Finance Committee on June 13th, 2023

[Kathy Bardswick]

First of all, I would encourage you to fill an additional opportunity for discussion with a room of scientists who have been working internationally over the last 30 or 40 years with the insurance and reinsurance industry globally.

We have been tracking the implications associated with climate change in terms of these events. There is no question that severity is increasing and frequency is increasing. You're asking me to peg one particular instance to a green development and I can't do that, in part because I'm not qualified to do that and in part because we are looking at systematic deterioration over time.

There is a certain amount of climate devastation built in that we won't be able to avoid, so I agree with Julie's point about ensuring that we are also focused on resilience and adaptation.

I would really encourage that this committee also take a look at the extensive amount of work that's been done by the global insurance and reinsurance industry.

[The Chair, Liberal, Peter Fonseca]

That's the time.

Thank you, MP Hallan.

Now we go back to the Liberals.

We have MP Turnbull.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks, Mr. Chair

I wanted to hear from other witnesses, in particular Ms. Segal from Environmental Defence.

I wonder if you could comment on the last question I asked Ms. Zvan about the legal entrenchment for the taxonomy. Do you see a specific path forward and a specific way that the government should be working in partnership with the Sustainable Finance Action Council to entrench the taxonomy?

[Julie Segal]

I guess I'll give a two-part answer here. First, the proper governance structure and proper consultation more broadly than just the Sustainable Finance Action Council is very important for defining a taxonomy. I think what colleagues on the floor have raised about ensuring that the final product aligns with what is scientifically agreed rather than being biased by any particular interest is important, so broader governance consultation is important. That being said, I will offer international examples on how this could be engaged in Canadian law in my opinion.

Bringing a taxonomy into Canadian law is very important because it's a voluntary initiative. It wouldn't have the same credibility or the same certainty for investors both in Canada and those looking to invest in Canada. What other jurisdictions have done is regulate the taxonomy formally into their policy process so that the definition of a taxonomy, the underlined categories, are formally introduced in regulation. That's certainly what I as an individual would recommend.

Then that regulated taxonomy structure is linked to reporting from financial institutions and funds. That tackles what's considered greenwashing, what a fund might claim to be aligned with, what other individuals have highlighted as a very fluid definition of ESG and, in fact, cleans it up because because a taxonomy is brought into law.

First of all, it's regulating a taxonomy, and then it's linking it to the disclosure requirements of groups to say what per cent of their investments are aligned with that regulated taxonomy.

[Ryan Turnbull, Liberal, Whitby, ON]

Thank you very much. That's a really good, thorough answer, I think.

Ms. Bardswick and Ms. Zvan, I'll go back to you two because I'm interested in your three-tier governance model, which I think is perhaps a shift from how SFAC has operated to date. I'm interested in how this helps us keep the taxonomy moving.

I note that, in your report on the road map, you've identified that what counts as a transition investment today won't necessarily count in five to 10 years from now. The fact that it will change to keep us on the 1.5°C commitment that we have is really important. It's important that we include climate science and other stakeholders in those discussions, and that, as those debates unfold, those decisions are made together. Can you maybe describe in a bit more detail about why that governance model the way you've structured it is so important?

[Barbara Zvan]

The key requirements for the governance model are really the integrity of the science of the 1.5°C and the broad involvement from, I would say, the federal government as well as provincial stakeholders, indigenous rights holders, civil society and financial players. When you look across the 30 taxonomy efforts, often the government sector is made up of the financial regulator or the central banks, because they are the closest to the financial sector in terms of working with the financial sector and overseeing it.

They need to form the majority in the core part of that government structure to have international credibility. We think that for Canada, including indigenous rights holders is an imperative as well as including civil society, and the financial players need to be there in minority to help with the pragmatic implementation of the taxonomy.

We are working through more detail at the moment. We will be presenting it to the SFAC on July 4. They will contain those elements. They will also contain three stakeholder advisory forms, one for the provincial and territorial governments and indigenous rights holders, one for civil society and then one for the financial sector advisory group trying to bring in permanent groups to bring those perspectives, and they will also look to sit on the council.

[Ryan Turnbull, Liberal, Whitby, ON]

If I'm not mistaken, though, are these a series of informal structures that are highly collaborative, or do they exist in an organization that has incorporation? What legal status would this new form of governance model take? What structure would it be in?

[Kathy Bardswick]

We haven't identified structure at this point, in large part because we feel—and I think Julie has raised this issue—that we need to get the principles right. We need to engage more broadly in what makes sense. We've been in that engagement process to date, ensuring that we are reflecting on the draft approach before we hit kind of a final structure through which we have the appropriate engagement.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Turnbull.

Now we go to MP Garon.

Go ahead, please.

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

Thank you, Mr. Chair.

My last questions are for Mr. Stewart.

Bank transparency has been a hot topic. Some are calling for the banks to report on their oil and gas investments, if not publicly, at least to the Office of the Superintendent of Financial Institutions, or OSFI. That call has obviously gotten stronger following media reports that RBC is one of the sector's biggest financiers. It's worth mentioning that those data on RBC and other banks had to be obtained from secondary, indirect and other such sources.

My question is threefold, and you will have about a minute and a half to answer. Is the criticism that banks are not transparent warranted? What role could OSFI play in making them more transparent? Is the voluntary approach a credible way to achieve transparency?

[Keith Stewart]

Thank you for your question.

Quickly, I think voluntary is not good enough with respect to transparency, because people get to make their own rules. One of the key issues right now for instance is that banks use different criteria for determining what their finance emissions are, and we need to standardize those so investors can compare and government can compare apples and apples.

What was the second question?

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

What role could OSFI play?

[Keith Stewart]

OSFI is going to have to play a key role in this because they're the federal regulator. The problem right now is that OSFI is very focused on looking at the risks to banks from the energy transition and not the risks to the energy transition from bank practices. I think we need to have both halves of that. OSFI said they were not allowed to do that and that doing that wasn't in their mandate. The recent report from the federal commissioner of the environment and sustainable development actually argued that, in fact, given the recent regulatory and legislative changes, they should be doing that. This is something on which OSFI has, in effect, been seen to be cutting with both sides of the scissors.

This is similar to the debates we're having and I'm hearing on supply versus demand. It's not supply or demand: You do both. Otherwise you're trying to cut a piece of paper with one half of the scissors. It doesn't work. You need to look at the risk to the financial system from climate change and what kind of risk the financial system, as it currently operates, poses to our climate, and we need to deal with both at the same time in a coherent fashion.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Garon.

MP Blaikie, go ahead.

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

Thanks, Mr. Chair.

I'm going to start by begging the indulgence of our witnesses as I deal with a little item of committee business.

As did Mr. Chambers, I'm going to give notice of motion, but I'll read it, because other members of the committee have not seen it so far. In my estimation, it's business that arises out of our study of Bill C-47. I've sat at the table for many filibusters and indeed participated in some, but there was something nagging at me about this one that I couldn't quite put my finger on, and after some time for reflection, I think I've kind of figured out what it was that bothered me about it. I hope this motion may help to solve the problem.

It reads as follows:

That: (a) the Committee recognize that (i) Mr. Hallan played a central role in initiating the filibusters of Bill C-47 at committee but had a poor attendance record over the course of the proceedings, (ii) Mr. Lawrence performed the functions one would expect a committee Vice-Chair for the Official Opposition to perform, including (A) attending most of the proceedings, (B) providing leadership for members of his party on the committee floor, (C) hearing proposals from representatives of other parties to conclude the filibuster and (D) negotiating with those representatives to that end, and; (b) that Vice-Chair Hallan no longer has the confidence of the Standing Committee on Finance and, as a result, that we proceed immediately to the election of a new Vice-Chair from the Official Opposition.

I consider notice of that motion to now have been given. I look forward to the opportunity to discuss it at length when I move it. That's not an item for today. Obviously there's a 48-hour notice provision, but I will be following up in writing to the clerk. We should be able to disseminate that in both official languages by the end of the day, Mr. Clerk.

Thank you to our witnesses for enduring that brief bit of committee business.

Do I have a bit of time left, Mr. Chair?

[The Chair, Liberal, Peter Fonseca]

You have a little over a minute.

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

Thank you very much.

The next question that I'm interested in is the importance of aligning Canada with some of our major allies who are already taking action in this space and what it would mean for Canada to have a particular unique taxonomy, or a disclosure regime.

Maybe, Ms. Zvan, you want to weigh in on that.

[Barbara Zvan]

I think a disclosure in a national sustainability standards board will bring that cohesiveness globally. It will take time but it's starting. On taxonomy there's a notion of how they would work together or interoperability. These are based on some of the key assumptions, which are the absolute imperative of alignment to 1.5°C as well as the principle to do no significant harm. We don't jeopardize other environmental objectives, for example, for emissions reductions. Then there are technical matters, the way that you structure it.

As part of the research, we spoke with the Climate Bonds Initiative as well as with people in Australia and Asia. I would say that we are falling very much in line with the global standards around green..., and there's a very big appetite to work together to help with the global definition of transition. That's why we thought it was incredibly important that we consult with them during the process to make sure that they are aligned and supportive of our direction.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Blaikie.

We turn now to MP Morantz.

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

Mr. Chair, Mr. Lawrence is going to start the round for me.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I would like to quickly address Mr. Blaikie's comments.

Conservatives work as a team, and I'm proud to be in collaboration with Mr. Hallan, Mr. Morantz and Mr. Chambers. I don't think that working as a team or working as a collaboration should ever be looked upon as a negative. It's particularly surprising given the NDP's support for collective rights and, quite frankly, Mr. Blaikie's great track record over his years of serving here with tremendous collaboration in trying to work with all parties. I'm a little bit disappointed, Mr. Blaikie, but Conservatives will continue to work as a team. I'm very proud to work alongside Mr. Hallan.

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

Mr. Chair, I would quickly like to echo those sentiments.

It's been a privilege to work with Mr. Hallan, who is an upstanding member of Parliament, an outstanding member of the Indo community across this country, and a very well respected one as well. I'm quite surprised to see the member of the NDP on this committee come out and attack him in his capacity as the vice-chair of this committee for simply doing his job.

With that, I will move on to Mr. Darwall.

Mr. Darwall, just a quick question. You used a phrase earlier. You referred to the socialization of private capital. I'm wondering if you could elaborate on what you meant when you said that.

[Rupert Darwall]

Thank you, MP Morantz.

Is private capital for beneficiaries, fiduciaries, investment managers, pension fund managers and so forth, who have an overriding duty to maximize risk-adjusted returns, or is private capital actually semi-socialized capital that should be used to deliver public policy objectives? That seems to me to be the big question.

I have to say that I'm slightly bewildered by a lot of the talk that's going on in this committee to the effect that we need these rules in order to attract capital to Canada to finance renewable investment. If returns on renewable investment are competitive around the world, Canada will attract funds. That's what's happened in Europe. A lot of those funds have been juiced up at a cost to consumers in the U.K., Germany and so forth with the world's highest electricity costs, but fundamentally, it's about returns. If you have the right return, you will attract capital.

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

On that point, I want to touch on this point with you around the return on investment aspect on this because, from what I've heard in all of these meetings about green finance, green initiatives and using private capital for social purposes, no one seems to speak the language that I'm used to from my days of being a practising corporate commercial lawyer when my clients were interested in return on investment.

It seems to be an utterly foreign concept to people who are now in charge of making investments. It worries me a lot, especially when it comes to people who have invested in pensions, when the pension manager's themselves aren't so much interested in making sure their retirements are safe, but are more interested in pursuing their own ideological goals. I wonder if you could comment on that.

[Rupert Darwall]

Yes, I think you've put your finger exactly on the big issue with ESG investing and the commingling of public policy objectives, or political objectives, and the financial interests of beneficiaries. This is a problem. You have to pull the two apart. There's a role for government, and there's a role for private capital, and you don't want to commingle them.