Hon. Michael L. MacDonald: Honourable senators, I rise today to speak as the critic for Bill S-243, An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts.

Bill S-243 is an ambitious piece of legislation for a Senate public bill. I will not spend a lot of time summarizing Bill S-243 because its author and sponsor, Senator Galvez, has already done that, and there are substantive materials on her website that provide a brief overview of the bill.

For the record, however, and to refresh your memory, I do need to mention a few things.

First, Bill S-243 sets out to achieve two broad objectives. One objective is to align the activities of federal financial institutions and other federally regulated entities with the superseding economic and public-interest matter of achieving climate commitments. Second, the bill aims to make timely and meaningful progress towards safeguarding the stability of both the financial and climate systems.

In other words, this bill attempts to protect our financial institutions from risks posed by climate change and to protect our climate from risks posed by our financial institutions.

I would note that these are not imaginary risks. The March 2023 Climate Risk Management report by the Office of the Superintendent of Financial Institutions breaks this down into two categories: physical risks and transition risks.

Physical risks can be understood as the risks posed by severe climate-related events such as floods, storms and wildfires. These events can cause physical damage to infrastructure and properties, including those owned by financial institutions. The costs of repairing or replacing damaged assets can be substantial and could impact the financial stability of these institutions.

Transition risks arise from the process of transitioning to a low-carbon economy. As governments and regulators implement policies and regulations to mitigate climate change, industries that rely heavily on carbon-intensive activities, such as fossil fuels, may face significant challenges. This can lead to stranded assets, devalued investments and increased credit risks for financial institutions that have exposure to these industries.

In addition to physical risks and transition risks, we could add liability, reputational and market risks.

Liability risks are those faced by financial institutions due to climate change-related events. For example, if a company’s operations contribute to greenhouse gas, or GHG, emissions or environmental degradation, they may face lawsuits or regulatory penalties. Financial institutions that have invested in or provided financing to such companies could be held liable for their actions.

Reputational risks are largely public relations concerns but should not be misunderstood as insignificant. One only needs to recall the rapid slide into insolvency that was experienced by a number of U.S. banks after the public lost confidence in the viability of their balance sheets. Although climate-related reputational risk is not likely to manifest itself on this scale, it underscores the reality that public confidence in our banking institutions must be maintained. Customers, investors and other stakeholders are increasingly demanding that financial institutions align their activities with sustainable practices, and failure to do so could lead to reputational damage and potential loss of business.

Market risks are changes in consumer preferences and regulations which, in turn, lead to shifts in market demand for certain products and services. Financial institutions that are not prepared to adapt to these changes could experience decreased demand for their offerings or lose out on investment opportunities in emerging sustainable sectors.

However, these are just the risks that our financial institutions face from climate change. There are also risks that the climate faces from our financial institutions, which are also very real.

For example, as noted by Senator Galvez and other speakers, financial institutions play a crucial role in providing funding and capital to industries that contribute to GHG emissions, such as the continuation and expansion of fossil fuel projects, new oil and gas exploration and high-emission transportation. If left unchecked, these investments could prolong the reliance on carbon-intensive energy sources, further exacerbating climate change.

Inversely, if our financial institutions demonstrate a lack of support for the low-carbon transition, this will result in a diversion of capital away from low-carbon or renewable energy projects. Insufficient investment in clean technologies and sustainable infrastructure would hinder the transition to a low‑carbon economy, slowing down efforts to mitigate climate change.

Colleagues, there are more risks we could talk about, but suffice it to say that the risks are real. If our federally regulated financial institutions choose to ignore them, they do so at their peril and at ours.

It is these risks which Bill S-243 attempts to address by implementing the following seven measures.

First, the legislation establishes a duty for directors, officers and administrators to align their entities with climate commitments set out in the bill. The idea is that financial institutions should be working towards the achievement of these commitments, not against them.

Second, the Climate-Aligned Finance Act, or CAFA, establishes a requirement for various federal adjacent organizations such as the Bank of Canada, the Office of the Superintendent of Financial Institutions, or OSFI, Export Development Canada and others to align with climate commitments.

Third, federally regulated organizations must develop action plans, targets and progress reports on meeting climate commitments.

Fourth, certain boards of directors will have to have a director with climate expertise and they will need to avoid conflicts of interest.

Fifth, the bill would establish capital adequacy requirements to ensure financial institutions can withstand potential climate change shocks or vulnerabilities.

Sixth, the bill requires that the government develop an action plan to align financial products with climate commitments. This is one of those measures that cannot be addressed in a Senate public bill, so Senator Galvez has done what we see other senators do, which is essentially calling for the government to create a framework to see it happen. This skirts the problem of introducing a Senate bill which imposes spending obligations on the government.

Finally, Bill S-243 mandates timely public review processes on implementation progress to ensure we are learning as we go and can build on our successes.

By now you should understand why I said at the beginning that this was an ambitious piece of legislation for a Senate public bill.

The problem, senators, is that, in my view, it is too ambitious. I do not quarrel with the objectives of ensuring that our financial institutions are protected from risks posed by climate change and that our climate is protected from risks posed by our financial institutions. But I do believe this is the wrong way to proceed to do that.

There are numerous reasons why I believe this, but allow me to briefly share two of them with you.

Number one: The Office of the Superintendent of Financial Institutions and the Bank of Canada are already working on this.

On January 14, 2022, the Bank of Canada and OSFI released a completed climate scenario analysis pilot in collaboration with six Canadian federally regulated financial institutions. This analysis was the culmination of a pilot project which had launched in November 2020 in order to: (i) build the capabilities of authorities and participating financial institutions to perform climate transition scenario analysis; (ii) support the Canadian financial sector in improving its assessment and disclosure of climate-related risks; and (iii) contribute to the understanding of the potential exposure of the financial sector to climate transition risk.

Later, in January 2021, OSFI released a discussion paper entitled, “Navigating Uncertainty in Climate Change: Promoting Preparedness and Resilience to Climate-Related Risks.” The purpose of this discussion paper was to engage federally regulated financial institutions and federally regulated pension plans in a dialogue on the risks resulting from climate change that could affect the safety and soundness of these institutions. The objective was to begin to define, identify, measure and build resilience to climate-related risks.

Following the release of the January 2022 climate scenario analysis, OSFI then launched a public consultation on draft guidelines for climate risk management in May of 2022. Those consultations led to the release of the finalized Guideline on Climate Risk Management in March of this year.

This guideline sets out OSFI’s expectations for the management of climate-related risks by federally regulated financial institutions and followed one of the most extensive consultations in OSFI’s history where over 4,300 submissions from a wide range of respondents were received.

The guideline implements three expected outcomes for federally regulated financial institutions to achieve: they must understand and mitigate against potential impacts of climate-related risks to its business model and strategy; they must have appropriate governance and risk management practices to manage identified climate-related risks; and they must remain financially resilient through severe, yet plausible, climate risk scenarios, and operationally resilient through disruption due to climate-related disasters.

The burden to achieve these goals is placed on the financial institutions, and will be assessed through minimum mandatory disclosure requirements with specific deadlines.

The impact of this guideline effectively addresses the second objective of this bill, which was to make timely and meaningful progress towards protecting our financial institutions from risks posed by climate change. Although Senator Galvez’s response to the guideline was to point out a number of deficiencies, I note that OSFI itself sees this as one step in the right direction and intends to review and amend the guideline as practices and standards evolve.

Furthermore, on the question of climate scenario analysis and stress testing, along with capital and liquidity adequacy, OSFI has noted it is likely to develop their guidance on these issues further in a future iteration of the guideline.

I do understand, however, that while this work by OSFI addresses the risks that climate change poses to our financial institutions, it does not address the need to protect our climate from risks posed by our financial institutions.

That brings me to my second point that this, too, is already being addressed.

In April 2021, 43 founding members established the Net-Zero Banking Alliance, which has since grown to represent over 40% of global banking assets totalling more than $74 trillion U.S. dollars. The number of Canadian institutions which have joined this alliance has grown to eight and includes Vancity, Coast Capital, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and the Toronto-Dominion Bank.

The alliance was convened by the United Nations Environment Programme Finance Initiative and represents a group of banks committed to aligning their lending and investment portfolios with net-zero emissions by 2050.

In order to join, each bank’s chief executive officer must sign a commitment statement that describes the target setting and reporting process said to be the primary catalyst for achieving the net-zero transition. All signatories must commit to transitioning the operational and attributable greenhouse gas emissions from their lending and investment portfolios to align with pathways to net zero by 2050 or sooner; to, within 18 months of joining, setting 2030 targets — or sooner — and a 2050 target, with intermediary targets to be set every five years from 2030 onwards; to focusing the banks’ first 2030 targets on priority sectors where the bank can have the most significant impact, with further sector targets to be set within 36 months; to publishing absolute emissions and emissions intensity annually in line with best practice, and within a year of setting targets disclose progress against a board-level, reviewed transition strategy setting out proposed actions and climate-related sectoral policies; and to taking a robust approach to the role of offsets in transition plans.

Colleagues, considering that the alliance represents over 40% of global banking assets, this is not to be dismissed lightly. It is a tremendous commitment that, frankly, is not likely to be achieved as quickly or as efficiently through the heavy-handed legislative process modelled by Bill S-243.

As noted in the January 2023 edition of The Sustainable Finance Law Review:

In Canada, sustainable finance has developed within the voluntary frameworks and best practices developed through the International Capital Market Association’s (ICMA) Green Bond Principles, Sustainability-Linked Bond Principles, Social Bond Principles and the Climate Transition Finance Handbook. There is broad market acceptance of the various sustainable finance instruments contemplated within these frameworks.

It continues:

Growing market understanding of the importance of environmental, social and governance . . . considerations to stakeholders has led more companies to adopt voluntary sustainability disclosure frameworks such as the Task Force On Climate-Related Disclosures . . . but also others, as part of their regular disclosure, which, in turn, has facilitated the utilisation of sustainable financing instruments. More and more companies are adopting net-zero emissions targets in line with Canada’s national commitments, including Canada’s largest banks.

Colleagues, I propose to you that what Bill S-243 wants to do is already taking place through both regulatory and voluntary means.

I would further suggest that if legislation of this magnitude were ever needed, it is imperative that it be a government bill, not a Senate public bill. This legislation would not only implement the climate-aligned finance act, but it would also amend the Bank of Canada Act, the Financial Administration Act, the Office of the Superintendent of Financial Institutions Act, the Public Sector Pension Investment Board Act, the Business Development Bank of Canada Act, the Canada Infrastructure Bank Act, the Canadian Net-Zero Emissions Accountability Act and the Canada Pension Plan Investment Board Act.

In my view, this is a significant overreach for a Senate public bill. To attempt to impose sweeping changes on our federally regulated financial institutions through private members’ business is far from an appropriate use of Senate public bills.

However, to quote Senator Harder from his article Complementarity: The Constitutional Role of the Senate of Canada, this does not mean the bill has no purpose, for I believe it is to be primarily an exercise of exerting:

 . . . influence in the policy process through a wide range of “soft power” tools (such as public policy studies and Senate public bills).

Senator Harder went on to note:

. . . the Senate works wonders when it uses its power not to coerce but to persuade, whether through a first round of amendments to legislation received from the House of Commons, leveraging the visibility of Parliament to alert public opinion, initiating Senate Public bills, or through the publication of prescient committee reports addressing public policy.

The exercise of soft power through initiating Senate public bills is an appropriate role for this legislation, so in my view Bill S-243 has served its purpose.

In Senator Galvez’s speech on this bill, she noted that financial institutions must help finance the transition to sustainable emissions targets and that the vulnerability of the financial sector to climate change catastrophes must be addressed. As I have outlined, this process is already well under way and that continuing further with Bill S-243 would potentially delay and perhaps even hurt rather than help the ongoing process.

In light of the already-established initiatives I have outlined, and in spite of this bill’s good intentions, I don’t believe we should support it at second reading, and I don’t recommend that we send it to committee for further study. The concerns raised in this bill, albeit legitimate, appear to be already addressed and well in hand. Thank you, honourable senators.

An Hon. Senator: On division.

(Motion agreed to and bill read second time, on division.)

Some Hon. Senators: Agreed.

The Hon. the Speaker: Is it your pleasure, honourable senators, to adopt the motion?

The Hon. the Speaker: Is it your pleasure, honourable senators, to adopt the motion?

The Hon. the Speaker: Honourable senators, when shall this bill be read the third time?

(On motion of Senator Martin, bill referred to the Standing Senate Committee on National Finance.)

On the Order:

Resuming debate on the motion of the Honourable Senator Clement, seconded by the Honourable Senator Duncan, for the second reading of Bill S-1001, An Act to amalgamate The Roman Catholic Episcopal Corporation of Ottawa and The Roman Catholic Episcopal Corporation for the Diocese of Alexandria-Cornwall, in Ontario, Canada.

The Hon. the Speaker: Honourable senators, when shall this bill be read the third time?

(On motion of Senator Martin, bill referred to the Standing Senate Committee on National Finance.)

On the Order:

Resuming debate on the motion of the Honourable Senator Clement, seconded by the Honourable Senator Duncan, for the second reading of Bill S-1001, An Act to amalgamate The Roman Catholic Episcopal Corporation of Ottawa and The Roman Catholic Episcopal Corporation for the Diocese of Alexandria-Cornwall, in Ontario, Canada.

Hon. Marilou McPhedran: Hello. Tansi. As a senator for Manitoba, I acknowledge that I live on Treaty 1 territory, the traditional lands of the Anishinaabe, Cree, Oji-Cree, Dakota and Dene peoples, and the homeland of the Métis Nation. I also want to acknowledge that the Parliament of Canada is situated on unceded and unsurrendered Algonquin Anishinaabe territory.

[English]

Honourable senators, today I rise in support of Bill S-243, An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts. Senator Galvez has advised that her bill is complementary to our government’s current action plan, the Canadian Net-Zero Emissions Accountability Act — serving the dual purpose of addressing barriers to achieving our climate crisis commitments and protecting our nation’s financial system from climate-related risks.

Just days ago, we learned of the dubious distinction of the Senate’s banker, the Royal Bank of Canada, or RBC, leaping ahead of J.P. Morgan into the top spot as the biggest financier of the fossil fuel industry. The annual Banking on Climate Chaos report by the Rainforest Action Network — endorsed by 624 organizations from 75 countries — found that RBC funded fossil fuel companies in 2022 to the extent of $42.1 billion, including $4.8 billion for tar sands.

Also, the updated list of the top 10 such financiers includes another Canadian Big Five: Scotiabank. The study found that Canadian banks have provided $862 billion — that’s C$1.13 trillion — to fossil fuel companies since Canada signed the Paris Agreement.

Climate breakdown is claiming the livelihood and lives of millions globally. Vulnerable communities and — to use Senator McCallum’s term in her bill on environmental racism — “vulnerable environments” are disproportionately impacted negatively by climate change. Through her bill, Senator Galvez encourages the consideration of vulnerable communities and ecosystems, and sets particular safeguards for Indigenous communities. Although Indigenous people have contributed the least to this ever-growing problem, they face some of its worst consequences.

Northern communities are in the forefront of the assault of climate change. Melting ice caps and permafrost affect traditional food sources while driving up the costs of imported alternatives, and increase the risk to humans and wildlife. Food security continues to deteriorate, especially in isolated communities. The effects of climate change are not uniform in impact; however, one constant remains: Climate changes brought to our land, our water and our weather systems imperil long-established ways of life.

In other words, the climate crisis threatens ecosystems and human rights. Honouring our climate commitments means more than not exacerbating or contributing to the effects of climate change. It also means respecting human rights, including the rights of Indigenous peoples set out in the United Nations Declaration on the Rights of Indigenous Peoples. The declaration states that Indigenous peoples have the right to the conservation and protection of traditionally owned lands which hold strong spiritual and cultural significance.

The declaration also states that countries must recognize the contribution of Indigenous knowledge when formulating sustainable and equitable protection of our environment.

In line with this, Bill S-243 allows for the integration of the Indigenous perspective into decision making in two distinct ways: First, it proposes that certain boards of directors, including Crown corporations, have climate expertise — having knowledge of Indigenous ways of life and ways of being qualifies a person for this position. Second, it requires reporting on implementation to enable the cooperation between the Bank of Canada and representatives of Indigenous peoples.

Honourable colleagues, positive advancements toward a cleaner future are in the new Canadian action plan. These include increasing the price of carbon to $50 per tonne and facilitating the transition to electric vehicles.

These infrastructure investments are essential to reducing greenhouse gas emissions by 40% to 45% below 2005 levels by 2030, crucial steps along Canada’s path to net-zero emissions by 2050.

This goal can only be attained if decarbonization takes place across all sectors and industries. After all, the effects of decarbonization in one sector can easily be offset by emissions in another. The current action plan fails to address this elephant in the room — the identification and restriction of investments into high-emission activities.

These investments not only put our financial system at risk with millions of dollars worth of capital invested into this unpredictable sector, but they also contribute to the negative impacts of climate change.

If only the more than $1 trillion of Canadian funds had been invested by our big banks into decarbonization.

As the United Nations body for assessing the science related to climate change, the Intergovernmental Panel on Climate Change, or the IPCC, issued its sixth assessment report in February 2023 with the unequivocal conclusion that fossil fuels must be made extinct and never revived. The IPCC is clear: To stay below 1.5 degrees of warming as called for in the Paris Agreement, we need to slash CO2 emissions by 45% in the next seven years — by 2030.

Colleagues, in the best sense of the call from the Inter‑Parliamentary Union for parliamentarians to become champions for legislative initiatives to make real changes that will mitigate the damage of climate change, Senator Galvez has given us a substantive opportunity to be changemakers by supporting and facilitating this bill, which has gained international attention in finance circles worldwide.

In last year’s report, Climate Change 2022: Mitigation of Climate Change, the IPCC highlighted that investments in high‑emitting infrastructure would act as a barrier to achieving Canada’s greenhouse gas reduction goals. Funding and subsequent development of green technology may be hitting record heights, but high-emission sectors continue to thrive and undercut progress being made. In other words, the default setting in our current legislative approach prioritizes the traditional polluting economy. Climate commitments are still on the back burner.

When thinking critically of Canada’s progress, we must be wary of greenwashing. For example, the thirteenth edition of the annual Banking on Climate Chaos report noted that investors in the tar sands increased their financing by 51%. That same year, however, these banks had vowed to become net zero by 2050, as they vow year after year.

One of the key goals of the act is to address the disconnect between financial institutions’ net-zero pronouncements and their continuing investments into high-carbon industries. Have no doubt: This bill will enhance accountability of the reporting entities which are subject to the act.

Colleagues, you may be quietly wondering why an engineer and a human rights lawyer think they are qualified to assess our economic system. Let me encourage you to recast that question, because our economic system is exacerbating our planet’s climate crisis. Indeed, if you are quietly questioning the qualifications of an engineer and a human rights lawyer, let’s add to that list a dentist with Senator McCallum’s bill on environmental racism.

We’re qualified because we’re mothers and grandmothers and global citizens and senators.

New voices must be heard in the financial world — voices from the world not insulated by wealth. Finance leaders in the financial system have lost touch with the reality of a planet with limits we must respect in order for human life — all our lives, colleagues, and those of our generations to come — to flourish.

This bill follows the money, addressing the reality of financial choices that wound Mother Earth and reduce capacity to sustain life. Abstracted numbers on a balance sheet help financial leaders to ignore crucial dimensions of the value of life on this planet.

The Greek root of the word “economy,” oikos and nomos — with all due apology to Senator Housakos if I have mispronounced those terms — literally translates as “good household management.” In this time of multiple crises where we have not managed our global household all that well, it is high time that divergent outside voices come to be heard by those who hold the reins of our collective purse — the select, highly paid, elite few who control billions of public and private dollars who seem to be having difficulty grasping the reality that our shared future is in peril now.

This bill rightly recognizes what experts in the scientific community have been saying for a long time. This climate crisis is unconstrained by geographic boundaries. This means that Canadian reporting entities have to account for their causally linked emissions wherever they occur.

As occupants of positions in the top 10 of fossil fuel funders, the Royal Bank of Canada and Scotiabank have demonstrated how Canadian financial institutions are investing globally and that what they do abroad is just as important as what they do within Canada.

This bill defines an entity that is aligned with climate commitments as one that respects the UN Declaration on the Rights of Indigenous Peoples. The bill does not restrict the definition of Indigenous peoples to Canadians, meaning that the rights of Indigenous peoples have to be respected wherever they are.

This bill is as science-based as it is equity-based.

Honourable colleagues, aligning with climate commitments also means not fostering or exacerbating food insecurity or inequalities in society, and not causing significant harm to social and environmental obligations recognized already by Canada. That means we hope for a future where a low-carbon project does not run roughshod over human rights like we have seen with too many fossil fuel extractive and transportation projects.

Since women — especially poor women — are the primary victims of climate change, we would do well to add them as primary stakeholders in developing solutions worth investing in.

Since this bill was introduced a year ago, it has generated a bit of a buzz in Canada and beyond. Canada’s Office of the Superintendent of Financial Institutions published a climate guideline and the Bank of Canada just issued its first annual climate risk report.

But beyond our financial regulators finally using the buzzwords of the moment, significant change still seems to elude us. With a Canadian bank becoming the world’s top fossil fuel financier and backing a pipeline project which is turning the ancestral lands of the Wet’suwet’en — who are opposed to the project — into a militarized zone, this bill is more necessary than ever.

Colleagues, escalating environmental calamities are a time‑sensitive issue. Canada has, to date, never successfully hit any of its emissions targets since 1990. We simply cannot afford another decade of failed targets, measures and ambitions. We must address this concern as soon as possible to ensure that we reach our climate targets by the end of the decade.

By mandating a yearly public review process on the progress of the implementation of all provisions, Bill S-243 allows for iterative learning. It will allow us to learn from our mistakes in real time and adapt our approach to the results produced. We have to stay flexible to emerging research. As a leader in many other sectors, Canada must step up.

Honourable senators, the acceleration of climate change and its consequences is a human-induced problem. It requires human-led and innovative solutions to transition towards a cleaner and more sustainable economy.

As lawmakers acting in the public interest of all current and future Canadians, it is up to us to consider and implement research-backed and ambitious solutions to maintain a livable earth for our generation and those to come.

Senator Galvez, with her Bill S-243, gives us an excellent opportunity to do just that. Let us accept her invitation and support this life-saving bill. Thank you, meegwetch.

(On motion of Senator Seidman, debate adjourned.)

On the Order:

Resuming debate on the motion of the Honourable Senator Brazeau, seconded by the Honourable Senator Housakos, for the second reading of Bill S-254, An Act to amend the Food and Drugs Act (warning label on alcoholic beverages).

Hon. Lucie Moncion: Honourable senators, I rise today to speak to Senator Galvez’s Bill S-243, An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts.

I am particularly drawn to this bill because it combines two issues that interest me, namely finance and the environment.

Given my past work in financial institutions, and particularly my experience as former president and CEO of L’Alliance des caisses populaires de l’Ontario, I fully understand why Senator Galvez is looking to redefine financial risk management to account for environmental risks, using a systemic approach.

[English]

This bill targets the big players, those with the greatest interest in the financial stability of our country. These are federally chartered financial institutions and other entities, including the Bank of Canada, the Office of the Superintendent of Financial Institutions and certain pension funds. In managing and assessing risk, financial institutions are concerned about so-called “black swans.” A black swan is an unpredictable event that, if it occurs, could have serious consequences on financial markets. Examples include the COVID-19 pandemic and its impact on the global economy or the 2007 commercial paper crisis, which represented a $33 billion financial risk for Canada.

In environmental matters, we use the term “green swans” to refer to the risks associated with climate change. Again, these are risks whose impacts are extremely difficult to predict or manage, but which can have catastrophic consequences for our country. These catastrophic consequences are not always of a nature to disproportionately affect financial markets; think of forest fires, floods, wind storms, ice storms and the like. Over the past five years, these climatic events have cost insurance companies more than $13 billion, but have not destabilized the financial markets. The question then becomes whether a weather event could have a high enough impact to cause a financial crisis.

[Translation]

The legislative framework Senator Galvez proposes in her bill is innovative because it covers risk management to mitigate these green swans. This is an excellent solution for financial institutions and other targeted entities.

We need to be careful, though. This proposed legislation would fit into a unique economic context in which financial institutions are resistant to change and slow to get on board with more effective environmental risk management. Why are they so resistant?

The pace of our green transition is important and needs to be evaluated in terms of transition-related risks.

Transitioning toward a new environmental risk management approach is difficult in part because major financial system players are also the entities that finance major polluters. I will come back to this.

[English]

Throughout my time in financial institutions, financial risk management was omnipresent. We had to identify significant activities and evaluate our business practices, analyze our financial position, determine our risk profile and have the funds in reserve to remain profitable under any circumstances. Over the years, and with advances in environmental science, our understanding of climate risk has evolved significantly. Today, we better understand the interrelationship between climate change and the economy, and many environmentalists are sounding the alarm — the green swan alarm.

At the same time, certain industries whose practices do not always align with climate commitments are the livelihood of many Canadians and, in the same vein, Canadians are in large part dependent on these industries. How do we reconcile this dichotomy?

[Translation]

In finance, the “transition” risks associated with an accelerated transition to a low-carbon economy coexist with climate change-related risks.

The relationship between these two types of risk factors that, on the surface, appear contradictory should be taken into account and studied by a committee so we can make sure the measures proposed in Bill S-243 will ensure a sustainable and inclusive transition. We have to try to strike the best possible balance between the risks and the opportunities presented by climate change.

[English]

Senator Galvez is proposing an ambitious, thoughtful and comprehensive legislative framework to allow the big players to manage risks upstream rather than have to pay the price downstream. Let’s remember that if we don’t compel entities to act, the status quo remains and nothing changes. Bill S-243 invites us to reflect, and proposes and invites these entities to step out of their comfort zone and act to bring about change. Thus, in order to ensure market stability in the medium- and long-term, it is incumbent upon the federally regulated financial sector to adapt their operations in a way that mitigates climate change or, at the very least, does not exacerbate it. When this bill is studied in committee, I think it will be important to consider the following elements.

One is assessing the economic impact of the transition on Canada’s GDP. Canada is an oil-and-gas-producing country and part of its economy is based on this sector. How will we finance the transition from oil and gas to other energy sources, and what will the economic impacts be? How fast can this transition take place? Are the timelines reasonable? Realistically and honestly, this transition will take longer than environmentalists would like. How long are we talking about?

The current geopolitical situation has just destabilized the global oil and gas balance. How does this affect decisions made in Canada? What role will Canada have in the global oil and gas supply market? What are the impacts of Europe’s dependence on the transition to clean energy? All of these issues deserve special attention.

While the objective of the bill is laudable, it must also be assessed in a context that takes all factors into account.

[Translation]

Assuming that Canada is serious about the environment and climate change, resistance from key stakeholders can easily put this project on hold indefinitely.

Senator Galvez’s bill proposes seven separate measures. The first concerns the consideration of climate risks. The second is about the alignment of various organizations with climate objectives. The third measure is an obligation for setting targets, planning and reporting. The fourth concerns climate expertise on boards of directors. The fifth has to do with establishing capital adequacy requirements. The sixth is about aligning financial products with climate commitments. The final measure concerns the public review processes on the progress made.

Senator Galvez did an excellent job presenting these measures in her speech, and I invite you to refer to them. I thank her for her leadership and for all the work she does to educate us about the environmental situation in Canada and elsewhere in the world. We have a duty to support her work, which can help ensure a better future for our children and grandchildren. I urge you to vote in favour of this bill at second reading and refer it to the Standing Senate Committee on Banking, Trade and Commerce for study. Thank you for your attention.

(On motion of Senator Martin, debate adjourned.)

On the Order:

Resuming debate on the consideration of the second report (interim) of the Standing Committee on Rules, Procedures and the Rights of Parliament, entitled Use of displays, exhibits and props in Senate proceedings, tabled in the Senate on April 5, 2022.

Senator Miville-Dechêne: As a former ombudsman of Radio-Canada, I’ve thought a lot about conflicts of interest. There are very specific codes. We could not be on a board of directors, and our activities outside of our work had to be very limited to avoid any apparent or actual conflict of interest, since that would destroy all of our credibility. A journalist colleague of mine who was assigned to cover police operations was secretly being paid to provide information to police officers. We obviously need to prevent such obvious conflicts of interest.

I am less familiar with the banking and financial sector, but certainly, if directors of banks or financial institutions hold shares in fossil fuel companies or are otherwise involved in an economy that does not respect our financial commitments, that is a problem since we don’t actually know what happens on these boards. We don’t know whether that will influence the individual’s vote.

There needs to be a lot more transparency and information on board activities if we want to change things. Your bill is rather innovative in that sense. It prohibits directors from being shareholders or having ties to companies that do not comply with our climate commitments, and it states that lobbyists who have worked for companies that do not comply with our climate commitments cannot serve as directors for a period of five years. It is a rather unique way of looking at things, but it is essential.

(On motion of Senator Moncion, debate adjourned.)

[English]

On the Order:

Resuming debate on the inquiry of the Honourable Senator Simons, calling the attention of the Senate to the challenges and opportunities that Canadian municipalities face, and to the importance of understanding and redefining the relationships between Canada’s municipalities and the federal government.

Senator Galvez: You say you are not a scientist, but I congratulate you for the resume you have and the IPCC reports that are huge like that. Thank you very much for the support for this bill. I know you are very much interested in transparency.

[Translation]

I learned a lot today from a report that focused on conflicts of interest regarding decisions made by fossil fuel company directors who also serve on the boards of banks or financial institutions. Have you thought about the impact that apparent or actual conflicts of interest could have on the media, our lives and so on?

Senator Miville-Dechêne: Certainly.

[English]

Hon. Rosa Galvez: Would Senator Miville-Dechêne take a question?

Hon. Julie Miville-Dechêne: Honourable senators, I rise today to speak in support of Bill S-243, as introduced by my colleague Senator Rosa Galvez. The climate-aligned finance act is a courageous and coherent bill.

I spent most of my career working as a reporter. I was a Washington correspondent. One of the most famous mantras in journalism is “follow the money.” What this means, of course, is that by following financial transactions, one can get to the source of the problem.

The phrase was coined at the time of the Watergate scandal. Of course, the bill before us seeks to address very different problems. In some ways, they are less spectacular. They get less media attention, but the problem of climate change is much more serious, and it threatens the entire planet.

Bill S-243 aims to connect our financial system and our climate commitments to get to the source of the problem and start fixing it. It will not be easy. Nobody said it would be. We should not expect to change the rules of our financial systems, as we must, while preserving the status quo of business as usual. We have to choose.

[Translation]

I am not a scientist so I will not spend a lot of time presenting climate scenarios and energy trajectories. In any event, that is not our role as legislators. Our job is to consider the science and pass laws accordingly — in this case, for the good of the planet and future generations of Canadians.

What are the scientists saying?

The latest IPCC report, published just a few weeks ago, concluded that:

The cumulative scientific evidence is unequivocal: Climate change is a threat to human well-being and planetary health. Any further delay in concerted anticipatory global action on adaptation and mitigation will miss a brief and rapidly closing window of opportunity to secure a liveable and sustainable future for all.

What are we to do? The IPCC report does not offer detailed solutions, but it clearly identifies “insufficient and misaligned finance” as a problem and highlights the need to adopt a model where “investment [is] aligned with climate resilient development.”

[English]

Others are also pointing the way. In February of last year, the U.K. government published a major study called The Economics of Biodiversity: The Dasgupta Review, led by Professor Dasgupta, of Cambridge University, and it does not mince words:

Collectively, however, we have failed to manage our global portfolio of assets sustainably. Estimates show that between 1992 and 2014, produced capital per person doubled, and human capital per person increased by about 13% globally; but the stock of natural capital per person declined by nearly 40%. . . . In other words, while humanity has prospered immensely in recent decades, the ways in which we have achieved such prosperity means that it has come at a devastating cost to Nature.

But this is not simply a market failure: it is a broader institutional failure too. . . . Governments almost everywhere exacerbate the problem by paying people more to exploit Nature than to protect it, and to prioritise unsustainable economic activities.

We need a financial system that channels financial investments – public and private – towards economic activities that enhance our stock of natural assets and encourage sustainable consumption and production activities. . . .

In May of last year, the International Energy Agency published a pathway to net-zero emissions by 2050 — a goal that Canada has publicly committed to achieve. The report was very direct and precise in saying that no new oil and gas fields should be approved for development beyond those already approved in 2021, and that, going forward, the only focus of oil and gas producers should be to manage and reduce emissions from existing assets.

There are many more reports and studies, of course, but at this point the message is clear: If we are to reach net zero by 2050, we need transformational change at a systemic level, quickly. But that is not what we have done in Canada. So far, we have supported a few climate policies and initiatives, as long as they do not affect our economy in any meaningful way. We vow to protect the climate in the long term, but short-term considerations of competitiveness take precedence. We advocate for bold change, but the status quo prevails most of the time.

As we pledge to reduce our national emissions, we are planning to increase our oil and gas exports. We celebrate our carbon tax, but our biggest polluters only pay a fraction of it. And the most significant measure we are contemplating for the financial industry is a disclosure scheme.

I strongly believe in transparency, of course. It is often an essential first step. In fact, we just passed Bill S-211, which is a transparency bill focused on forced labour and child labour in supply chains. But there are situations where transparency alone is not sufficient, especially when economic incentives are not aligned. In the case of the financial sector, climate disclosure schemes have not had much impact.

A recent report by NGOs shows that in 2021, the world’s top banks provided $752 billion in financing to the fossil fuel industry. One quarter of that amount went to companies that are expanding production. In Canada, financing for oil sands operations increased by 51%. Of course, this is not because we didn’t know about climate change last year or because we had insufficient disclosures to know that increasing oil and gas production contradicts our climate commitments. It’s because disclosures are basically worthless if they are not associated with cost.

In fact, a 2020 survey by HSBC found that just 10% of investors viewed the climate disclosures as a relevant source of information. When discussing that survey, the Financial Times quoted a former Bank of England economist as saying that:

Just discussing risks, and assessing risks, does not mean we are actually transitioning to net zero. Many firms may discuss risks — and do exactly nothing to advance the transition.

And why is that? Because climate disclosures provide information, but they do not align financial incentives. And that’s what matters: alignment.

[Translation]

Today, we are studying Bill S-243.

For the first time, we have a bill that is proposing to do what the IPCC and others are calling for: align finance with our climate commitments. The act would require public and private financial institutions to explain how they align their loans and investments with our climate commitments. It would require Crown corporations to integrate climate expertise at the highest level. It would support financial transactions that accelerate the transition and discourage those that slow it down. The act also addresses the conflicts of interest that have held us back for so many years.

It is a bold and necessary bill that challenges the paradigm under which we have operated until now, which holds that the financial system is untouchable.

This initiative will no doubt spark opposition, but I believe that the criticism should be met with a simple question: If you do not agree with this bill, how do you propose that Canada align its financial system with our climate commitments? If the reply is merely that we need more disclosure and carbon capture, or that we must wait for other countries to act, or that the market itself will ensure that there is a transition, we will know that there is no real will to change anything.

[English]

As I mentioned at the outset, Bill S-243 proposes to follow the money. That is certainly the right approach. But there is another thing that Bill S-243 would allow us to do, and that is putting our money where our mouth is. Senator Galvez is giving us an opportunity not only to align our financial system with our climate commitments, but to align our deeds with our words. We want to be climate leaders, but we are the only G7 country where emissions increased between 2015 and 2019. We point to other countries with bigger carbon footprints, but Canada is the worst country in the world for cumulative emissions per population. We can and should be doing much better. As senators, we often say that one of our duties is to provide representation to under-represented groups. Today, I suggest to you that one such group is made up of future generations. This bill is for them.

As appointed legislators, we are protected from electoral pressures. In politics, this is a rare and invaluable privilege. It should give us the courage and the independence to make hard decisions that are in the public interest. Today I suggest that we should take the time to understand and reflect on this bill. To quote The Dasgupta Review one more time:

. . . the same ingenuity that has led us to make demands on Nature that are so large, so damaging and over such a short period, can be redeployed to bring about transformative change, perhaps even in just as short a time. We and our descendants deserve nothing less.

In 15 or 20 years, most of us won’t be here anymore. Today, I suggest that this bill gives us a chance to do something that will matter when we are gone. So I urge you, colleagues, to send this bill to committee for an in-depth study without delay. We owe this to our children and grandchildren. Thank you.

[Translation]

The Hon. the Speaker: Senator Galvez, will you take questions?

Senator Galvez: Yes.

The Hon. the Speaker: Honourable senators, it is now 6 p.m., and pursuant to rule 3-3(1) and the order adopted on November 25, 2021, I am required to leave the chair unless it is agreed that I not see the clock and we continue on. If I do not hear a “suspend,” we will continue.

Senator Galvez, please continue.

Senator Galvez: In conclusion, the financial sector is not exempt from the impacts of climate change; it’s — quite the opposite. Traditional tactics to solve economic problems have not helped the climate crisis. In fact, past approaches have advertently or inadvertently worsened the climate crisis by supporting polluting industries.

Canadians need the financial sector to act according to this climate reality. Meridional Canada warms twice as fast as the planet’s average, and the Arctic three times as fast. We must, therefore, accelerate transition in an orderly manner.

The Bank of Canada, having just released the results of its first exercise to understand the risks to the Canadian financial system, is falling behind in the race to net zero. Several national and international organizations and jurisdictions are not only leading this reflection but are proposing policies and legislative tools, with some already being implemented. Canada must follow suit if we aim to remain a competitive, prosperous, sustainable economy for this and future generations to come.

I look forward to having a robust debate with you in this chamber and with society at large. I expect that our fellow colleagues, bankers, economists, auditors and anyone with interests in developing a sustainable economy in a healthy environment for Canadians will bring perspectives and positive contributions to this debate. I imagine a few committees will be interested in aspects of this bill, particularly the Standing Senate Committee on Banking, Trade and Commerce and the Standing Senate Committee on National Finance, but also the Standing Senate Committee on Energy, the Environment and Natural Resources. I look forward to hearing from experts during committee studies, and I remain open to improvements that could strengthen this legislation.

Thank you, colleagues. Meegwetch.

Hon. Clément Gignac: Senator Galvez, I echo Senator Miville-Dechêne in congratulating you on your excellent work. As the former governor of the Bank of Canada and the Bank of England said, the energy transition will neither materialize nor succeed without a significant contribution from the financial sector.

You mentioned the three committees that could be interested. I have reviewed the procedures of this chamber, and my understanding is that the leaders will decide. Don’t you think this item should be sent to the Standing Senate Committee on Banking, Trade and Commerce? I’m suggesting this quite neutrally because it is my privilege to be a member of the Standing Senate Committee on National Finance, the Standing Senate Committee on Banking, Trade and Commerce and the Standing Senate Committee on Energy, the Environment and Natural Resources.

You’re talking about amending the Financial Institutions and Deposit Insurance System Amendment Act. A number of bills governing the financial sector were mentioned. Do you have an opinion about this with respect to the committees, given that we know it’s the leaders who will make the decisions and decide which committees should study your bill?

Senator Galvez: I don’t know whether you follow budget news, but the issue of sustainable finance is one aspect of the budget. That’s good, and I would point out that in the last election, several of the political parties’ platforms included sustainable finance elements to develop, so that’s very good.

Ultimately, it is true that this bill may be of interest to the three committees I mentioned, but obviously, as you said yourself, it is not my decision to make. Everyone will speak with their facilitators or leaders and ultimately they will be the ones to decide, but certainly the Standing Senate Committee on Banking, Trade and Commerce and the Standing Senate Committee on National Finance are the two committees . . .

The other reason I can say this is because our bill is agnostic when it comes to technology. It does not say whether or not to use a certain technology. We are asking the entities to show us the efforts they are making to align their activities with Canada’s domestic and international climate commitments. So long as they are doing just that, we have nothing to say about the technology they use. I would say that the Standing Senate Committee on Banking, Trade and Commerce and the Standing Senate Committee on National Finance are the two committees that I would favour.

(On motion of Senator Moncion, debate adjourned.)

[English]

On the Order:

Resuming debate on the motion of the Honourable Senator Marwah, seconded by the Honourable Senator Deacon (Nova Scotia), for the adoption of the second report of the Standing Committee on Internal Economy, Budgets and Administration, entitled Senate Budget 2022-23, presented in the Senate on February 24, 2022.

Hon. Julie Miville-Dechêne: First, very briefly, I want to congratulate you for the boldness, the determination and all the work behind your bill. I believe that we will indeed have a robust debate.

For the past few years we have been hearing about initiatives to make financial institutions and businesses more transparent. I understand that your bill goes much further, suggesting that these disclosures are inadequate.

Could you explain why these disclosures do not work and how your bill affects existing initiatives to enhance climate disclosures made by businesses?

Senator Galvez: Thank you very much for your question and for appreciating the work that has been done.

So far, the reporting of climate risks is just a recommendation and it is voluntary. Experts have said that just 9% of the entities monitored produced a report on their climate risks. Among that 9%, just 2% took action in response to the risks they identified.

There is another criticism that, because there are no strict requirements or guidelines to disclose these risks, this ultimately just serves as a sort of greenwashing. Some entities are taking advantage of this situation to overstate how much they are doing, but no one can validate the claims.

Our bill seeks to improve the disclosure of climate risks, but it goes much further than that, because the entities must prove that their efforts are in line with climate commitments. This means that they not only have to disclose the risks, but also have to offer solutions. Disclosure and solutions became mandatory with our bill.

Senator Moncion: I am referring to environmental disasters that occur suddenly and were not expected. In the financial system, a black swan is an economic disaster that was not expected, such as the situation in 2008. We now speak of black swan events associated with climate change.

Senator Galvez: You reminded me that at some point we were talking about “unknown unknown” risks. We were talking about radical uncertainty. As an engineer, I know how to manage risk when we are able to measure it, model it, and predict it. That is what we do in engineering when we adapt our infrastructure.

The problem, financially speaking, is that according to experts, this risk is unknown. We cannot really measure it, because these factors are convergent, cumulative and exponential, and they are truly very difficult to predict. That is why experts are telling us that we must use microprudential and macroprudential approaches to ensure we can resolve the problem both on an individual entity level and on a systemic level, because the risk is systemic.

Hon. Lucie Moncion: The financial sector recognizes the existence of black swans. Could you tell us about black swans that are specific to the environmental crisis?

Senator Galvez: Are you referring to the issue of greenwashing?