In the last of our Women in Risk 2021 three-part series on environment, social and governance (ESG) issues facing the financial sector, we engaged our members in a discussion on Environment: The Financial Sector and Canada’s Path to Net Zero.

We gained insights from two experts:

• Miranda Hubbs, Board Director, Nutrien, PSP Investments and Imperial Oil. Miranda gained depth of knowledge in the energy sector through her prior roles as Executive Vice President with McLean Budden and as an investment banker with Gordon Capital.
• Amy West, Global Head of Sustainable Finance and Corporate Transitions, TD Securities. Amy works with corporate and institutional clients across global banking markets to provide environmental, social and governance ESG advice and solutions.

The Canadian government has joined more than 100 other major economies, the U.S., China and EU among them, in setting a “net zero by 2050” carbon emissions reductions target and an interim target of cutting carbon emissions by 40 per cent below 2005 levels by 2030 – only nine years from now.

Scientists have predicted that business as usual greenhouse gas emissions will lead us to at least a –3 Celsius temperature rise by the end of the century, that would instigate severe disruptions including increased storms, fires, floods, droughts and other chronic changes. Over the last century, greenhouse gas emissions have been tightly tied to GDP growth and the decoupling of the two at this scale will require entire system transformations. Transport, infrastructure, agriculture and energy are among the many sectors that will need to rise to the challenge.

Following, are several high-level perspectives offered by Miranda and Amy:

Key Takeaways:

Companies are performing a balancing act – trying to determine what needs to be done to fulfill their purpose while integrating net zero into their strategy. Businesses cannot succeed in societies that fail. In their effort to reduce emissions, companies are balancing the need to ensure the world’s population has access to reliable and affordable energy. They are trying to influence behaviours internally, with their customers and across their supply chains. They are seeking to achieve efficiencies while spending on, and piloting, new technologies. Their dilemma is whether to target “net zero by 2050”, with no idea how to achieve it, or to establish smaller, more incremental, measurable targets which they know how to deal with, and embrace the belief that evolving technologies will get them to where they need to be.

Financial firms are under pressure to play a major role in driving a low emissions economy to provide capital to help firms reduce carbon emissions and/or to invest in the growth of the green economy. All major financial organizations have made net zero commitments. NGOs have pushed for interim targets to be made as well – a challenging task when baselines for scope three emissions are not known. While many organizations have not set clear interim targets, as long as these organizations demonstrate openness and transparency in communicating their progress, the public will remain tolerant.

All sectors of the economy need to improve – and some are going to need to do more than others. Under focus for a long time, energy sector companies are well prepared for the conversation, more so than other sectors. High emitters are also more likely to be under scrutiny to back up their target commitments with firm plans.

Investors want to hear plans for how companies are going to achieve their emissions reduction goals. They want to see realistic numbers and targets. It is understood that achieving targets will require industry collaboration, cross-sector collaboration – not jut one sector or one company. Some will do more, some will do less and there will be more than one way for companies to achieve their targets.

Companies can expect to be benchmarked within their sectors. There will be winners and losers within sectors guided by average expectations within each sector. There will be top quartile performers and laggards. Over the past two years ESG has become viewed as a material financial risk. Engagement, currently quite positive in the financial community, has become critical and will become increasingly so.

ESG-related financial offerings are evolving. Over the last decade, sustainable financial markets have moved from a focus on green bonds to a focus on ESG-linked loans and sustainability-linked bonds and derivatives. Sustainability is going to permeate all our different product offerings and will create meaningful differentiation and offer clearer benefits when investing in one company over another.

Investment decision makers should disclose the extent to which they take ESG considerations into account. If material to the business, ESG must be considered and disclosed. Table stakes are evolving quickly – reporting on the overall sustainability model of a business and how it is being valued is now business as usual.

Bringing environmental expertise into organizations is imperative. It is paramount across business units, at the management level, at the board level, and in the risk management function. The mix of business expertise and environmental expertise is crucial. Whether through secondments or external hires – businesses need balanced teams with business people teaching environmental people and vice versa. This is best accomplished with senior support.

To hear more from Miranda Hubbs and Amy West, we invite you to listen to our full webinar – Environment: The Financial Sector and Canada’s Path to Net Zero.