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Final Report of the Expert Panel on Sustainable Finance – Mobilizing Finance for Sustainable Growth

Executive Summary

The right finance and investment structures can help fight climate change and build the low carbon economy. We’ve set up an expert panel to engage with business experts about investments that benefit the environment.

Canada has a strong, diversified and resource-rich economy; a world-leading financial sector; and excellent capacity for innovation. By harnessing these advantages, Canada can be among the leaders in the global transition to a low-emissions future as a trusted source of climate-smart solutions, expertise and investment. Realizing this ambition will require a committed alliance between business, government and civil society, and determined investment. This Final Report is about mobilizing financial services to deliver the investment, ingenuity and influence needed to realize Canada’s leadership opportunity and secure a sustainable economic future.

The effects of climate change are upon us. Shifting weather patterns are amplifying the natural risks we already face – floods, storms, heat and drought – leading to more frequent and extreme loss events. Preparing for and adapting to the current and future impacts of climate change is a critical aspect in managing risk to our communities, businesses and ecosystems. As the effects of climate change are becoming more evident around the world, we are also seeing shifts in consumer preferences, innovation, economic activity, competitive advantage and wealth creation. Consumers are increasingly looking for services and products with a smaller environmental footprint. Climate-smart innovations are no longer marginal alternatives - they are becoming a massive global market opportunity yielding quality jobs. With these shifts, sound environmental stewardship is increasingly intersecting with market access and becoming a critical source of sustained competitive advantage.

While the Government has put forward a plan to underpin Canada’s transition - the Pan Canadian Framework for Clean Growth and Climate Change (PCF) - and begun implementing key policies, the role of financial markets in driving this change has yet to be fully leveraged. Finance is not going to solve climate change, but it has a critical role to play in supporting the real economy through the transition. The emerging field of ‘sustainable finance’ is focused squarely on channeling financial sector expertise, ingenuity and influence towards the challenges and opportunities posed by climate change.

The potential for sustainable finance to accelerate transition and help households and businesses manage new climate risks is already well recognized in a number of Canada’s international peers, including the European Union, the United Kingdom and China. Major financial centres in these countries are beginning to implement the recommendations of their sustainable finance task forces, with ambitions to become global hubs in this market. Canada has the means and the opportunity to stand among these global leaders as a decision-maker rather than a decision-taker in the global market for sustainable products, markets and growth.

Recognizing the opportunity, Canada’s Minister of Environment and Climate Change and Minister of Finance jointly appointed the Expert Panel on Sustainable Finance in April 2018 to explore opportunities and challenges facing Canada in this field, and to present the Government with a set of recommendations to scale and align sustainable finance in Canada with our country’s climate and economic goals.

Following extensive consultations, the Expert Panel delivered an Interim Report in October 2018 that laid out the state of play in Canada, identifying factors critical to developing and scaling priority financial markets and products.

This Final Report – Mobilizing Finance for Sustainable Growth – presents a package of practical, concrete recommendations focused on spurring the essential market activities, behaviours and structures needed to bring sustainable finance into the mainstream. If Canada is to meet its long-term objectives, sustainable finance must become, simply, finance. In other words, climate change opportunity and risk management need to become business-as-usual in financial services, and embedded in everyday business decisions, products and services.

The Panel’s 15 recommendations for achieving this goal are grouped into three mutually reinforcing pillars:

Pillar I: The Opportunity

Canada should put forward a renewed long-term vision for its transition, with focused policies to help businesses and investors of all sizes effectively respond to the economic opportunity. Mapping Canada’s climate goals into clear industry competitiveness visions and capital plans would spell out the size and horizon of the investment opportunity. Meanwhile, an incentive for Canadians to make climate-smart investments would drive demand for financial products and services that promote sustainable outcomes.

  • Recommendation 1: Map Canada’s long-term path to a low-emissions, climate-smart economy, sector by sector, with an associated capital plan.
  • Recommendation 2: Provide Canadians the opportunity and incentive to connect their savings to climate objectives.
  • ·Recommendation 3: Establish a standing Canadian Sustainable Finance Action Council (SFAC), with a cross-departmental secretariat, to advise and assist the federal government in implementing the Panel’s recommendations.

Pillar II: Foundations for Market Scale

Canada’s public and private sectors should invest in the essential building blocks needed to scale the Canadian market for sustainable finance to mainstream status. These foundations include authoritative and decision-useful climate information; effective climate-related financial disclosures from businesses and investors; legal clarity around the obligations of investment fiduciaries; financial regulation that addresses climate risk; and a supportive and climate-informed ecosystem of professional services providers.

  • Recommendation 4: Establish the Canadian Centre for Climate Information and Analytics (C3IA) as an authoritative source of climate information and decision analysis.
  • Recommendation 5: Define and pursue a Canadian approach to implementing the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).
  • Recommendation 6: Clarify the scope of fiduciary duty in the context of climate change.
  • Recommendation 7: Promote a knowledgeable financial support ecosystem.
  • Recommendation 8: Embed climate-related risk into monitoring, regulation and supervision of Canada’s financial system.

Pillar III: Financial Products and Markets for Sustainable Growth

Recognizing Canada’s unique economic make-up, the Panel has identified several opportunities to develop and scale up market structures and financial products that would have particular impact in facilitating Canada’s transition and adaptation. These opportunities align closely with Canada’s PCF and support the financing needs of critical segments of the Canadian economy such as clean technology, oil and natural gas, infrastructure, buildings, and electricity generation and transmission.

  • Recommendation 9: Expand Canada’s green fixed income market, and set a global standard for transition-oriented financing.
  • Recommendation 10: Promote sustainable investment as ‘business as usual’ within Canada’s asset management community.
  • Recommendation 11: Define Canada’s clean technology market advantage and financing strategy.
  • Recommendation 12: Support Canada’s oil and natural gas industry in building a low-emissions, globally competitive future.
  • Recommendation 13: Accelerate the development of a vibrant private building retrofit market.
  • Recommendation 14: Align Canada’s infrastructure strategy with its long-term sustainable growth objectives and leverage private capital in its delivery.
  • Recommendation 15: Engage institutional investors in the financing of Canada’s electricity grid of the future.

We encourage governments at all levels, regulators, businesses and investors to consider these recommendations in charting Canada’s course toward a sustainable, prosperous, and resilient future.