Finance Committee on April 20th, 2023

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 84 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, March 7, 2023, the committee is meeting to discuss the current state of play on green finance, green investment, transition finance and transparency, standards and taxonomy.

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'd like to make a few comments for the benefit of the witnesses and members.

Please wait until I recognize you by name before speaking. To those participating by video conference, click on the microphone icon to activate your mike, and please mute yourself when you are not speaking. For interpretation on Zoom, you have the choice, at the bottom of your screen, of floor, English or French audio. Those in the room can use the earpiece and select the desired channel.

I remind you that all comments should be addressed through the chair. To members in the room, if you wish to speak, please raise your hand. To members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can, and we appreciate your patience and understanding in this regard.

I'd now like to welcome our witnesses for the first hour. They are from the Office of the Superintendent of Financial Institutions. We have with us the superintendent of OSFI, Peter Routledge.

Welcome.

Joining Mr. Routledge is the managing director of climate risks, Stephane Tardif.

Welcome, Mr. Tardif.

You now have an opportunity for some opening remarks before—

Go ahead, Mr. Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I would like quickly rise on the two points of order.

[The Chair, Liberal, Peter Fonseca]

Wait one second. We'll have to suspend over some technical issues. I guess we were not getting sound over Zoom.

[A voice]

It's back on now, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Well, that was quick. We have rectified that situation.

[Voices]

Oh, oh!

[The Chair, Liberal, Peter Fonseca]

Go ahead, please, Mr. Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

I would like to say hello to my colleagues who are here today.

I am rising on two points of order.

The first one is as follows: when we heard the representatives from the Department of Finance a few weeks ago, the committee asked questions and requested information on the amounts invested in green energy in each sector, broken down by province. We are still waiting for the answers. I would like to remind the representatives from the Department and the minister that this request has been made.

The second point is that a little while ago, we received from the Department of Finance a report on an in-depth study on the economic impact of the Select Luxury Items Tax Act when it came into force. If everyone is in agreement, I would like to make that report public if it hasn't already been done, and allow access to people who are not members of the committee. Thank you.

[The Chair, Liberal, Peter Fonseca]

We're going to go to the clerk, but the question is this: Would you like it on the website, Mr. Ste-Marie?

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Yes, if everyone agrees.

[The Chair, Liberal, Peter Fonseca]

Is everybody okay with that?

[Some hon. members]

Agreed.

[The Chair, Liberal, Peter Fonseca]

We have agreement.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Merci, Mr. Ste-Marie.

Now, we'll go back to our witnesses and their opening remarks.

Thank you.

[Peter Routledge, Superintendent, Office of the Superintendent of Financial Institutions]

Thank you. Good morning, Mr. Chair, ladies and gentlemen, members of the committee.

Thank you for the opportunity to speak about the Office of the Superintendent of Financial Institutions and its approach to climate change. I am joined by my friend and colleague Stéphane Tardif, who is the managing director of OSFI's climate risk hub.

Climate change is a financial system risk because it will alter the cashflows generated by some financial assets and businesses. For example, stronger and more frequent national disasters are changing the economic fundamentals in some insurance segments.

OSFI's purpose is to contribute to public confidence in the Canadian financial system.

To fulfill our purpose, we must ensure that Canadian financial institutions manage the risks that could impact their safety and soundness. Among these risks are the physical and transition risks associated with climate change.

We have made tremendous progress towards this objective over the last 18 months. We created a new climate risk hub, which Mr. Tardif leads, and we've grown his team to over 30 people from about two just over a year ago. All of them are dedicated to leading OSFI's response to climate-related risks.

On March 7 of this year, we released our first-ever guideline, B-15, on climate risk management, to accelerate Canadian financial institutions' readiness to manage climate-related risks.

When developing this guideline, we met with representatives across all sectors, including members of the public in all regions, to better understand the impact of our regulations on their businesses. We received over 4,300 submissions during the most extensive consultative process in OSFI's history.

Our consultations produced a balanced, sensible regulatory approach that will help Canada's financial system navigate and adapt to the uncertainties and risks presented by climate change. Our supervision of climate risk management is not one-size-fits-all. It enables the institutions we regulate to adapt their approaches to climate risk management in a manner that supports both competitive and prudential aspirations.

That said, we acknowledge that we have a bias towards early action in adapting to climate change, and one might ask why.

Our climate scenario analysis indicates that a financial system that starts climate change adaptation early and progresses more gradually on this path is a sounder financial system. Thus, our approach stems from the underlying purpose assigned to OSFI by Parliament.

Thank you very much, and we're happy to take your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Routledge and Mr. Tardif. It's good to see you guys here in person.

We're going to start with the members' questions. In this first round, we have the Conservatives up first.

Mr. Chambers, you have six minutes, please.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Welcome to the committee. It's great to be in person. It's much preferable to over Zoom.

Before I get to my questions—and I do have some and I respect your time—I just want to read into the record a motion that was served to the committee. This is not for debate but just to put it on the record:

That the Committee call on the government to extend the tax filing deadlines for the 2022 tax year to 25 business days after the labour dispute is resolved between PSAC and the Treasury Board Secretariat.

As I said, I don't intend to have that motion debated today, Mr. Chair. I just wanted to put that out there, and I hope that we have a speedy resolution to the labour dispute.

Mr. Routledge, I appreciate your coming and joining us. It's an important study proposed by my Liberal colleague.

I'm curious about B-15's guidelines and the cost of compliance that a financial institution might bear. Have you thought about or measured what the costs of compliance are expected to be for certain financial institutions?

[Peter Routledge]

I'll answer the second part of your question first. Measuring the exact cost is not something we've asked them to do. The institutions we regulate are more than happy to come to us to tell us what the burden is.

To go more deeply into that question, I'd like to reference one key aspect of our system. We have some very large financial institutions that have economies of scale with regard to disclosure, and then we have some very small ones. When we designed this guideline, we designed it with that in mind, so to help them manage their increased costs, we've given smaller institutions an extra year to come into compliance with disclosure.

With regard to the larger institutions, they're already.... If you look at large insurers or banks, their quarterly reports are 200 pages or more, so adding additional disclosure around climate change, given that there is already substantial scale built into disclosure, we don't think will be material to them.

[Adam Chambers, Conservative, Simcoe North, ON]

Aren't there requirements for climate scenario analyses and other work that the institution has to do in order to produce the disclosure?

[Peter Routledge]

Yes.

Over time, there will be a rising burden around scenario analysis. The diligence and risk intelligence that will come out of that will produce lower credit costs, we believe, over time, which will more than pay for the additional costs.

Even if we didn't oblige them in the way we have in B-15, which I acknowledge, whether it was for their board of directors, for bondholders of the fixed-income instruments they issue or for their equity holders, they'd be doing this analysis. It's sound, sensible, prudential management to understand and try to quantify climate risk and the impact it might have on your book of business.

[Adam Chambers, Conservative, Simcoe North, ON]

If they would be doing it anyway, why do they need the regulator to dictate what needs to be disclosed?

[Peter Routledge]

That's a good question. There are a variety of reasons for that.

The first one, as I said in my opening statement, is that we have a bias towards earlier action. Our system will be sounder if we oblige the institutions we regulate to move earlier and sooner on this and to begin to do this maybe a bit before other institutions.

The other reason is that Canadian financial institutions operate in a global context. They raise funds from outside Canada in order to invest within Canada. Their investors outside Canada expect this type of discipline from those institutions. They also look to the regulations OSFI puts in place, and they're measuring how responsible the financial system in Canada is when they do that.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

I'm very curious about principle 5 and how “OSFI may develop this section into a separate chapter” with respect to capital and liquidity requirements. Are you going to increase the capital requirements for companies that lend to oil and gas?

[Peter Routledge]

To answer that question, I'd like to spend just a minute or two—