In the pursuit of its net-zero 2050 goal, Canada needs a rigorous strategy to require banks and other key financial system players, including Crown corporations, to fully align their operations with the country’s international climate commitments.
To achieve that goal, Senator Rosa Galvez on March 24 introduced a private member’s bill that would hasten the transition of the financial sector to meet the challenges of the growing climate emergency.
“The present financial system fuels the climate crisis,” Galvez said in an interview. “We know that our government says we should be leaders in climate, but its actions and policies are incoherent and at times counter-productive, and it is moving too slowly to meet its stated ambitions.”
The legislation would establish a duty for directors and officers of financial corporations to align their business with climate commitments, including the target adopted under the Paris Agreement to reduce greenhouse gas emissions by between 40 and 45% by 2030, and the net-zero 2050 target.
“We want to align the federal financial institutions and other federal regulated entities with the superseding economic and public-interest matter of achieving our climate commitments,” says Galvez. “We have to align our finances with the climate reality of today.”
Galvez, who is a member of the Independent Senators Group, is an environmental engineer with expertise in pollution control. She is also a member of both the Senate National Finance and its Standing Committee on Energy, the Environment and Natural Resources.
The present financial system fuels the climate crisis.
–Senator Rosa Galvez
She acknowledges that it is extremely rare for a Senate private member’s bill to become law but is hopeful she can get hers through the upper chamber and force the House of Commons to consider it.
Accelerating the transition of the financial sector would harness the enormous power of capital markets and would shift investment from unsustainable fossil fuel business to low- and zero-carbon alternatives.
The Liberal government has introduced a number of measures to better align its own financial agencies and the private sector with climate goals. Environment Minister Steven Guilbeault is expected to release the government’s updated emission reduction plan by the end of March, though it is unclear the degree to which climate finance will factor into the plan, or in Finance Minister Chrystia Freeland’s budget in early April.
Under the confidence agreement reached between Prime Minister Justin Trudeau and NDP Leader Jagmeet Singh, announced March 22, the government has committed to phasing out federal funding for the fossil fuel industry, including from Crown corporations like Export Development Canada.
The Office of the Superintendent of Financial Institutions (OSFI) has said it will provide more guidance to federally regulated banks, insurance companies and pension funds on how they will be expected to manage climate-related risks and the disclosure of risks and opportunities. However, much of the attention has focused on the requirement of the financial companies to disclose their climate-related risks and mitigation strategies, rather than setting a clear bar for action.
Last year, Canada’s largest banks committed to achieve net-zero emissions from their lending and investment operations by 2050 as part of the United Nations–backed Net-Zero Banking Alliance (NZBA). The Canadian Bankers Association (CBA) said its members are committed to doing their part to address the climate issue.
Few people believe the banks will voluntarily leave fossil-fuel money on the table in order to meet their voluntary NZBA commitments. Legislation would be a welcome way to speed things up.
-Matt Price, co-founder of Investors for Paris Compliance
“Banks understand that the financial sector is central to securing the transition to a low-carbon economy, mitigating the financial risks of climate change, and ensuring the continued resilience of our country’s financial system,” CBA spokesman Mathieu Labrèche said in an emailed statement. “Banks also acknowledge that firm commitments are required to accelerate clean economic growth in Canada and to meet the ambitious goal of a net-zero economy by 2050.”
He notes that several banks in Canada have begun implementing climate action plans that set specific targets to meet the demands of this global challenge, including committing to climate-related financial disclosures, adapting their risk management frameworks, and reducing financed emissions.
However, none of the plans released to date fully measure up to the pledges the banks made to the NZBA, says Matt Price, who co-founded Investors for Paris Compliance to serve as a watchdog on the banks.
“Few people believe the banks will voluntarily leave fossil-fuel money on the table in order to meet their voluntary NZBA commitments,” Price said in an email. “Legislation would be a welcome way to speed things up – we don’t have time to be dithering over disclosure and the like.”
Galvez’s bill would go far beyond the issue of disclosure and demand systemic change among the regulators, the government’s own financial agencies and the private sector institutions. It would include amendments to legislation covering the Bank of Canada, OSFI, Export Development Canada, the Canada Infrastructure Bank and the Canada Pension Plan Investment Board.
The legislation would require the companies to make annual reports to the federal regulators on action plans, targets and progress on meeting the climate commitments. And it would require climate expertise on corporate boards and the avoidance of conflicts of interest in which a board member is an executive at a company that is itself not aligned with climate-change goals.
“We’re seeing major decarbonization commitments all around the world, including here in Canada,” Galvez says. “So we need as a government to help everybody get there, to get to the starting line and then run the race. And any delay means risk and means losing money.”