Canada has the expertise and endowments to be a global leader in sustainable finance. And the makeup of our economy – and degree of our exposure to climate change – mean we urgently need to seize its significant potential to help curb emissions and foster climate-compatible economic growth.

Those are key conclusions in the final report of the federal Expert Panel on Sustainable Finance, released earlier today. Canada, the panel also concluded, “has much further to go and significant untapped potential to realize” where the financial sector’s contribution to clean growth is concerned.

The panelists make 15 broad recommendations, which in turn translate into a large number of more granular proposed policy measures and collaborative actions among public- and private-sector players. Their conclusions align with many Council for Clean Capitalism priorities and outcomes, particularly regarding mobilization of green investment to support decarbonization in high-emitting sectors.

The recommendations are solid, if somewhat light on specific rule changes. And as Finance Minister Bill Morneau noted this morning, the challenge will be in acting on them fast enough. And while the panel says all but a few of its recommendations can be at least substantially advanced within a year, its suggested multi-year timeframe for mandatory climate disclosure could certainly be tightened.

The need for action, on this and other fronts, is essentially immediate. Meeting Canada’s Paris Agreement commitments, for example, requires that all infrastructure development from this point forward be carbon-aligned.

The panel’s report will hopefully help build momentum. We’ll be reaching out to Council members in the days ahead to discuss how we may be able to accelerate progress, and in the meantime we’ve summarized the panel report in this Clean Capitalism Insights.

[Our] recommendations are aimed at ‘connecting the dots’ between Canada’s climate objectives, economic ambitions and investment imperatives. They seek to leverage Canada’s financial acumen to facilitate and accelerate market activities, behaviours and structures that – at scale – could put Canada and its key industries at the forefront of the transition to a climate-smart economy.” – Expert Panel Report

Spelling Out the Investment Opportunity

“Canada’s path to sustainable growth will require simultaneous efforts to combat the physical and financial effects of climate change, while helping our key industries competitively navigate the growing intersection between global market access and environmental stewardship.” – Expert Panel Report

The first of three pillars that make up the expert panel report on sustainable finance is rooted in the notion that climate change in Canada can be more opportunity than burden. This important shift, it suggests, will begin with mapping out our national pathway to a low-emissions economy, sector-by-sector, and identifying the investment required to successfully get there.

In other words, the capital requirement already implicit in the federal climate change framework should be made explicit. Sources of that capital – and anticipated gaps, under current circumstances – should be identified. Referred to as “Pan-Canadian Framework 2.0”, this investment plan would extend to 2050 and include realistic “climate-smart competitiveness visions for each of Canada’s key industries”.

The panel further recommends that individual Canadians be given more incentives and opportunities to connect their own retail investing and savings to climate objectives. This could happen by, for example, enabling investments in green bonds via RRSPs and defined contribution pension plans.

Finally as part of this pillar, the panel calls for creation of a standing, public-private Sustainable Finance Action Council. It would advise the federal government as it implements panel recommendations, with focus areas that would include creation of criteria to govern green and transitional funding mechanisms.

Scaling up to Meet the Challenge

The second pillar of the expert panel report on sustainable finance consists of a range of building blocks. Once properly assembled, they will make alignment of financing activities with climate objectives a mainstream feature of Canadian capital markets. These building blocks include better information and disclosure, legal clarity, and supportive professional services.

A new Canadian Centre for Climate Information and Analytics would consolidate scientific climate-change data relevant to decisions in the insurance, debt and equity underwriting, infrastructure development, and other financial realms. Such information is already abundant, but disparate and difficult to access.

The report calls for Canadian implementation of the recommendations made in 2017 by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures. This would entail a phased comply-or-explain requirement for Canadian companies and financial institutions, with a five- to seven-year implementation window.

Other third-pillar recommendations include clarifying the scope of fiduciary duty with respect to climate-related risks, expanding specialized training and education relevant to the climate-finance interface, and better integrating climate risk into regulation and oversight of the financial system.

The panel sees this set of recommendations as a means of scaling up what could otherwise remain modest sustainable capital flows.

Creating Financial Products for Sustainable Growth

In its final pillar, the expert panel report on sustainable finance focuses on the financing needs of critical sectors of the Canadian economy, and on acceleration of the low-carbon transition that is already well underway.

The panel notes that emerging green bond criteria risk excluding GHG-reducing activities in heavy resource and industrial sectors, and calls for establishment of a Taxonomy Technical Committee to consider more inclusive approaches.

Council for Clean Capitalism members have already participated in early-stage development of a Clean Transition Bonds taxonomy. And this morning, panel chair Tiff Macklem stressed the importance of Canadian engagement on this topic, noting that it will otherwise be driven by countries without large resource sectors.

The panel specifically calls for support for oil and gas industry efforts to reduce emissions – suggesting it could help address recent capital flight – and says this sector’s growth path needs to include all of: a clean innovation vision, enhanced industry commitment and transparency, and improved market access.

The panel also addresses green buildings, another Council for Clean Capitalism priority, recommending measures to foster of a vibrant private-building retrofit market. Further recommendations speak to a national sustainable infrastructure strategy, and to institutional investor participation in expansion and modernization of the electricity grid.

These market-structure and financial-product recommendations, the panel says, reflect Canada’s unique economic makeup, and align closely with the existing Pan-Canadian Climate Change Framework.