A motion tabled earlier this month in the House of Commons is the latest effort to address the fossil fuel investments and climate risk exposure of Canadian banks and other financial institutions—including the world’s biggest fossil fuel financier in 2022.
At a news conference May 18, Members of Parliament from four of the five parties in the House expressed support for Motion 84, a measure tabled by MP Ryan Turnbull (L, Whitby) that calls on the government to “use all legislative and regulatory tools at its disposal to align Canada’s financial system” with the 2015 Paris climate agreement. The motion received cross-party support from MPs Taylor Bachrach (NDP, Skeena-Bulkley Valley), Elizabeth May, (GPC, Saanich-Gulf Islands), and Jean-Denis Garon (BQ, Mirabel).
- Concise headlines. Original content. Timely news and views from a select group of opinion leaders. Special extras.
- Everything you need, nothing you don’t.
- The Weekender: The climate news you need.
It also served as the latest prompt for the Climate Aligned Finance Act, Bill S-243, introduced more than a year ago by Sen. Rosa Galvez (ISG-Quebec). The bill is still waiting its turn for a hearing before the Senate Banking Committee.
“Now, more than ever, we must work together to chart a path forward and take the next big step in the fight against climate change, which is to align the financial system with our net-zero commitments,” said Turnbull, a former social entrepreneur and CEO first elected to the Commons in 2019. “What you see here today is a swell of political will and growing momentum that combines four political parties from the House of Commons.”
“If we don’t align our financial system, we will not get there,” said Galvez, an environmental engineer and former department chair at Université Laval who took office in 2016. “What’s at stake is the stability of our financial system, the growth of our economy, sustainable jobs and careers for generations of workers, the cost of living, the preservation of nature in all its beauty, its ecosystems, its biodiversity, and ultimately the habitability of our planet.”
With a “record number of wildfires burning right now,” she added, “we are reminded that Mother Nature is not waiting for us to get our act together and figure out the next steps. We need action, ambition, and urgency.”
Turnbull’s motion, which has the support of 13 other MPs but has not yet been formally introduced in the House, makes no explicit reference to S-243. But during the news conference, he called it “a signal and a sign to both the government and to other parties that we need to start to have these debates and conversations in preparation for what I hope will be a successful passage through the Senate of Sen. Galvez’s bill, whereupon we can start our parliamentary work on that bill.”
Nudging the Parliamentary Process
While Turnbull filed Motion 84 with the House of Commons May 5, he explained he won’t get to formally introduce it until his turn comes up for Private Members’ Business (items presented by any MP who isn’t in Cabinet), likely in late fall or early next year. “But the opportunity here is to signal support of four parties in the House of Commons for a climate-aligned financial system, and for the government to deploy the legislative tools necessary to align the financial system with our climate goals,” he told The Energy Mix.
He said the MPs who took part in the news conference also wanted to signal support for S-243 as a “very ambitious piece of legislation” and “a great place to start.” While the measure may be revised, strengthened, or narrowed as it goes through the legislative process, “it’s better to start with an ambitious goal and best practices that have been identified internationally,” then “have the conversations we need to have” to get it adopted.
He called S-243 “the biggest next step that Canada has got to take” to hit its net-zero targets. “What we’re really asking for is a legislative framework and a regulatory environment that bring certainty, credibility, and an assurance to the public that there’s no greenwashing.” That would have to include a rigorous green taxonomy to help define effective, climate-aligned investments and a series of regulatory changes and guidelines, including a broader role for the federal Office of the Superintendent of Financial Institutions, which recently introduced a new voluntary guideline that asks federally-regulated institutions to take their climate risk more seriously.
Turnbull recounted a meeting of the Commons Finance Committee where he asked OSFI Superintendent Peter Routledge if financial institutions should consider whether their investments lock in future climate risks and impacts. “He said ‘we don’t want to be perceived to be putting our hand on the scale’,” the MP recalled.
The exchange showed that OSFI needs “a broader mandate in order to ensure that financial institutions are allocating capital in a way that is responsible to our climate commitment,” he said. “If OSFI’s overall role is to protect the stability of our financial institutions and financial system, having guidelines for climate risk management is a good thing, and it needs to include a responsibility to allocate and invest capital into the things that are consistent with a trajectory to net-zero.”
When Galvez first introduced S-243 in late March, 2022, she declared that “Canadians are asking for legislative solutions that will help accelerate the transition and achieve our targets. The only scenario in which our financial sector will thrive and prosper for generations to come is the one where we pursue a coherent and orderly transition.”
More than a year later, she said the strong interest in the bill from the House of Commons means “we’d better hurry up and send it to committee.” Beyond the stakeholder groups that often show up at the Banking Committee, she said Senators should also hear from sustainable finance experts, insurance companies that have been adding up the dollar costs of recent climate disasters, and international experts working on measures like the European Union’s green taxonomy.
“All of these things need to be studied, and the committee needs to bring in all of this expertise to understand what’s at stake,” she told The Mix.
All-In on Fossil Investments
The discussion in the House and Senate unfolds at a moment when Canada’s biggest banks are doubling down on their commitments to fossil fuel investments. In 2021, the Royal Bank of Canada and TD Bank led a 51% increase in oil sands investment, according to the annual Banking on Climate Chaos report produced by a half-dozen environmental NGOs. In 2022, RBC was the world’s biggest fossil fuel financier, handing over more than US$42 billion to oil, gas, and coal projects world-wide, as fossil investment from the world’s 60 biggest banks hit US$5.5 trillion in the seven years after the Paris climate agreement was signed.
At RBC’s annual shareholder meeting last week, CEO Dave McKay sought to defend his company’s fossil funding and climate record by emphasizing the importance of energy security and an orderly transition away from fossil fuels, The Canadian Press wrote at the time. He said instability in food, energy, or security will throw off efforts to rein in climate change.
“Where any of those, one or more of those elements, aren’t present, then the focus on this critical climate journey is put aside.”
Just two weeks before the RBC AGM, the Intergovernmental Panel on Climate Change pointed to precisely those impacts and many others as direct results of the fossil fuel extraction and expansion that RBC has been working so hard to finance.
Beyond record losses from storms, wildfires, and heat waves undercutting all of a financial institution’s investments, and the possibility or likelihood that fossil investors will be left with unusable or “stranded” assets as energy alternatives rapidly replace fossil fuels, the industry also faces heightened legal risk. The climate litigation database maintained by the Sabin Center for Climate Change Law currently lists more than 2,300 cases in progress—and that number is almost certain to grow fast, as the science of apportioning the cost of specific climate impacts to individual fossil fuel companies becomes more finely tuned.
A recent flurry of attribution studies, some of them shockingly fast, have isolated the climate component of the devastating and deadly 2021 heat dome in British Columbia, disastrous flooding in Pakistan, heat waves in Asia and Europe, and earlier this month, 35 years of wildfires in the western regions of Canada and the United States.
A ‘Kickstarter’ to Do Better
Julie Segal, senior manager, climate finance at Environmental Defence Canada, and the only non-Parliamentarian on the panel for Turnbull’s news conference, said the financial sector needs more guidance to make the right decisions on climate risk.
“The current under-regulation of Canada’s financial system hurts our ability to reduce emissions and create a good and affordable economy,” she said. “Canadian banks and pension funds are the world’s largest investors in fossil fuels, which puts over $100 billion of Canadian assets at risk of becoming obsolete. When it comes to financing clean energy, our banks rank in the bottom third globally but are leaders on fossil fuel financing.”
Those factors make Motion 84 and Bill S-243 a “kickstarter”, and regulation “the essential solution to mobilize the financial sector for a safe climate and a functioning, more affordable economy,” Segal added. “Incentives may encourage things to happen, but regulation and legislation make them work in the best interest of Canadians. Without rules, Canada will continue to fall behind on the truly green economy, with our banks and pension funds investing in an anachronistic fossil fuel economy instead of the future, green one.”
Galvez agreed that voluntary measures won’t get the financial sector on track with the country’s climate commitments, or address the risks in continuing fossil fuel investments.
“The financial sector is scared. They are saying it: This is climate-related risk, due to transition, regulations, stranded assets, and even reputations,” she told the Globe and Mail in a feature interview last week. “But on the other hand, they are investing [in fossil fuels]. So somebody has to tell them: ‘What you’re doing is not coherent.’”
Canadian pension funds have also made their share of unfortunate decisions. But Adam Scott, executive director of Toronto-based Shift Action for Pension Wealth and Planetary Health, said many funds have been taking “small steps in the right direction,” and the best managers in the industry would welcome a “level playing field” that forced the whole industry to adopt targets aligned with the Paris accord.
“You’ll see some that are doing a good job and some that are doing a bad job, and it’s clearly a tonne of extra work for all the players,” he explained. “They don’t have data, they don’t have clear direction from regulators, and so it’s confusing and complicated for them. But the funds that are leading and further ahead would be pleased to see a set of rules so that they’re not left hanging out there with ambitious agendas while everyone else lags.”
While “there are many in the sector who don’t want to see any regulation, who want to be left alone,” Scott added, “the smart folks in the pension world see it as fine. It’s stuff they’re largely doing on their own. And it’s helpful long-term to the way they’re managing their funds.”