Canada must not let acute economic challenges threaten climate progress

Hands holding green globe in green environment

The World Economic Forum’s (WEF) annual Global Risks Report highlights the immediate concern of the cost-of-living crisis and the longer-term risks associated with the failure to address climate change. The WEF also listed cybercrime and cyber insecurity as a growing risk and how the race to develop artificial intelligence and quantum computing could offer solutions. These concerns have been on the Global Risk Institute’s (GRI) radar as we have been investigating how these risks will ultimately impact Canada’s financial services sector.

The Russian invasion of Ukraine, and its continued reverberations through global energy and other commodities markets, such as food, is one of three disruptions that directly impact Canadians’ cost-of-living challenges. The second is the elevated tensions between the U.S. and China in recent years have stifled sensitive markets for critical technology components, and China’s “zero COVID” policies have created significantly strained corporate value chains, and the impact of loosening those policies has yet to be fully felt. Lastly, the trend toward deglobalization could significantly impact on Canada, which relies heavily on trade for its economic success.

The regionalization of trade and return of energy insecurity are now being used as risk mitigation strategies in Canada’s value chain, a central theme of the Global Risk Institute’s annual summit last November. Global business and economic analyst Rana Foroohar told GRI members that corporations and governments should prioritize resilience over efficiency. Professor Janice Stein of the University of Toronto’s Munk School of Global Affairs and Public Policy also highlighted a range of diverse global futures, including contrasting narratives about the future of globalization because of the shift towards regionalization and persistence of status-quo levels of trade and interconnectivity. It became clear that corporate Canada needs to prepare their operations for these multiple, disparate risks as we rebuild the economy in the coming years.

The political expediency of addressing current economic and energy security challenges may impede the immediate action needed for the longer-term risks associated with climate change. Climate action requires significant investments in renewable energy and other low-carbon infrastructure, new research and development, and changes to consumption patterns and lifestyles of Canadians. These investments can be difficult to advance in times of economic hardship with governments focused on immediate constituent needs. As the WEF noted, there is a “gap between what is scientifically necessary and politically palatable.”

In light of current global disruptions, three potential futures for climate change and global energy with implications for Canada and its financial sector could be considered. First, a singular focus on fossil fuels to ensure the security of domestic energy supply at the expense of net-zero commitments. Second, a bridge approach that temporarily focuses on the further development of non-renewables to meet acute energy needs, while hastening progress on clean energy adoption over the longer term to achieve carbon neutrality. And third, a green acceleration to a low-carbon future with no new fossil fuel investments. Businesses must have plans in place to be resilient and pivot their operations to succeed across these potential futures.

Despite the economic challenges, Canadian businesses have an opportunity for a step-change towards a more sustainable future. A shift towards renewable energy, green infrastructure, and sustainable consumption could curb the long-term, worst effects of climate change and provide a much-needed boost to the immediate economy. Short-sighted decisions in the face of economic hardship could put the brakes on progress and make it even harder to recover in the long run. This crucial moment in history is a call to action, not just for governments and corporations, but for individuals to make tough, conscious choices that could help steer the world towards a more stable and sustainable future not just for us but for future generations.