Environment Committee on Nov. 18th, 2024

[Lindsey Walton]

Ultimately, it's for every business in the country.

Typically, you would start with the larger businesses, public businesses and large, private financial institutions. We're already seeing a number of these sorts of requirements come through OSFI right now.

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

Could you come up with an estimate of the total cost for a mandatory system for every business in the country?

[Lindsey Walton]

I don't have an estimate for that, but I think it's important to consider that cost. It's important to consider the cost of all potential scenarios. I don't think “business as usual” is an option to keep going the way we are, so the cost of being left behind—

[The Chair, Liberal, Francis Scarpaleggia]

Thank you. I'm sorry for interrupting you, but we've come up to the end of the time allotted.

We'll go now to Mr. Ali.

[Shafqat Ali, Liberal, Brampton Centre, ON]

Thank you to all the witnesses for being here today and appearing before the committee.

My question is for Mr. Schein. Earlier this month, the government announced its plan to reopen Canada's second Canadian-dollar-denominated green bond. Can you speak to how green bonds support the growth of the sustainable finance market?

[Anthony Schein]

I'm not an expert in the area of green bonds, but we certainly see them as an important part of the ecosystem. My remarks today focus primarily on the three pieces I mentioned, which are investing in the needed infrastructure, providing regulatory certainty and, of course, certainty around the future of the industrial carbon price.

Again, green bonds are an important part of the ecosystem. As the previous witnesses alluded to, this is going to be a multistrategy approach across the financial market system, as well as across provincial and federal governments, to help us achieve our Paris targets for 2030 and 2050.

[Shafqat Ali, Liberal, Brampton Centre, ON]

We're moving forward with the government's commitment to require climate disclosures from large, federally incorporated, private companies. Can you speak to the important role of climate disclosures in Canada's work toward a net-zero economy?

[Anthony Schein]

Absolutely. The announcement of the taxonomy last month is a critical step, and it's certainly one we're glad to welcome. It was announced during the Principles for Responsible Investment conference here in Toronto in October, and it was a well-timed announcement to highlight the important role of a taxonomy in bringing about the investments needed to help us achieve our Paris targets.

The taxonomy is critical in providing investors with consistent information to do an analysis of where their money needs to flow and to compare the relative risks and opportunities associated with different investment decisions in the green space.

There are a lot of obvious decisions to be made around the margins of what's clearly a very straightforward, low-carbon investment decision and, perhaps, one that might be riskier. However, the taxonomy is essential to help with all of the more complex decisions about the technical and other questions that are going to be quite complex to understand what the climate-related risks are.

It's an essential commitment to have that taxonomy.

[Shafqat Ali, Liberal, Brampton Centre, ON]

The taxonomy announcement included the creation of “Made-in-Canada sustainable investment guidelines”, which will identify green economic activities to help “accelerate the flow of private capital into sustainable activities across the Canadian economy”.

How do you see this measure affecting decision-making by investors, lenders and other stakeholders navigating the sustainable economy?

[Anthony Schein]

Again, this is an essential commitment to providing the certainty investors want in assessing the opportunities here in Canada. A taxonomy is a crucial commitment, along with the need for the underlying infrastructure and other areas of regulatory certainty that investors are looking for.

We need public action, but we also need significant private investment to help us achieve our 2030 and 2050 Paris goals, so the taxonomy will help investors who have set their own climate targets. Many large asset owners in Canada and around the world have set their own reduction targets, and they need to have consistent, clear information to assess whether or not they're on track as a pension plan or other asset owner that has said it will meet a particular reduction target by 2030. They need information to measure their progress against those goals, so it's a crucial commitment from this government.

[Shafqat Ali, Liberal, Brampton Centre, ON]

The largest banks have joined the Net-Zero Banking Alliance, a global initiative of banks committed to aligning their lending and investment portfolios with net-zero emissions by 2050.

Could you inform the committee what the goals of this alliance are? Can you expand on concrete measures banks have taken to meet this target? How are the banks held accountable for the commitments made through this alliance?

If you can't cover everything today, you can send it in writing.

[Anthony Schein]

Perhaps my colleague Lindsey would like to speak to that, but I'm happy to offer a couple of comments if you'd like me to. I don't know if I'm allowed to defer.

[Lindsey Walton]

Thanks, Anthony.

I can't speak to the Net-Zero Banking Alliance in particular, but I can note that for any of these types of aspirational pieces, we need to ensure that we're looking at the intention behind getting toward net zero. For example, are we looking at capital allocation? Are we looking at what lobbying is being done behind the scenes?

These sorts of indicators will definitely tell us if the banks, asset owners and various groups are actually going toward net zero.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Madame Pauzé.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Chair.

Thank you to the witnesses for joining us.

Ms. Chipot, you said that the Canadian Securities Administrators came to the same conclusions in their biennial report that your organization came to. It is interesting to hear that another organization confirmed what you found in your analysis.

Tell us, if you would, about the credibility of transition plans. How banks define what constitutes a credible transition plan and how they go about improving the credibility of those plans is part of the global strategy to reach net-zero emissions.

What are Canada's big banks missing in their transition plans?

What would make the plans truly credible?

[Alice Chipot]

Thank you for the question, Ms. Pauzé.

On the whole, a lot is missing from the transition plans. The full participation of large companies is necessary. Currently, we see a lack of clear criteria and targets. That means clear targets for absolute reduction and clear intensity targets for the medium and long term, as well as funding.

We also see a lack of engagement around ensuring that capital investment lines up with the effort to credibly limit the increase in global temperature to 1.5°C, as per the Paris agreement.

They also need to show how companies are going to diversify their business models to keep moving in that direction.

Any credible plan put forward by a business or a bank has to contain expectations and time frames that are clearly defined. The plan has to set out time limits and indicate when investment in highly polluting sectors will start decreasing.

As I mentioned, a strategy is also needed to implement a scale of sanctions, or penalties. The ultimate penalty would be for an institution to exclude a business from its portfolio if the business conducted activities that prevented it from firmly committing to reducing its carbon footprint or if its practices did not align with that goal.

Obviously, I could go on, but I will end on this point. Right now, the statements of financial institutions and the way they plan to ensure oversight vis-à-vis their business clients are not robust—

[Monique Pauzé, Bloc, Repentigny, QC]

I apologize for interrupting you, but I have other questions I'd like to ask. That said, I understand your recommendations.

Do you believe that Canadian banks should be more strictly regulated or can we trust them to align their transition plans with the Paris Accord?

[Alice Chipot]

Clearly, it will take regulations and the adoption of a mandatory process, because, right now, disclosure by industry stakeholders is insufficient. Indeed, disclosures are disparate, as I indicated, and they don't allow the meaningful comparison of practices. For now, this creative uncertainty favours banks and financial institutions.

[Monique Pauzé, Bloc, Repentigny, QC]

I really like the term “creative uncertainty”.

How do the transition plans of the five big Canadian banks rank in comparison to the other international institutions you've assessed?

[Alice Chipot]

Overall, Canadian banks aren't doing great, as you can see from this ranking. I would note, however, that our analysis of RBC demonstrated that the commitments made by that bank seemed more robust than those made by other banks.

We note that there continue to be commitments for development projects, including in the oil sands, which are contradictory to transition plans.

[Monique Pauzé, Bloc, Repentigny, QC]

You're familiar with Bill C‑243, moved by Senator Rosa Galvez.

In your opinion, should the government pass it? Is it a good model that could be used as a basis for regulating banks?

[Alice Chipot]

In my opinion, at present, it's the best tool we have available. The bill is the result of broad consultation. Over 120 organizations supported it. Approximately 60 academics stated that it was the right move, that it might seem ambitious, but that it was the way forward if we truly wanted to achieve the objective we'd set.

[Monique Pauzé, Bloc, Repentigny, QC]

Ms. Chipot, according to your report, how many banks actually have satisfactory transition plans aligned with the Paris Accord?

[Alice Chipot]

NatWest Bank is the only one with that has a credible transition plan, in our opinion. We felt that the disclosures, expectations and methodology provided were comprehensive enough for us to conclude that it was making a commitment. The other banks were falling a bit behind. I'm referring to Canadian banks.

We're talking about commitments and not actual practices here. However, even the commitments aren't ambitious enough.

[Monique Pauzé, Bloc, Repentigny, QC]

Is the problem related to disclosure?