Finance Committee on March 21st, 2023

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

I understand that, in most countries, these policies are still being developed. Very few incentives have been put in place, except for the carbon tax, which might increase over time.

Of the models you've studied and which you are familiar with, including in countries or regions rich in natural resources, such as in western Canada, are there any examples Canada should follow to accelerate the transition?

[Robert Youngman]

That's an excellent question. The challenge, in this case, relates to just transition. It relates to shifting out of emissions-intensive activities and making sure that communities are not left behind. I would say that, in developing countries, this is already an enormous challenge, and it's a different story. Earlier today, in an event with Indonesia, they are planning to have a planned phase-out of existing coal plants, and there are financial mechanisms being developed to do so responsibly. Similar questions could be raised for resource-intensive economies and how best to achieve this in a way that is not disruptive and that involves all stakeholders. There's a partial answer.

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

I have about a minute left. I will try to be quick because my next question is one of substance.

You often hear that Canada is a small country in economic terms, that it has a small, open economy and that, as long as China and India do not significantly move towards green finance and climate change, it won't be worth doing those things here because they'll just cause problems for us.

Do you think that even a country with a small economy like Canada can play an important leadership role on the world stage in terms of advancing standards, green finance, transition finance, taxonomy and other such things?

Do we have a role to play or should we wait for bigger actors to lead the way?

[Robert Youngman]

Canada is in a unique position, given its natural resources, and can play a leading role. Also, pointing to other resource-intensive and resource-rich economies in OECD countries, Canadian institutional investors already play a leading role in investing in sustainable infrastructure around the world. There's a need for leadership from the countries that precisely have the resources. This is going to be an enormous challenge. The expectation is that developing countries need to give up their resource-rich economies. It's very hard for the world to secure their participation if there's no leadership amongst, let's say, OECD countries for facing that sort of challenge domestically as well.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Garon.

Now we go to the NDP.

MP Blaikie, you have six minutes, please.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Maybe I'll just start with a few comments.

It seems to me that—and we were just talking about this—in the insurance industry, for instance, they're starting to feel the financial effects of climate change. They're motivated to try to protect their profits from the potential harms of climate change, and I think many insurance companies that are large enough are going to get the information they feel they need from companies they're considering investing in in order to be able to make their own decisions about what makes sense for them and what doesn't.

I think the trick here is figuring out how that's done in a transparent way, how that's done in a way that marshalls those financial institutions' investment toward a credible climate plan, and I think also ultimately in a way that Canadians can digest. I think a lot of Canadians, when they're thinking about their own personal savings for retirement, want to be able to have some stewardship over their own money and resources and feel like they're contributing to what they see as being the solution.

I want to start from that point of view. If I'm your typical Canadian with a little bit of savings and I'm thinking about my retirement, I want to invest in a way that I see as contributing towards part of the climate solution. What are the things that have to be in place that are not currently in place to give me confidence that I'm not being had by some greenwashing venture and that, when I think I'm investing in something that is part of ultimately reducing our carbon emissions and meeting our climate targets that I really am?

What would you say are the components missing, either in the Canadian-specific context or internationally, for me to have a regime that I can trust in the way that a lot of Canadians trust the Canadian Food Inspection Agency, for instance? Canadians don't usually do their own research when they go to the grocery store to ensure that their food is safe, because there's a regime in place that they have confidence in, and they can say, “Okay, when I'm buying this product, I can take it at face value because the regulator has done the homework behind the scenes to ensure that I'm getting the product that the company I'm buying it from says I'm getting.”

What do we need in place in order for Canadians to be able to invest their money in climate solutions?

[Robert Youngman]

Mr. Chair, I'm just checking if this is a question for me or for Mr. Usher.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

I'm happy to have either panellist answer, or both.

Whoever wants to jump in is more than welcome to do that.

[Robert Youngman]

I'll just say something quickly and leave some time for Mr. Usher, if he wishes.

An interesting model is the EU. They have Paris-aligned indices and rules around developing such indices.

Given that a very significant portion of pension savings is in passive indices that track broader market indices, the development of rules around climate and Paris-aligned indices from a Canadian perspective could be very helpful if the regulator seeks to do this, given the trillions globally in savings that can be used.

That's a short answer.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Mr. Usher, do you have anything to add?

[Eric Usher]

I think what you frame out is obviously what we need in all jurisdictions. Beneficiaries, customers and clients need to know, when they buy a service and when they invest in an activity, that they're doing it credibly.

I think the financial markets that have been in development.... It was 500 years ago when there was a monk in Italy who sat in a cave and drew up essentially what became the accounting profession. It took 500 years, and we still have to admit every so often that they get it wrong.

I think the world of sustainability, climate and ESG is much younger, and it certainly doesn't have it right today. I think it's done a lot of work. It needs to have a lot of improvements, and I think, as we heard earlier from MP Chatel, there are a lot of competing frameworks.

I think that having the ISSB and, as I understand in Canada, the CSSB to implement...is an important way to merge together frameworks. The important thing is that when someone provides financing, whether it's a bank or an investor, they should start to be able to disclose what that financing is used for and what the impacts of that financing are on emissions and otherwise.

Once they get a better grasp on that, they disclose that to the markets, and we have market functionality. As long as the markets are credible, then the information gets to the investors, to the decision-makers and to the clients so they know essentially what they're investing in or what they're buying. It's not that different in the financial markets from textiles, to all aspects of.... Consumers want to know what they're buying. When you buy a can of soup, you want to know what's in the soup, so you need the ingredient levels.

They are still being perfected. They are not perfect, but we are seeing a large influx of effort to try to work that out. There will be some misses, and there will be some of this notion of greenwashing, but overall, done right with a good, proper oversight from market regulators, we believe that there's good potential that the financial sector be a large part of driving this needed solution.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

I think I have about 30 seconds left, so I'm going to throw out a question that maybe we can circle back to.

I'm wondering how important a carbon budget is to give certainty to larger investors. How important is it for a country to be working backward from a goal in order to give investors some certainty when they are trying to site an investment, particularly something that's very resource intensive and they want to know that the goalposts aren't going to change on them? They can really only get that from a government plan for emissions targets for a country.

How important a role does something like a carbon budget play in giving larger, institutional investors certainty about siting investments in a particular place?

[The Chair, Liberal, Peter Fonseca]

Just hold on to that, member. You'll get an opportunity in this next round as we get into it to get to that question.

This is our second round, members. We're starting with the Conservatives.

Thank you, MP Blaikie, for that round.

We're starting with MP Morantz.

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

Thank you, Mr. Chair.

Thank you to the witnesses for being here. It's been a very interesting discussion.

Mr. Youngman, I want to first follow up on a question that my colleague, Mr. Lawrence, was talking to you about, which is the inclusion of investments in nuclear. You said in that round that nuclear needs to play a role in energy transition.

Do you think the Canadian government made a mistake by excluding nuclear from their green bond program while other jurisdictions like the U.K. are including nuclear in their similar programs?

[Robert Youngman]

That's a tricky question from an OECD standpoint given that we work with a number of governments. On the point of nuclear, to date my understanding is that we point out its importance in meeting climate objectives, but recognize that governments may have different views and concerns about long-term impacts versus the trade-offs of meeting climate targets.

I'm afraid I have to leave it there.

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

Mr. Usher, in your role as head of the finance initiative for the UN Environment Programme, have you conducted or are you aware of any economic impact studies about the effects of implementing green finance or sustainable finance regimes in Canada or any other countries?

[Eric Usher]

Do you mean in terms of the economic outcomes of such policies?

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

The economic impact.

[Eric Usher]

It's a fairly wide challenge, so I think there is a lot of detailed analysis. Yesterday we saw the Intergovernmental Panel on Climate Change, the IPCC, put out their AR6 Synthesis Report and a range of messages, including that we're not arresting climate change. Part of the message is that the solutions are available and, in many cases, are financially viable. Particularly in the energy sector, there are enough solutions to help decarbonize through a transition the range of technologies that will be needed.

There are different assessments, and often it's going down to a sectoral basis about what the impact will be on the sector.

One of the big wake-up calls is that there's an electric vehicle manufacturer south of the border that is worth more than the rest of the industry. There are various reasons for that, but that has been a wake-up call to many industries, which is that there's a realization that industries are changing and need keep abreast and be on top of those changes.

On how you interpret that, there are many thoughts behind it. What we generally see is that large industries particularly are very aware of these issues and are paying very close attention and, therefore, so are their financiers.

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

There are no specific studies that you could point us to, though?

[Eric Usher]

No. The ILO has certainly done a lot of studies on green jobs and how many jobs are created through different industries. That's basically the reference point. More widely, it would have to be broken down. I don't have specific studies to reference.

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

Thank you.

Mr. Usher, you said in the past that we need to leverage private-public partnerships for tackling climate change and that public finance would not be sufficient.

Are you concerned that utilization of public financing would result in de-risking of financial institutions and could lead to bad lending decisions in the private sector? Doesn't this additional risk shift to the taxpayer in that event?

[Eric Usher]

We are seeing an uptick in fiscal approaches with more public funding, including in the United States and Europe. One thing that's clear is this: Finance regulations are not going to solve policy gaps. If we look in the real economy, improving access and risk management within the financial sector is part of the solution. To help transition, there often needs to be a policy impetus within different sectors.

Part of that impetus can be fiscal. It's about managing risks and innovation. I referred to an electric vehicle manufacturer. It was started with public funding 15 years ago. We believe well-invested public finance can help de-risk. It can partner with the private sector in bringing innovation forward. Of course, it has to be properly overseen and managed.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Morantz.

We'll now go to the Liberals and MP Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank our two speakers for their excellent presentations today, and for being part of this important discussion.

Mr. Usher, I'm going to begin with you.

You ended your presentation to us with four recommendations on where we can go next. Could you go through the last two? You went through those very quickly. I think one was around becoming a leader in protecting biodiversity and ecosystems, and your last one was around creating a taxonomy for enabling the transition.

If you could clarify both of those for me, that would be helpful.