company to maximize profit for that company. If they're sitting simultaneously on the board of, say, a public sector pension fund, which we see in a number of cases right now, the expectation is that in discussions about whether or not the fund is going to adopt net-zero plans, or if they're discussing investment screens, phase-out strategies or any of the subtle details around administering a climate plan, they're likely in a conflict of interest situation and should be recusing themselves.
We don't know if they are stepping out, because board minutes are—
Executive Director, Shift Action for Pension Wealth and Planet Health
Yes. A good example would be PSP, the pension provider for federal public employees. They have Miranda Hubbs, who is simultaneously on the board of Imperial Oil. That pension fund has yet to adopt a net-zero target, which is quite surprising in 2024 for an institution of that scale and size. We really do wonder what governance problems exist there, and if this is maybe a factor.
Bloc
Monique Pauzé Bloc Repentigny, QC
When it comes to climate policy, how do Canadian pension plans compare to their international peers?
Executive Director, Shift Action for Pension Wealth and Planet Health
Canadian pension plans, while we do have some that are leading on climate and that have moved quite far, are still overall lagging behind the leading funds around the world. We're nowhere near the top list of funds. In our own work, we've examined the climate performance of pension funds in Europe, the Netherlands, the U.K., France and the United States. They all have much more ambitious and detailed climate plans, as well as clear fossil fuel finance exclusions going forward. We've seen Canada falling behind generally, perhaps with a few exceptions.
Canada is not leading in any way. We have quite a few pension plans that have not even adopted the full climate commitments, and a number of pension plans that have not adopted credible climate plans to back those up and to achieve them.
Bloc
Monique Pauzé Bloc Repentigny, QC
I want to come back to the issue of directors.
When it comes to pension funds, for example, since that's your field, are there directors who are knowledgeable about climate-related issues and who could speak out more often to influence their organization?
Executive Director, Shift Action for Pension Wealth and Planet Health
If I've heard the question right, the answer is yes. One thing that's definitely needed in this area generally is to make sure that governance is fit for purpose. The climate crisis represents an existential crisis globally and a very acute financial risk for institutions of this kind. Having some real climate expertise on boards is an essential requirement.
As well, I know that organizations like the Canada Climate Law Initiative have been offering training for all directors to have a baseline knowledge of climate risk. This is something that we're seeing an increasing number of institutions make a requirement, saying that this is one of the board competencies they would like to see, but this is something that can be improved upon through a regulatory [Technical difficulty—Editor] sure that these institutions have the expertise they need to thrive in the current environment.
Bloc
Monique Pauzé Bloc Repentigny, QC
Earlier, I referred to what is being done elsewhere in the world. We know that carbon tariffs have been put in place in France and the United Kingdom. Are you looking at that kind of thing? Are you concerned?
Executive Director, Shift Action for Pension Wealth and Planet Health
It doesn't worry me. It's always been an understanding in the international climate governance world that climate will be enforced through trade in many ways. If a country wants to take reducing emissions seriously, and it puts policies in place domestically, as we've seen in many countries in Europe, it's very logical that they would try to prevent other countries from selling into their market with higher-polluting goods. That makes a lot of sense. We see it in our work with large institutional investors and asset owners. They have offices in Europe, the U.K., Asia and all of these places, and active investments across the global economy. They're already dealing with having to keep track of the completely disparate climate policies that exist around the world.
The comments from Ms. Taylor are well understood: harmonization as much as possible. The standardization of policy is incredibly helpful to make sure that we're actually able to navigate that difficulty. You have jurisdictions that are moving quite quickly. Europe is moving on financial policy and on climate in a number of different areas quite dramatically faster than Canada is. This is an area we're following—
Conservative
Executive Director, Shift Action for Pension Wealth and Planet Health
That's okay.
Conservative
The Vice-Chair Conservative Dan Mazier
Thank you, Madame Pauzé.
Mr. Bachrach, welcome. You have six minutes.
Taylor Bachrach NDP Skeena—Bulkley Valley, BC
Thank you very much, Mr. Chair.
Thanks to the committee for allowing me to come back and sit in for my colleague Ms. Collins.
I have some some questions for Mr. Scott.
The taxonomy has been mentioned several times. I understand that the government has announced its framework, but not the taxonomy itself yet. It's long overdue. Based on the framework that has been released, I wonder if I could get your thoughts, and perhaps Dr. Sarra's thoughts, on what the strengths and weaknesses of the framework are.
Executive Director, Shift Action for Pension Wealth and Planet Health
We're strongly supportive of the taxonomy overall. It's an incredibly important and essential tool. The provisions in the “green” part of the label that have been discussed so far, the sort of rough framework, are fairly uncontroversial and aligned well with international standards. I think we're all wondering why it hasn't been implemented yet. It's quite late in the game. We have been having these discussions for some time.
The controversial part of the taxonomy is around trying to insert a transition label. This is still an ongoing area of disagreement among experts. In principle, the idea of transition assets makes a lot of sense. Being able to finance high-carbon companies through the transition is something that we absolutely need to do, and there's a lot more work to do there. However, there's still a risk that we're also going to be allowing inappropriate activities that are not aligned with a science-based transition to receive that label, and that's where there's still quite a bit of controversy and discussion to be had. It's a fairly technical discussion, but fundamentally it comes down to the question of whether the activity aligns with an actual science-based transition on pace to zero emissions. I think that's where we're still having some discussion on the margins.
Overall, I think this is a really important thing, and I'm really glad to see that the process is going forward to get into the details and get it enacted.
NDP
Taylor Bachrach NDP Skeena—Bulkley Valley, BC
Thank you.
Dr. Sarra, do you want to comment briefly on the taxonomy framework?
Professor of Law Emerita, Canada Climate Law Initiative
Yes. We're very supportive of the framework itself. I think what's critical now is that the proposed council that would actually make these decisions around “green” and “transition” needs to be put in place, and it needs to include some provincial/federal advisory—in other words, a big tent approach. It needs the scientists, the financial community and civil society to participate, and it needs to do it very expeditiously.
The kinds of issues that Adam just referred to need to be done based on science, based on fulsome discussion—and quickly. That's where I think my concern would be, to just move more quickly. We don't have the beginning yet. We just have the principles and the road map, which are good, but we need to move forward.
NDP
Taylor Bachrach NDP Skeena—Bulkley Valley, BC
Shifting to Mr. Scott—pardon the pun—your “2023 Canadian Pension Climate Report Card” highlighted that even the most climate-aligned pensions in Canada are still lagging far behind many of our international peers, including the United States. Why do you think Canada is lagging so far behind when it comes to these pension funds?
Executive Director, Shift Action for Pension Wealth and Planet Health
It's a tough conversation to have in Canada. When you make a net-zero commitment, you're committing to a science-based pathway. It's not just whatever you think that means; it has concrete definitions. There are international experts who have clearly defined what's required for a net-zero commitment from a financial institution to be credible, and that's what we've been assessing for large financial institutions in our work at Shift.
One of the key provisions in there is to stop financing the cause of the climate crisis, which is fossil fuels. That piece has been very challenging in Canada, obviously, because of our entanglement with the oil and gas industry.
It's a challenging discussion to have. It's not meant to be punitive to any individuals, but it's the harsh reality of what climate action requires. That's what's really holding back a lot of Canadians and institutions.
NDP
Taylor Bachrach NDP Skeena—Bulkley Valley, BC
Recently, the Ontario Municipal Employees Retirement System and the Healthcare of Ontario Pension Plan released climate strategies. What do these strategies look like?