Green Recovery – Risks and Opportunities for the Financial Sector
On October 1, 2020, the Global Risk Institute hosted a webinar on Canada’s Green Recovery, with guest speakers, Bruce Lourie, President, The Ivey Foundation, and member of the Taskforce for a Resilient Recovery, and Jonathan Hackett, Managing Director and Head of Sustainable Finance, BMO. The webinar was moderated by Alyson Slater, Senior Director of Sustainable Finance, GRI. Below is an overview of the key points that were discussed.
The Canadian government has projected a $343 billion deficit as it continues its extraordinary effort to extend support to people and businesses through the COVID-19 pandemic. As spending shifts from emergency aid toward long term economic recovery goals, there is an opportunity for government to prioritize support for various areas of the economy it would like to see grow. Government green stimulus is defined as direct government spending (grants, loans, investments), fiscal measures, or regulatory easing that are designed to increase economic activity – in the context of unemployment and uncertainty – that also achieve green outcomes. Lourie pointed out that the objective of resilient recovery investment is not about dealing with the pandemic itself, but how to build a resilient and competitive economy coming out of this event.
The webinar was convened in response to some early signals from government about green stimulus spending priorities. In the September 2020 Throne Speech, the government outlined some of its green priorities such as legislating net-zero carbon emissions by 2050, making Canada the most competitive destination for clean technology, retrofitting homes and buildings, producing electric vehicles and batteries, and significant investments in clean power to transition Canada off coal as well as investments to protect and restore nature. This was followed up a week later in early October with an announcement from the Canada Infrastructure Bank committing them to $10 billion in investments, including $2.5 billion for clean power, $2 billion for large-scale energy efficient building retrofits; and $1.5 billion to speed up the adoption of zero-emission buses and charging infrastructure. These announcements are mainly in line with the recommendations from the Taskforce for a Resilient Recovery that Lourie helped lead.
There has been a very clear message from government that green stimulus will be structured in a manner designed to attract significantly more capital from the private sector. The focus of the webinar was on implications and opportunities for financial institutions.
Attracting Private Sector Capital
A recent report released by the Institute for Sustainable Finance said that in order for Canada to reach its 2030 climate targets, a total of $128 billion in capital investments would be needed[i]. The $10 billion that the federal government and the Canadian Infrastructure Bank announced is a robust commitment, but falls far short of the capital needed to accomplish the envisioned projects or the longer-term climate targets.
In order to drive innovation and move Canada to a low-carbon economy, there needs to be coordinated action between stimulus initiatives, regulations, and fiscal measures. In the webinar, Hackett explored the important role that government can play as a catalyst for green and transition activities. For example, the government could provide credit enhancements such as loan guarantees that would lower risk and expand opportunities for private sector financing. Another way could be to use tax incentives to increase demand and drive down the cost of retrofits in order to make this market more profitable over a much shorter time frame.
Government could play an important role in supporting the scaling phase of Canada’s most promising cleantech start-ups through stimulus. Options include co-investing in early stages, a commitment to procure or otherwise create a market for the sale of products, provide low interest loans, and other means to promote Canadian innovation.
[i] Institute for Sustainable Finance, Capital Mobilization Plan, 2020: https://smith.queensu.ca/centres/isf/research/cmp.php
President, Ivey Foundation
Member of the Task Force for a Resilient Recovery
Managing Director and Head, Sustainable Finance, BMO