Finance Committee on March 9th, 2023

[The Chair, Liberal, Peter Fonseca]

Welcome to meeting number 79 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2) and the motion adopted on Tuesday, March 7, 2023, the committee is meeting to discuss the current state of play on green finance. We'll do that over the next hour.

Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Members are attending in person in the room and remotely using the Zoom application.

I would like to make a few comments for the benefit of the witnesses and members.

Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike. Please mute yourself when you are not speaking.

As to interpretation, for those on Zoom, you have the choice at the bottom of your screen of floor, English or French. For those in the room, you can use the earpiece and select the desired channel. I would remind you that all comments should be addressed through the chair.

For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

I'd now like to welcome our witnesses. Thank you for coming before the committee on such short notice. We look forward to hearing from you.

From the Department of Finance, we have Robert Sample, director general of financial stability and capital markets, and Matthew Boldt, director of markets and securities policy, financial sector policy branch.

We look forward to hearing your opening statements and then getting to members' questions. The floor is yours.

[Robert Sample, Director General, Financial Stability and Capital Markets Division, Financial Sector Policy Branch, Department of Finance]

Thank you very much, Chair.

Thank you for having us here today to appear as witnesses. Both Matt and I are very pleased to be with you to support your study on green finance, an important and timely topic in the context of building Canada's net-zero economy.

In keeping with my responsibilities, I will focus my remarks on the Government of Canada’s efforts to develop the foundational market infrastructure needed to scale up Canada’s sustainable finance market. This work is about promoting market transparency—for example, by enhancing climate disclosures, defining green and transition investments, and improving climate data—to ensure that climate considerations can be properly incorporated into business and investment decisions. As the public sector alone cannot fund the net-zero transition, getting the foundational market infrastructure right in a timely manner is vital to mobilizing the private sector capital needed over time to realize Canada’s climate objectives.

Recognizing the importance of engaging with Canada’s financial sector on these market infrastructure matters, the Government of Canada established the sustainable finance action council, or the SFAC, in May 2021 to help lead Canada’s financial sector towards integrating sustainable finance into standard industry practice. The SFAC is chaired by Kathy Bardswick and comprises 25 Canadian deposit-taking institutions, insurance companies and pension funds, with combined assets of over $10 trillion.

The SFAC’s terms of reference call on it to provide financial sector input to the Government of Canada on the development of foundational market infrastructure, including enhancing climate disclosure, defining green and transition investment, and improving climate data and analytics. More recently, in budget 2022, the Government of Canada asked the SFAC to develop and report on strategies for aligning private sector capital with the net-zero transition, with support from the Canadian Climate Institute and in collaboration with the net-zero advisory body.

The SFAC has played an important role in convening representatives from Canada’s financial sector to engage on market infrastructure issues and provide its expert advice to the Government of Canada. In the course of its work, it has engaged with a range of domestic and international stakeholders on sustainable finance to exchange views and ensure that its advice is comprehensive and consistent with best practices.

At the Government of Canada’s request, the SFAC has prioritized work on climate disclosures. Soon after launch, the SFAC provided initial perspectives on how to enhance climate disclosures, and then provided a submission to the International Sustainability Standards Board, or the ISSB, setting out its views on the ISSB’s draft global disclosure standards on climate and sustainability reporting. More recently, the SFAC has prepared advice on how to effectively implement the Government of Canada’s commitment to move towards mandating climate disclosures across a broad spectrum of the Canadian economy.

The SFAC has also prioritized work on taxonomy, and late last year submitted the “Taxonomy Roadmap Report” to the Government of Canada, which sets out the SFAC advice on the design, governance and implementation of a Canadian green and transition finance taxonomy. The report was published on the Government of Canada’s website as SFAC advice. The Government of Canada is studying the report’s advice, and there will be continued collaboration with the SFAC and other financial sector leaders on taxonomy.

I'll say a few words on climate disclosure.

I would highlight that the Government of Canada is making important progress in meeting its budget 2022 commitment to move towards mandatory climate reporting across a broad spectrum of the Canadian economy. For example, the Office of the Superintendent of Financial Institutions, OSFI, earlier this week published its final climate risk management and disclosure guidance for federally regulated financial institutions. This is an important development, since it will make climate disclosures mandatory for more than 350 banks and insurers. Canada's federal Crown corporations have been asked to adopt TCFD, or equivalently rigorous standards applicable to the public sector, as an element of their corporate reporting. Implementation is under way.

Finally and importantly, provincial and territorial securities regulators are also acting in this area. They have published a draft climate disclosure rule for public companies.

We would be pleased to take any questions from members of the committee. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you for your opening remarks.

We're going to get to the members' questions. Members, we'll look to get through two rounds. In the opening round, each party will have up to six minutes for questions.

We're starting with the Conservatives and MP Morantz, please.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

Thank you, Mr. Sample and Mr. Boldt, for being here and for your opening remarks.

I want to take a bit of a step back from your opening remarks because I think this is a new concept for many Canadians. Here in the Ottawa bubble, we may be somewhat familiar with this. I know Ms. Chatel is very familiar with it, but the average Canadian watching this meeting today might not understand or even know what green finance is.

I'm wondering if you could step back from the bureaucratese, if you will, and just tell us from a layman's perspective what it means.

[Robert Sample]

Thank you very much for your question.

Particularly for a country like Canada, it really involves two aspects, one being green finance. That's about capital markets, financial activity and investment into low-emitting or zero-emitting economic activities. Particularly for a country like Canada, transition finance is also important, and that is about financing the decarbonization of emission-intensive activities that are critical for sectoral transformation.

In a broad sense, I would leave it with those two definitions, if that's helpful.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Who provides this financing? Is it the government? Is it financial institutions? Is it a joint venture between governments and financial institutions?

If someone wanted to get financing to build a wind farm, for example, where would they go for this type of financing? Also, could you comment on whether the terms of that loan might be better than an ordinary loan? Would the interest rates be lower? Would the placement fees be lower? Would the amortization on those loans be more generous? What differentiates this kind of financing from ordinary market financing?

[Robert Sample]

There are a variety of financing mechanisms, and likely more will be elaborated on over the coming years and decades. There is public sector funding at federal and provincial levels for this type of activity and investment. However, because of the amount of investment required, these activities cannot rely solely on public sector funding, and there is a ramping up of private sector capital mobilization in these types of green and transition activities. From a capital markets perspective, it could be support with debt financing. It could also be loans to companies and other types of financial instruments.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Would the terms be more favourable, though, than for an ordinary market loan because it's a green project?

[Robert Sample]

I can't speak to specific terms.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Okay. What kind of project would qualify for green finance? I think a wind farm might be, but there are certain grey areas in my mind. For example, LNG could substantially reduce greenhouse gas emissions all over the world, even though it's a fossil fuel, because it could supplant oil or coal-fired plants. Nuclear would also be a good example. Would something like that qualify for a green financing loan? What about mining operations that mine the precious metals used to create batteries in electric vehicles, for example?

I think there might be some areas where it's not completely clear what would qualify for green financing. I guess my question is this. Is my analysis around that correct, and secondly, who would decide whether or not a project would qualify for this type of loan?

[Robert Sample]

There are a couple of elements to tease out there. First, some types of projects or economic activities are green, so they're low-emitting, but importantly, as I think you're pointing to, a number of transition activities that require decarbonization will be critical factors in economic prosperity for Canada.

In terms of the second part of your question about who determines things, currently there is no public sector determination of what is “green” or what is “transition”. As I noted in my opening remarks, the sustainable finance action council has submitted its advice to government, and the government is reviewing it and what's called a taxonomy. This could provide some additional granularity as to the criteria of what is “green” and “transition”, but there are no decisions or opinions from the government at this time on that report.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Is this a future area of regulation for government where they might actually stipulate how banks can decide which projects qualify and which projects don't? Is that where this is going?

[Robert Sample]

I can't speculate at this time on future areas of policy work or decisions by the government.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Okay.

[The Chair, Liberal, Peter Fonseca]

That's your time, MP Morantz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I had 10 seconds left.

[The Chair, Liberal, Peter Fonseca]

Yes, 10 seconds.

We will move over to the Liberals with MP Chatel, please.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you, Chair.

Thank you, Mr. Boldt and Mr. Sample, for being with us today.

Clearly, the role of our government, of any responsible government, is to empower and protect. Not just Canada but the world is moving towards a market infrastructure where investments will need to be green. Our businesses will need to meet those challenges and those criteria in order to be successful. Our role is to invest in their success.

That's why this study is very important to us. A bit like MP Morantz said, we want to know about, and be able to explain to regular businesses, the challenges they will be facing as the world is transitioning towards a green market infrastructure.

One of the keys issues you mentioned earlier is about what is meant by “green”. For example, if we have big collective investment vehicles and they need to have green portfolios to meet the criteria for investment, what would it mean to be green in those portfolios? What investments will be considered green?

I know there's a lot of work being done. There's a G20 sustainable finance group, and a road map that has key actions. Action number two is to try to identify countries, financial markets and institutions, and help them define the international standards around what it means to be green, as well as brown, because there are some products or investment products that will not necessarily be green but will be helping the transition towards a green economy.

I'm hoping you can tell us a bit more about two things. What work is there at the international level on green finance, and what are countries doing together? I know Europe is ahead of many countries, many regions, as is the U.K. Can you explain where the world stands right now in terms of green finance? What does it mean here for Canadian businesses?

[Robert Sample]

The G20 has been actively doing work that is similar in theme to the work Canada is doing domestically on what's called “sustainable finance”. There is a G20 group that reports to ministers and leaders and is trying to elaborate and share information on disclosure regimes—climate disclosure regimes—and other types of market infrastructure elements and on data challenges and opportunities.

As to the part of your question on where Canada sits with regard to the other jurisdictions, I think Europe would definitely consider itself a leader in terms of the steps it has taken, as would the United Kingdom. The G20 does have a website that reports on the progress countries are making against its road map on disclosure and other climate-related regulatory activities. That gives a bit of a sense of the work going on at the international level at the G20.

A really important development has been the standing up of the International Sustainability Standards Board, to which the Government of Canada, along with other governments and the private sector, provided seed funding for a satellite office in Montreal. In international fora and in Canada, we see the global baseline standard-setting by the International Sustainability Standards Board to be of critical importance. That's because of globalization. We have many companies in Canada that work across borders, have clients across borders and have different regulatory impacts across borders. If the ISSB can help to support some harmony across standards and across jurisdictions, I think that would be helpful.

I think that's an important aspect for your final question around what it will mean for Canadian businesses. Indeed, there's a regulatory burden or harmony that they'll need to manoeuvre, but there are also the expectations of various jurisdictions on what their products are deemed as from an economic, a green or a transition perspective.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Chatel. The time does go fast.

We have MP Garon with us today for the Bloc.

Welcome. You have six minutes, please.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Mr. Chair.

Gentlemen, thank you for being here today.

You mentioned the Sustainable Finance Action Council, SFAC, which has been given a lot of work and asked to design a plan to ultimately transition to a net-zero emissions economy.

If I have understood correctly, SFAC members are primarily from the financial sector—banks, insurers and large managers. These are institutions that don't have a very rosy history in climate innovation.

Isn't there a transparency problem here? A sector that has historically been rogue in many ways is being asked to submit a roadmap to government behind closed doors.

Should we trust the banks so much in this process?

[Robert Sample]

Thank you very much for your question, Mr. Garon.

I'm sorry, but I will answer in English.

It's a good question. I would say there are a number of different aspects to a government taking a decision on a policy. The sustainable finance action council comprises 25 private sector financial institutions and has a mandated work plan. That is one piece of the puzzle, I would say. It has four expert groups on data, climate disclosures, taxonomy and net-zero capital allocation, and they engage regularly with a variety of stakeholders. Some of that engagement is listed on the Government of Canada's website, which notes who the sustainable finance action council has engaged with and has brought in inputs from.

As I mentioned in my opening remarks, something like taxonomy or advice that the government receives on disclosure is one input. As the government is considering any policy actions—the pros and cons and the considerations—it does its own consultation as well, in addition to what the SFAC might have done, with a variety of stakeholders. I just wanted to outline that as well.

Further—

[Jean-Denis Garon, Bloc, Mirabel, QC]

I have to interrupt you. Let me explain the nature of my concern.

Over the past 25 or 30 years, banks have acted increasingly in their own short-term interest. They have been lending less and less to SMEs and more and more to consumers, and an increasing share of their profits comes from user fees. The banker is no longer the respected village person who used to make investments with savers' money. He is someone who charges us $4 in fees at the ATM.

From the public's perspective, are we right to have some concerns about the fact that these people were asked in 2022 to design a strategy to achieve a net-zero emissions economy? Perhaps members of the public are right to be concerned and to ask the Department of Finance, which is led by an elected official, to be more involved.

Is this a valid concern?

[Robert Sample]

It's important to have a variety of stakeholder perspectives when government policy is being considered. The SFAC, as I mentioned, brings in 25 private sector financial institutions. That's one perspective on advice that comes to the government, and they have consulted on all of their activities.

In terms of your questions on banks specifically, another way to consider this is that there are two regulators attaching rules to federally regulated banks and some provincially regulated institutions. With the Canadian Securities Administrators for public trade entities, it's done in consultation with the institutions it regulates, and public consultation receives input from a variety of stakeholders on those proposed disclosure rules. Similarly, with the Office of the Superintendent of Financial Institutions—and I hope you have a chance to speak with them—I believe that on their—

[Jean-Denis Garon, Bloc, Mirabel, QC]

I must interrupt you, again. You're skirting the issue a little bit, which is totally fine. You are doing your job.

The Sustainable Finance Action Council, or SFAC, has very strong advisory authority. It files documents directly with the department. We understand that it will be taken extremely seriously.

Did the department consider giving a similar mandate to a citizen advisory council, where environmental groups, among others, would have the same advisory power and the same receptiveness from the department and would be made up of people who do not have a strong interest in maintaining investments in the oil sector, for example?