441-01351 (Environment)

The Government of Canada thanks the petitioners for expressing their views about climate-aligned finance in Canada.

Canada’s transition to a low-carbon economy and net-zero emissions by 2050 will require substantial investment beyond the public sector. Private sector capital and expertise will be needed to meet Canada’s climate objectives and create a climate-resilient economy.

Developing sustainable finance in Canada will promote the long-term growth and stability of Canada’s financial system. It will also create new opportunities for Canadian businesses and investors.

In May 2021, the Government of Canada launched the Sustainable Finance Action Council (SFAC) to help lead the Canadian financial sector towards integrating sustainable finance into standard industry practice. The SFAC is chaired by Kathy Bardswick and comprises 25 Canadian deposit-taking institutions, insurance companies and pensions funds, with combined assets of over $10 trillion.

The SFAC’s Terms of Reference call on it to provide financial sector input to the Government of Canada on the development of foundational market infrastructure, including enhancing climate disclosure, defining green and transition investment, and improving climate data and analytics. More recently, in Budget 2022, the Government of Canada asked the SFAC to develop and report on strategies for aligning private sector capital with the net-zero transition, with support from the Canadian Climate Institute and in collaboration with the Net-Zero Advisory Body.

As part of the SFAC’s governance structure, an Official Sector Coordinating Group was established that includes participants of the policy and regulatory community connected to sustainable finance, including the Department of Finance Canada, Environment and Climate Change Canada, the Bank of Canada, the Office of the Superintendent of Financial Institutions (OSFI), and provincial securities and prudential regulators.

The SFAC has played an important role in convening representatives from Canada’s financial sector to engage on market infrastructure issues and to provide its expert advice to the Government of Canada. In the course of its work, it has engaged with a range of domestic and international stakeholders on sustainable finance to exchange views and ensure that its advice is comprehensive and consistent with best practices.

At the Government of Canada’s request, the SFAC has prioritized work on climate disclosures. Soon after launch, the SFAC provided initial perspectives on how to enhance climate disclosures, and then provided a submission to the International Sustainability Standards Board (ISSB) setting out its views on the ISSB’s draft global disclosure standards on climate and sustainability reporting. The SFAC has also prepared advice on how to effectively implement the Government of Canada’s commitment to move towards mandating climate disclosure across a broad spectrum of the Canadian economy.

The SFAC has also worked on taxonomy, and, late in 2022, submitted the Taxonomy Roadmap Report to the Government of Canada, which sets out its advice on the design, governance, and implementation of a Canadian green and transition finance taxonomy. The Government of Canada is studying the Report’s advice, and there will be continued collaboration with the SFAC and other financial sector leaders on taxonomy.

The Government of Canada is making important progress in meeting its Budget 2022 commitment to move towards mandatory reporting of climate-related financial risks across a broad spectrum of the Canadian economy, based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

On March 7, 2023, OSFI published final Guideline B-15: Climate Risk Management (Guideline), which sets out OSFI’s expectations for the management and disclosure of climate-related risks by federally regulated financial institutions (FRFIs). The Guideline aims to support FRFIs in developing greater resilience to, and management of, climate risks. The Guideline will apply to more than 350 federally regulated banks and insurers. OSFI’s expectations relating to climate will be integrated with OSFI’s new Supervisory Framework. The Guideline includes expectations relating to:

• Governance and accountability over FRFI climate risk management;
• The need to understand the impact of climate-related risks on the FRFI business model and strategy, including implementation of a climate transition plan;
• FRFI risk management practices, including the use of climate scenarios to identify and manage current and potential future impacts of climate risks;
• The need to assess the potential impacts of climate-related risks on capital and liquidity; and,
• Disclosure expectations aligned with the TCFD framework, which will be updated to consider final ISSB climate-related disclosure standards.

In addition to climate-related reporting by FRFIs required pursuant to the Guideline, in Budget 2021, the Government of Canada announced that federal Crown corporations would adopt the TCFD framework, or more rigorous climate-related financial disclosure standards applicable to the public sector, as an element of their corporate reporting. Implementation is well underway. In Budget 2022, the Government of Canada also committed to moving forward with requirements for disclosure of environmental, social and governance considerations, including climate-related risks, for federally regulated pension plans. Provincial and territorial securities regulators are also acting in this area. They have published a draft climate disclosure rule for public companies, which is expected to be finalized once there is greater certainty about the direction of similar rules in major capital markets jurisdictions.

Globally, the Government of Canada is a strong supporter of the ISSB and provided funding for the ISSB’s Montreal Centre, which was launched in June 2022. The ISSB’s aim is to develop a comprehensive global baseline of high-quality sustainability disclosures to meet investors’ information needs. The ISSB is expected to publish its first standards in 2023 on climate and general sustainability reporting. In June 2022, Canada’s accounting, audit and assurance standards oversight councils announced the establishment of the Canadian Sustainability Standards Board, which, among other things, is expected to provide Canadian input on ISSB standards and adopt ISSB standards for use in Canada.

In March 2022, the Government of Canada also released the federal Green Bond Framework and subsequently issued its first green bond, worth $5 billion. This issuance was, and remains, the largest single green bond issuance in the Canadian market. In fulfilling the requirements of Canada’s Green Bond Framework, the Government of Canada issued its first allocation report on March 28, 2023, showing how the proceeds from the green bond were allocated.

Additionally, the government has committed to phase out or rationalize inefficient fossil fuel subsidies—and has recently accelerated the previous timeline for doing so from 2025 to 2023. In Budget 2022, the government announced its intent to eliminate the flow-through share regime for fossil fuel sector activities. This change took effect on April 1, 2023.