The existential crisis of climate change: will Canadian investors show authentic leadership?

Climate disruption

As G7 leaders prepare to gather in Halifax this week, Preventable Surprises is pleased to share a new Discussion Note about the Canadian market. With Canada’s Expert Panel on Sustainable Finance getting down to work and the sustainable finance legislation ramping up in Europe, this Discussion Note focuses on the blossoming potential for Canadian leadership in sustainable finance. It seeks to show how new conversations between Canadian stakeholders could trigger more consistent leadership by the Canadian financial system.

The reality is that Canada has a great deal of work to respond to what the UN Secretary General and others have now termed an “existential threat” and overcome the apparent stranglehold of the fossil fuel sector on federal policy. Canadians value authenticity and now is the time for Canada’s investors to show that they can deliver on their commitment to sustainable finance and climate action.

This Discussion Note reflects Preventable Surprises’ interest in raising critical and globally relevant themes with the support of an international network of contributors. It builds on our 2015 report, and also goes beyond climate risk to embrace “sustainable finance”.

In order for the Canadian economy to remain competitive in a low carbon world and for Canada to live up to its potential as a global leader in sustainable finance as well as to show its G7 peers that it is serious about climate action, the paper recommends that the Expert Panel should expand the scope of its work beyond just climate risk disclosure in 7 areas to:

  1. Develop tools and metrics to shift capital away from fossil fuels;
  2. Improve transparency in reporting and financial product labelling;
  3. Clarify ESG integration and stewardship as part of fiduciary duty;
  4. Scale-up public and private financing for sustainable infrastructure;
  5. Identify the financial infrastructure required to channel capital away from fossil fuels;
  6. Empower Canadian savers to invest in change; and
  7. Align corporate accounting frameworks to support long-term prosperity

The federal government’s recent decision to buy a potentially stranded asset in the form of the Kinder Morgan pipeline only underlines the important of the Expert Panel’s work to catalyse a reorientation of the government’s priorities to better align with international commitments.

Despite repeated pledges to eliminate fossil fuel subsidies, Canada leads the G7 in continuing to subsidise oil, gas and coal, fuelling dangerous climate change with taxpayers’ money (see the latest ODI report ). At the same time wind, solar, batteries and electric vehicles combined will, if their prices continue to fall as in the last decade, undercut the operating costs of coal and gas-fired electricity generation, solve the intermittency problem and keep the oil price down. Some commentators have suggested that there is now a real risk that the tar sands could face financial destruction before 2030. In this context, Canada needs to think carefully about how it develops these assets or it could find itself with stranded assets and billions of dollars of unfunded environmental liabilities linked to abandoned mining sites.These issues need to be addressed head on and the Expert Panel has an independent mandate to do so. Indeed, given their long-term orientation and global diversification, Canada’s investors have a stronger business case than they seem to realise for driving the transition of the Canadian economy towards zero emissions. Many long-term and well diversified investors have already agreed that there is a clear case for driving a business transition with regard to climate change and other serious systemic risks. Canadian investors – who continue to be highly respected internationally – will not want to lose their hard-earned reputation as global leaders.

International author and pensions expert Keith Ambachtsheer’s September 2018 advisory letter to clients reviews new research on environmental risks and draws similar conclusions on the need for change, describing how: “long term investors have a fiduciary obligation to understand the long-term risks and opportunities facing their beneficiaries and to address them through constructive, forward-looking actions.” History suggests that the Canadian government and the country’s largest investors need a push in the right direction, and the Expert Panel could provide this with clear recommendations, in the same way that the Task Force on Climate related Financial Disclosures (TCFD) did internationally.

As Alex Steffen, the futurist has noted, “incrementalism is the new denialism.” The Expert Panel has an opportunity to move beyond incremental approaches to delivering a more sustainable financial system for all Canadians. This report provides a clear framework for the Expert Panel to consider as it embarks on the bold processes of catalysing positive change across the economy.

Download the Sustainable Finance in Canada PS Discussion Note here

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