Canada can and must improve on sustainable finance

Two years ago, the Panel of Experts on Sustainable Finance published a report focused on the need to align our financial systems with viable plans for the timely reduction of emissions and climate adaptation in order to achieve our environmental imperatives and, at the same time, reinforce our long-term global competitiveness.

The 15 recommendations of the panel in the report focused on the need for public-private sector collaboration in the development of these plans, integrating sustainability into the practices and policies of the financial system and increasing investment in key issues such as electrification, infrastructure and industrial innovation.

The need to scale sustainable finance in Canada is more urgent today than when those recommendations were published. However, the first expert evaluation The state of sustainable finance in Canada shows that we are not moving fast enough. While progress has been made on the recommendations, time is of the essence and Canada must improve its game to ensure that we form the foundation for a competitive and sustainable economy that is consistent with a timely transition to net zero.

First, we need more building blocks to support good risk-based decisions, including sufficient corporate climate-related disclosures; reliable, consistent and financially relevant climate data; clarity around the responsibilities of key industry professionals and commonly accepted definitions.

Second, we need new financial structures to combine public and private finance, and new securities structures designed to finance the transition of heavy industry. This includes intensifying efforts to develop a transitional taxonomy, introduce innovative financing, and promote sustainable investing as a “business as usual” within the asset management community.

Armed with these improved tools, we need more capital to flow under a sustainable lens. This applies to traditional areas such as electrification, building modernization, and climate-smart infrastructure, as well as emerging opportunities such as hydrogen, biofuels, battery-powered mineral supply chains for electric vehicles, regenerative agriculture, carbon capture, and technologies that they drive breakthroughs. in building materials and energy efficiency. These actions will serve to safeguard existing industries and create new pillars for the Canadian economy.

We have reason for optimism. In the private sector, some leading institutions have worked to improve their disclosure and have begun work to adjust risk frameworks and experiment with scenario analysis. Investment practices are evolving rapidly and significantly. These institutions are setting net zero goals and related funding commitments, and support plans are beginning to emerge. Training programs have been created to improve knowledge and capacity in sustainable finance. In some cases, guidance and opinions on legal and governance issues have been published.

Notwithstanding these and other advances, there is an urgent need to increase the scope, intensity and speed of efforts. An important learning is that, as anticipated, for the financial system to act in a rational, data-driven manner, improved data and disclosure is essential across the economy, and credible net zero plans must become the norm for all sectors of the industry.

At the public sector level, a lot has happened again. Policies on carbon pricing have been further clarified. The emission reduction targets have been improved and have become law through Bill C-12. Important advisory bodies have been established and regulators have begun to interact with the financial sector in risk and scenario planning. Infrastructure planning has advanced. The modernization financing capacity is being expanded through the Infrastructure Bank of Canada and other sources. Additional support for cleantech innovation has been announced.

However, much more needs to be done in conjunction with the private sector to provide direction, set limits, align regulation, and incentivize constructive action. Ultimately, Canada’s public and private sectors must come together, and act together, to expand and unlock the equity funds available to provide the transitional capital our industries need.

The moral imperative is clear. Follow the financial imperative. In that context, this is a turning point for sustainable finance and for Canada. As global leaders and investors redouble their commitment to a net zero world, trillions of dollars will flow. Canada has the opportunity to improve its global economic stature while helping to solve the world’s greatest environmental challenge.

Our country has all the necessary ingredients to excel in this challenge: financial experience, business acumen, innovation capacity, public sector sophistication, capable NGOs, indigenous wisdom, and a unique collaborative mindset. All of this is critical to aligning capital with a zero net future in a way that supports a just, commercially successful and timely economic transition for the benefit of Canadians and the world.

As the leading nations rush forward, we must take charge and secure our own destiny.

Andy Chisholm is a member of the Panel of Experts on Sustainable Finance and a chairman of the board of RBC and MaRS. Sean Cleary is the president of the Institute for Sustainable Finance and co-author of the recently released report, Changing Gears: Sustainable Finance Progress in Canada.