Finance Committee on March 21st, 2023

[Eric Usher]

Obviously this is discussed about industrial policy, and these are the things you're taking into consideration. Certainly there will be some economic impacts.

This is why there is this term, the “just transition”. We are trying to understand what the job impacts will be. How do we retool industries and communities?

One of the wider considerations—and this is why the finance industry is stepping up in many ways—is the reality that most parts of the transition, in terms of climate mitigation at least, do require more upfront investment typically. If you talk about a wind farm or a solar plant, you have to do capex, capital expenditure, to build the farm. Once it's built, it costs less to operate, so in terms of economic output it can actually be quite positive. But the finance industry has to be onboard. I think that's why it's so critical in your discussions here. If you don't have the environment for them to allocate capital to this significant capex requirement, then you will fall short and not be able to deliver on this strategy.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks, Mr. Usher. I appreciate that.

Maybe we can leave it there, and I'll ask Mr. Youngman to weigh in as well.

Mr. Youngman, the way I heard your opening remarks was that we're really working toward a whole-of-economy approach and that these high-emitting industries have to make the transition as well. They're not just going to immediately disappear. How do we help them make that transition, while not compromising investments and capital flows to much better investments that would rate higher on any scale for ESG?

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Turnbull.

That is the time, Mr. Youngman. We do have to move over to the Conservative members. Maybe in a further question you'll be able to answer that, Mr. Youngman.

We're moving into our third round of questions.

With the Conservatives, I have MP Morantz for five minutes, please.

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

Thank you, Mr. Chair.

Mr. Youngman, I just want to follow up on the last question I was discussing with Mr. Usher about economic impact statements. You're part of the Organisation for Economic Cooperation and Development. Surely that organization would have knowledge of economic impact studies that would have taken place on the implementation of sustainable finance regimes in different countries.

[Robert Youngman]

Okay, your question is this: What is the economic impact of implementation of sustainable finance regimes?

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

It's more whether there are any economic impact studies. For example, the Liberal government recently implemented a luxury tax in Canada on automobiles, boats and airplanes. The Department of Finance here recently produced an economic impact study talking about things, for example, like the effect on GDP, losses in sales across those industries, job losses across those industries.

I'm just thinking that this is much bigger than that. You're talking essentially about a wholesale restructuring of financial markets around the world. Surely your organization would be aware or would have conducted an economic impact study. No?

[Robert Youngman]

Yes. There's economic modelling of what the cost of the transition will be. I think that is the broader...and maybe even more relevant than a narrower question of sustainable finance initiatives, which are only a part of achieving the transition.

I will be happy to follow up, send you relevant studies and look into your specific question.

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

Okay, it's just surprising this wouldn't be at the top of your heads, given the massive size of this plan. I will leave it for you to table that with the committee. That would be great.

I also want to follow up on a question that Mr. Lawrence was asking. He asked you about whether or not LNG would qualify for green financing or whether nuclear would.

I wanted to ask you also about mining operations, which can be GHG intensive. Many of those mining operations produce precious minerals that are necessary for green technologies. I'm just wondering how you would square that circle.

[Robert Youngman]

Governments now are beginning to look into the question of so-called brown taxonomies or emissions-intensive taxonomies. This is to come in the EU. Part of that discussion will focus on minerals.

In Indonesia, as I mentioned earlier, they're quite focused on how to move away from coal, but mining is very important there, so they're asking the same questions. It's new. It's a new topic of providing taxonomies for existing emissions-intensive topics.

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

Thank you.

Mr. Usher, you might be best positioned to answer this question, which is on another matter.

It's unclear to me how this would work in terms of governments partnering with financial institutions. A basic principle that banks, or really any publicly traded company, have is that they need to operate with a fiduciary duty to their shareholders. They need to prioritize investments, essentially, with the best financial returns. I see this as coming into conflict with sustainable finance investments that may not be as profitable as conventional investments.

Do you see it that way?

[Eric Usher]

No, I would not. This is all about doing business, looking for opportunities and prudent risk management. Therefore, I don't think there's any expectation that commercial banks, investors and others are expected to take a loss in the investments they are making.

However, of course we know about these gaps in innovation. Great developments in the lab don't always make it to the market and there is a role, potentially, for the public sector to help finance incubation and innovation to share risks. Often the benefits of innovation do not accrue to the specific company or the specific investor. Often they accrue to the sector at large and therefore there's a good rationale to align public and private interest.

Certainly this is not about asking the financial sector to be making bad investment decisions to be losing money.

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

That's my round.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Morantz. Time does go fast.

Now we're moving to the Liberals with MP MacDonald, please, for five minutes.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you, Chair.

I want to go back to Mr. Youngman and his opening remarks. I'm just going to read something quickly. It's in relation to an industry in my area—or across the country, actually.

You said, “Transition finance focuses on the dynamic process of becoming sustainable rather than providing a point-in-time assessment of what is already sustainable today. This inclusive approach creates room for financing to decarbonize the most polluting and hard-to-abate industries today."

What I'm concerned about to some extent, Mr. Youngman, is this. For example the Canadian Dairy Farmers were in Ottawa this week. They have reduced the carbon footprint of milk by 25% over the past 20 years. I guess my fear is that they're not going to receive credit for that.

Is that what your statement in your second paragraph is referring to somewhat?

[Robert Youngman]

The second paragraph tries to make a distinction between green finance and transition finance.

The idea is that high-emitting companies and high-emitting sectors need to get on a pathway that is consistent with climate objectives. They can't flip a switch to be able to do that, so there needs to be a process.

We believe that process is by developing a credible corporate transition plan that includes how they are going to get from where they are today to where they need to go. It doesn't speak specifically about what they have achieved to date, but presumably that progress will be helpful in getting to where they need to go, based on government policy and targets.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

My and their concern was that their starting point is quite different than for some other industries. I guess their starting point began a long time ago on some of the actions they have taken.

I will move on to.... Markets play a critical role, obviously—we had a good discussion on this—in supporting orderly transition to low-carbon economies, but there are challenges that remain. We talked about best practices from other countries, the promulgation of frameworks, data inconsistencies and lack of comparability.

The Canadian government today is fully behind the OECD and the Paris Agreement, without a doubt. We're learning much as we move forward, and we're learning quickly. I'm just wondering how we overcome some of those challenges.

[Robert Youngman]

With respect to lack of comparability, Mr. Usher mentioned earlier the ISSB, which is a baseline disclosure requirement on sustainability that governments can then implement. Having comparable sustainability and disclosure will help significantly to provide transparency to the market so that it can better know what is consistent with Paris targets.

There's one example of addressing lack of comparability.

[Heath MacDonald, Liberal, Malpeque, PE]

Okay.

Another concept that has been utilized to develop a strong economy and clean environment is carbon credits. Some of the industries that were mentioned previously today obviously could take advantage of carbon credits.

What is your opinion on carbon credits and how quickly we are moving towards them?

[Robert Youngman]

With regard to carbon credits, the guidance does talk about what role carbon credits and offsets can play in a credible transition plan. There is a risk today that the market is at a key point in trying to address concerns about greenwashing while also recognizing the need to use offsets to achieve global climate ambition.

For now, our recommendation is that you provide clarity in your transition plan on how you use carbon credits and offsets and on what type of carbon credits are used. Generally, their use should be limited and carefully explained to provide transparency to the finance community that is considering how credible your plan is.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP MacDonald.

Now we are moving to the Bloc.

MP Garon, you have two and a half minutes, please.

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

Thank you very much.

Mr. Youngman, a little earlier I referenced extremely polluting projects that are financed by the Government of Canada, including the expansion of a pipeline which will cost taxpayers—of course—$30 billion. You told us that Canada had made efforts to develop a green finance taxonomy and that the pandemic had delayed some efforts made by Canada.

All right, but the European Union, in the middle of the pandemic, deployed a program: the European green deal. By the end of 2022, $4.11 billion euros had been invested in projects in eight member countries.

Are you familiar with this initiative?

[Robert Youngman]

The EU green deal is a very important initiative, and—

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

So you are familiar with it.

[Robert Youngman]

Of course.

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

I wanted to make sure to ask you a question about something you are familiar with.

As far as you know, is there a new pipeline among the projects that have received funding?