Tiff Macklem

Andy Chisholm
Barbara Zvan
Kim Thomassin
z
• Launched April 2018 by Minister Tiff Macklem
Dean of Rotman School of Management; Former Senior
McKenna and Minister Morneau Deputy Governor of the Bank of Canada; Director, Scotiabank

• Objective of providing Andy Chisholm

recommendations to the federal Former Goldman Sachs partner, Co-Head, Global Financial
Institutions Group, and Senior Strategy Officer, Director, RBC
government for consideration.

Barbara Zvan
• Interim report published in October Chief Risk & Strategy Officer for the Ontario Teachers’
Pension Plan; Director, Cadillac Fairview

• Final Report with recommendations

– Spring 2019 Kim Thomassin
Executive Vice-President of Legal Affairs and Secretariat for
Caisse de dépôt et placement du Québec
Near universal recognition that global climate is
changing with dramatic implications for the economy
• need to invest in adaptation and transition

Canada, together with 197 jurisdictions, has

signed the Paris agreement, with the goal of
limiting global temperature increases below 2°C
 GHG Emissions per Capita in G7 Countries, 2015

United State 20.5

Canada 20

11.1
Germany

Japan 10.4

United Kingdom 7.9

France 7.2

7.0
Italy
 Greenhouse Gas Emissions by
• Grow economy while to reducing GHG emissions to 30%
Canadian Economic Sector (Mt C02e), 2016
below 2005 levels by 2030 by
- increasing renewable energy
- modernizing electricity systems
- making buildings more energy efficient
- setting emissions standards for motor vehicles
- reducing methane and hydrofluorocarbon
- increased stored carbon
- cutting emissions of government buildings and fleets
- investing in climate resilient infrastructure

• Mid-century strategy 80% below 2005 by 2050

Source: ECCC
• Globally, over $100 tr. in global investment to achieve
Paris Agreement
• For Canada over $2 tr.
• Public sector imperative to make scale and pace clear
• Financial sector imperative to support transition of the
real economy by:
- Connecting savings with investments in
sustainable outcomes
- Helping household and businesses manage new
climate risks

What gets funded gets done

• Our financial system is capable of the task
• BIG opportunity
• Need to work together, move faster and more
decisively
 Examples of sustainable finance in practice could include:

Capital flows (as reflected in lending and • A rental car company issuing a green bond to finance a
investment), risk management ( such as fleet of hybrid vehicles
insurance and risk assessment) and
financial processes (including disclosure, • An oil and gas company issuing equity or debt to invest in
measures to reduce energy consumption or methane
valuation and oversight) that assimilate
emission in extraction or production
environmental and social factors as a
means of promoting economic growth and • A homeowner taking out a loan for an energy efficiency
the long-term stability of the financial build or renovation, or resiliency improvements.
system.
• A venture capital firm investing in a new cleantech startup
The Panel is particularly focused on
• An insurance company offering preferred rates for flood
engaging mainstream capital markets in
resiliency measures
sustainable finance.
Financial Stability Board’s Task Force on United Nations Environment Program (UNEP-FI)
Climate-related Financial Disclosures
G7, G20, World Bank, OECD
EU High-Level Expert Group on Sustainable Finance
Other Countries Developing Action Plans:
UK Green Finance Taskforce • Italy • Sweden
• France • New Zealand
China’s Green Finance Committee and Green • Netherlands • Australia
Finance Task Force • Norway • Singapore
Official TCFD Supporter by Country Cumulative Green Bond Issuance by Country (end-2017)

5
0

4
0

USD Billions
3
0

2
0

1
0

Source: Task Force on Climate-related Financial Disclosures, as of September 26, 2018 Source: Climate Bonds Initiative and Smart Prosperity
Clean Energy Investment as a Share of GDP Carbon Content of Exchange Traded Funds

Source: TCFD, as of August 28, 2018 Source: ETF.com (retrieved July 3, 2018)
• Enthusiasm, commitment to progress • Climate change knowledge and capacity in

• Financial services are taking action financial services support ecosystem low

⎯ Important pockets of growth in sustainable finance (accountants, lawyers, consultants…)

⎯ But diffused and uncoordinated • Perception among some that fiduciary duty may

⎯ Insufficient view of scale of market and pace conflict with ESG issues

required • Benchmark indices and ETFs reinforce status

• Until Pan-Canadian Framework’s implementation path is quo investment strategies
more concrete, market participants will be hesitant
• Regulators at generally early stage in navigating
• Climate risks often seen as uncertain or distant relative implications of climate risk
to cyber, data, regulatory risks and digital disruption • Need for accelerated and more strategic
• Even large financial institution with deep resources have dialogues between industry, innovators,
difficulty assessing reliable and consistent governments, academia and financial sector
carbon/climate information
• P&C advanced owing to • Despite some leaders, generally • More comprehensively
dramatic increase in weather ESG integration in investment involved in the economy with
related damage claims process is early stage potential to play a big role
- Sophisticated predictive • Belief that portfolios can be • But market, shareholder
climate models impacting adjusted as climate impacts regulatory signals to address
strategy increase climate change muted
- Focus on adaptation and • Benchmark indices dominant • Endorsed TCFD but early in
resilience driver of investment allocations implementation journey
⎯ But key indices 4-5°C scenario
- Data difficult and expensive • More proactive role could
extend to building market
• Conventional risk modelling not capacity and assisting clients
• Life insurers at an earlier well adapted to climate risk
stage. Focus is on integrating in transition plans
ESG into investment • Increasing pressure to divest • Considerable activity but
carbon-intensive industries diffused – not a core driver of
strategy
Clarity On Climate Policy Clear interpretation of Fiduciary Duty

Reliable Information Knowledgeable Support Ecosystem

Effective Climate-related
Disclosures Effective and Consistent Regulation
Background Observations

• Access to reliable climate information and • Sophisticated institutions, such as P&C insurers and
the ability to translate into financial banks, increasingly have expertise to pursue
outcomes is central to sustainability-related climate-oriented information and analysis, but still
risk assessment difficult

• Would better inform a wide array of activities, • The absence of a simple means of assessing
including insurance underwriting decisions, climate impacts is impeding the flow of capital into
lending and investment decisions, community sustainable finance
and infrastructure development
• A better understanding is required of what data is
• The Canadian Climate Information Portal currently available, what information needs to be
serves as a positive first step in centralizing centralized, and in what form
climate information, but there is a need for
translation of this data into decision-useful • Canada could become a leader in industry-relevant
financial analysis environmental analytics and these efforts could
play into Canada’s big data and AI initiatives
Background Observations

• Effective climate-related disclosures promote • Progress on implementation of the TCFD by companies

more informed credit, investment and and regulators remains nascent, although a subset of
insurance underwriting decisions large, sophisticated investors making progress
• In 2017, the Financial Stability Board’s Task • Expertise/capacity of professional support ecosystem
Force on Climate-related Financial Disclosures lacking
(TCFD) published a set of recommendations for
more consistent and comparable climate-related • There are opposing views on whether TCFD should
financial risks and opportunities remain voluntary or become mandatory

• Adoption of the TCFD framework has become • Stronger signals are needed from financial regulator
a global effort and, while it remains early stage, and investors on reporting expectations and financial
implementation of the TCFD framework may materiality
serve as a model for scaled commitment to • Policy interventions should encourage enhanced
sustainable finance practices but conscious of overall burden on issuers
Background Observations

• Canada’s financial sector is supported by an • Several providers indicated that a clear sign of the
ecosystem of professional services, including prospective client demand on climate-related
auditors, accountants, rating agencies, lawyers disclosures would build confidence to add capacity
and brokers
• Industry associations play a key role in facilitating
• Many companies and investors depend on these awareness and understanding of developing themes
supportive bodies to navigate emerging themes within their member bases, but they are also not seeing
the necessary demand signals from their members
• Investment by these players in building capacity
in specialized expertise is largely demand-driven • Canada’s financial support ecosystem could potentially
benefit from expanded participation in international
• Circular dynamic with limited climate initiatives
capacity in support eco-system reflecting
modest demand from clients
Building Retrofits for Energy Optimized Electricity Generation
Efficiency and Climate Adaptation and Transmission

Sustainable Asset Management

Sustainable Infrastructure
and Financial Products

Cleantech innovation Green and Transition-linked

Financial Products

Innovation in Oil and Gas

Industries
Background Observations

• Buildings represent 11% of GHG emissions and • Most property owners have pledged the property as collateral,
retrofits are critical part of Canada’s transition making it difficult to secure financing

• Homeowners often prioritize aesthetics, cost and convenience

• Retrofitting can save energy costs, enhance property over energy efficiency or resiliency
values, improve conditions for occupants and create
employment opportunities • Project aggregation and securitization will be key
measures for crowding private capital into the retrofit
• Reaching economies of scale will require more market
investment in specialized skills, technology and • Preferential insurance and mortgage rates could incentivize
financing retrofit investments

• A centralized platform could help identify projects, collect best

practices and pioneer finance structures

• There is interest in a mandatory energy efficiency labeling

program and an opportunity for the government to pilot it
Background Observations

• Understanding of financial materiality of climate change • Limited access to reliable, relevant and consistent ESG data is
is evolving and climate risk may not be fully accounted a barrier to wider ESG integration
for today
• Climate-related financial disclosures help asset owners invest,
• Common benchmarks are estimated to align with a report, and manage climate risk
3.5-5°C scenario, investors may not be in line with a 2°
C target • Translation of ESG information into investment decisions
and forward-looking scenarios is needed
• There is growing evidence that focused ESG investing
may enhance risk-adjusted returns • Unlike traditional risk analysis, climate modeling cannot be
calibrated to historical data

• Banks have a role to play in engaging investors and businesses

on sustainable investing

• There was support for educating and consulting pension

beneficiaries on the sustainability impact of their investments
Background Observations

• Green bond proceeds are earmarked for • Green bond market needs to grow in size and liquidity
environmentally beneficial activities and the market
is growing • But, unlikely to flow sufficient mainstream capital

• Guidelines for green bonds exist, however their • Transparency, reporting and verification are essential to
scope may overlook some sustainable opportunities avoid “greenwashing”

• Accurate labeling is important and there is mounting • Engagement with international green standards is important
focus on sustainable finance taxonomies to ensure Canadian considerations are not incompatible
with green taxonomies
• Transition-linked bonds are an emerging
financial instrument available to • Canada could position itself as international centre for
emission-intensive firms and tie sustainability transition-linked financial products
targets to the firms’ cost of capital
• Successful adaptation to climate change – minimizing cost and risk
• Smooth and inclusive economic transition to clean growth, new jobs
• Stable financial system maintained
• Canada’s long-term commercial competitiveness is enhanced
• Improved energy efficiency and reduced energy costs
• Vibrant clean-tech sector creating new export markets and jobs
• Leader in clean electrification
• Outsized global position in energy, agriculture, resources, maintained
• Canada is a leading hub of sustainable finance
• The Panel will be pursuing targeted consultations on these issues
• A final report with recommendations to the Ministers in Spring 2019

Contact Information:

Email: ec.sfep-pefd.ec@canada.ca
Web: www.canada.ca/en/environment-climate-change/services/climate-change/expert-panel-sustainable-finance.html