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Ottawa –Finance Minister Bill Morneau has said little publicly about sustainable finance over the past seven months since a federally appointed panel argued that climate-related issues must become mainstream considerations in Canada’s financial sector.

But with the Liberals preparing for their first minority-government budget, Morneau is under growing pressure to act on the panel’s call for better data and clearer rules on climate-related finance and other incentives to drive capital into emerging low-carbon technologies.

The government remains committed to acting on sustainable finance and will “consider the [panel’s] recommendations very closely,” Morneau’s spokesperson, Pierre-Olivier Herbert, said in an interview. He would not comment on what measures are being considered for the budget.

The Liberals have embraced the aim of “net zero” carbon emissions by 2050 and plan to enshrine that goal in legislation with a series of five-year interim targets. Environment Minister Jonathan Wilkinson said sustainable finance is an important component of the government’s commitment to reach net-zero greenhouse gas emissions by 2050, and that he and Morneau “will have more to say on [the panel’s] recommendations in the coming months.”

“The right finance and investment structures can help Canadians and governments fight climate change and transition to a low carbon economy,” Wilkinson said in an emailed response.

“Globally, we are seeing significant movement to consider climate impacts in investment decision-making and in the mobilization of capital.”

Sources in government and the private sector say they expect the budget will provide discussion of the government’s approach to climate-related finance, though it remains unclear the degree to which it will include concrete measures.

In June 2019, a federally appointed expert panel on sustainable finance issued a report with 15 recommendations that would put climate change considerations in the mainstream of the country’s financial system.

The panel was chaired by former Bank of Canada deputy governor Tiff Macklem and included senior executives from the Canada Pension Plan Investment Board and Quebec’s Caisse de dépôt et placement, as well as a member of the Royal Bank of Canada’s board of directors.

Wilkinson met on January 22 with some members of the expert panel and recommitted to action, though he did not provide specifics.

There remains considerable resistance in some quarters of the financial community to the notion that asset managers and financial institutions must take into account long-term environmental considerations when making their investment decisions. Former Conservative finance minister Joe Oliver, writing in the Financial Post, criticized the Macklem panel, saying its proposals would “undermine a fundamental underpinning of the market economy, with negative consequences for profitability, capital formation and wealth creation.”

In a pre-budget submission, the national Chartered Professional Accountants (CPA) association urged the government to implement the recommendations of the expert panel that fall within federal jurisdiction and to encourage the private sector and provinces to act.

CPA highlighted two key recommendations from the Macklem panel: that the government map a long-term plan to achieve a low-carbon economy, sector by sector, complete with the amount of investment that would be required to achieve it; and that Ottawa establish an information and analytics centre to provide data on a broad range of climate-related issues, including private-sector targets, actions, risks and opportunities.

The two measures would give businesses and investors greater certainty and confidence in making decisions about climate-related risks and opportunities, Rosemary McGuire, CPA’s director for external reporting and capital markets, said in an interview.

Sean Cleary, executive director of the newly launched Institute for Sustainable Finance, housed at Queen’s University, said the federal government should also take up the Macklem panel’s recommendation to clarify the concept of fiduciary duty for pension funds, corporate boards and finance industry players.

The Macklem panel noted that many people in the financial sector regard environmental issues such as climate change as “non-financial” and therefore outside the scope of their fiduciary responsibility to achieve the best risk-adjusted returns.

Cleary said the notion is inconsistent with clear warnings from the Bank of Canada and global bodies like the Bank for International Settlements (BIS) – the global association of central banks – that climate change represents a major risk to corporate balance sheets and national economies.

The BIS issued a report on January 20 warning that climate change could have seismic impacts on the world’s financial systems.

Since the Macklem panel reported last June, there has been increased attention paid to sustainable finance, including a statement from the world’s largest asset manager, BlackRock, that it would screen all investments for climate-related financial risk.

However, on a panel at the World Economic Forum in Davos in January, Morneau talked about a “balanced approach” to budget-making but did not address one of the conference’s more prevalent themes: the risks that climate change poses to business and national economies.

His silence on the subject of sustainable finance is a “little discouraging,” Cleary said. “It’s a really important part of the process” for meeting Canada’s climate goals.

 

Shawn McCarthy writes on sustainable finance and climate. He is also senior counsel for Sussex Strategy Group.

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