Environment Committee on Nov. 18th, 2024

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Neither of these means that people cannot invest in activities that may increase our emissions or increase pollution. I mean, people are still able to do that. Companies do not have to conform to taxonomy. The disclosure is just disclosing what they're doing. It's not telling them they can't do something. Is that correct?

[Clifton Lee-Sing]

That is correct. In the short term, these emissions-intensive activities, which often have large profits, will continue to drive investment into them. Over the long term, however, as there is more energy transition, the hope is that the investment community will start to look more negatively on certain types of activities and not provide that supply of funding to those particular sectors.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

We heard concerns raised that what we put in place would be effective, that it would actually work. Some of these taxonomies have been put in place in other countries, such as, obviously, the EU, the U.K. and Australia.

Have the government and the private sector that's been working on these standards been looking at what has worked in other jurisdictions, in other countries, as they're putting this together?

[Clifton Lee-Sing]

We have thought about that and have looked at other jurisdictions. The EU is probably the best example, because its taxonomy has been in place for roughly four years. However, there is no evidence to date to demonstrate that having the taxonomy has positively influenced capital flows. This is in part because the EU taxonomy is used as a regulatory measure for financial institutions to disclose their various types of activities, whether green, transition or not. The reduction in emissions isn't necessarily what is being measured, or it hasn't necessarily been measured yet.

In other jurisdictions.... We often look at Australia because it has a similar type of economy. It just started working on its taxonomy. It has a few sectors announced, but it's a bit early to demonstrate progress there.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

In the EU, it sounds like it's the taxonomy and the disclosure combined in what the EU has done.

We do want this to be effective. In addition to taxonomy and the disclosure requirements, what else do you think will help drive private sector investment into some of the parts of the economy that would be considered green or transition?

[The Chair, Liberal, Francis Scarpaleggia]

That's a big question. Unfortunately, our time is up. I'm sure the answer will come through, maybe in response to another question.

Ms. Pauzé, over to you.

[Monique Pauzé, Bloc, Repentigny, QC]

You're right, that is a good question, but I will focus on mine.

Mr. Delorme, who was a senior official at the Department of Finance for over 20 years, appeared before the committee. He explained that, based on his experience, he was convinced that the government should legislate more stringently to regulate the financial sector. He said that “private short-term objectives take precedence over longer-term objectives that focus on the common good, such as climate or population aging.”

He talked about intergenerational fairness and added that the public good objectives won't be achieved if banks regulate themselves. We can't just offer them guidelines or suggestions. We need to require banks to have plans, to twist their arms.

The Department of Finance sees all that, along with the daily practices of Canadian banks in the markets. Has it started developing actual public policy and real legislation?

[Clifton Lee-Sing]

Thank you for the question.

I'm going to speak in English so that I can be clearer.

In my view, the taxonomy and disclosure, as I mentioned, are foundational elements to help with information flow and decision-making. What is required to adjust the mindsets of the real economy that work through the financial sector as intermediaries is to have climate policies in place to help direct that decision. It's a bit different from the sustainable investment initiatives that I'm talking about today.

That said, OSFI, which is responsible for regulating the federal financial institutions, does have guideline B-15. That requires the financial institutions to manage risks related to climate and to report and disclose on that, but that really doesn't drive economic decisions on who those FIs are going to finance. It's really about credential management.

[Monique Pauzé, Bloc, Repentigny, QC]

I'm sorry for interrupting, Mr. Lee‑Sing.

We're talking about disclosure and taxonomy. If we include fossil fuel by-products such as liquefied natural gas in the taxonomy, we won't make progress. If the disclosures are voluntary, we won't make progress either.

Climate change poses a risk to Canada's financial system. In addition, according to the Centre québécois du droit de l'environnement, there is a significant risk of greenwashing.

Have the Department of Finance and the Department of the Environment called for disclosure rules to be developed to make things clear for citizens, businesses and consumers who want to make investment choices? That way, they would have access to essential information about effects on the climate and biodiversity.

My question is for Mr. Barbe and Mr. Lee‑Sing.

[Clifton Lee-Sing]

To be clear, are you asking about the disclosure of the financial institutions or the broader sector, including the users of a taxonomy?

[Monique Pauzé, Bloc, Repentigny, QC]

What are your requirements for the banks? Do they have clear disclosure rules in place? The goal is to enable the average person to make informed investments. They should be able to get essential information about climate change-related risks to the environment and biodiversity.

[Clifton Lee-Sing]

My understanding is that OSFI has required financial institutions and other federally regulated institutions to mandatorily disclose on climate risks. They use internationally accepted frameworks.

It is my understanding that as the Canadian Sustainability Standards Board comes out with new disclosure requirements, OSFI will take a look at them to see how they could be applicable to FIs.

Those are standardized ways of reporting internationally, which will be brought to FIs.

[Monique Pauzé, Bloc, Repentigny, QC]

Last week, I believe, the Canadian Securities Administrators published their biennial report. Their conclusion was that Canadian banks' climate plans and transition plans were woefully inadequate.

Some government agencies were in agreement. You are saying that banks are required to disclose essential information, but that it is not enough.

In that case, what should be done?

[Nicolas Barbe]

As my colleague Mr. Lee‑Sing mentioned earlier, the taxonomy and disclosure rules have not yet been drafted. We don't know what the taxonomy will ultimately look like. Mr. Lee‑Sing also said that there was a process under way and that it will take a little time to come up with definitions and standards. There's a void right now, but it's going to be filled—

[The Chair, Liberal, Francis Scarpaleggia]

Mr. Barbe, if I understand correctly, financial institutions are required to show a certain amount of transparency, but each institution does so in its own way. You are trying to apply the same rules in the same way across the board.

Is that correct?

[Nicolas Barbe]

Yes, that's right. Financial disclosures will create a minimum threshold based on—

[The Chair, Liberal, Francis Scarpaleggia]

Okay.

For now, everyone has pretty much their own way of doing things. The banks obviously follow certain principles, but as I understand it, they are not very well defined.

Ms. Collins, you now have the floor.

[Laurel Collins, NDP, Victoria, BC]

Thank you, Mr. Chair.

I want to thank the witnesses for being here.

I have a number of questions about the taxonomy, pensions, disclosures and transition plans, but I want to maybe start off....

Mr. Barbe, you said something in your response to one of the other questions that may have been lost in translation, and I just wanted to double-check.

Did you say that you think we are on track to meet our targets?

[Nicolas Barbe]

Yes, that's correct. I mean, there's still a small gap that I mentioned.

[Laurel Collins, NDP, Victoria, BC]

This is one of the things that I think undermines Canadians' trust in government.

I just want to quickly read for you the first lines of the environment commissioner's report: “Implementation of measures in the 2030 Emissions Reduction Plan remains insufficient to meet Canada's target of reducing greenhouse gas emissions by 40% to 45% below 2005 levels by 2030.”

The environment commissioner is very clear. We are not on track to meet our targets. We've heard this again and again from Liberal politicians. It's deeply concerning to me to hear officials also saying that line that we are on track to meet our targets, when report after report shows that we are not on track.

In fact, we must make up what you call a “small gap” but what is a significant gap between what we are currently headed toward and what we need to get to if we want to meet our international obligations and really do our part in contributing to a climate-safe future.

[Nicolas Barbe]

I don't feel comfortable talking about that side of it.

As I mentioned earlier, I'm on the sustainable finance side of the shop, if I can say that. However, I'm happy to take a question back to my colleagues who deal with these issues directly.

[Laurel Collins, NDP, Victoria, BC]

Thank you. I just wanted to caution against using that language, which is inaccurate.

Maybe I'll switch over to some of my questions about the taxonomy.

You dug into mandatory financial disclosures a bit. However, what we've heard from a number of witnesses is that there need to be mandatory transition plans. For those transition plans, there needs to be accountability for financial institutions, which, right now, have committed to net zero but either haven't made transition plans that will get them there or, if they have made plans, aren't taking the actions necessary.

I'm curious to know whether there's any work beginning on regulations that might force these institutions to have mandatory transition plans.

[Clifton Lee-Sing]

I'll start by saying that the government announced the development of the taxonomy this way: It will be done at arm's length from the government. There will be an external-to-government—

[Laurel Collins, NDP, Victoria, BC]

I'm sorry. To clarify, the taxonomy is going to be this voluntary piece.

I'm talking about whether there's been a conversation or any work started on pieces outside of the taxonomy, in particular on the idea of these mandatory transition plans.

[Clifton Lee-Sing]

I see.

One thing the government announced is an expectation for users of the taxonomy.... Of course, it's subject to how the external-to-government party develops this. Users would be expected to follow certain things, which could include having transition plans developed. This is in line with the recommendation of the Sustainable Finance Action Council.

What we envision is that anybody who wants to use the taxonomy needs to come prepared. They need to have thought about net-zero transition plans. They need to have also thought about robust disclosure and things like that. It would be the expectation that those transition plans are credible, so investors who see that label will recognize, understand and maybe agree to the transition plan being put forward by that borrower.