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Businesses Will Miss Opportunities Waiting for Government Action on Sustainable Finance

July 15, 2019

In June, the federal government’s Expert Panel on Sustainable Finance released its final report, comprised of 15 recommendations for how Canada can build a stronger, greener and more resilient economy. We welcome the report and appreciate the hard work the four volunteer members of the panel did in just over a year. The expert panel had to deal with the complexities and breadth of the issue and struck a pragmatic balance in their approach. We are pleased to see so many financial institutions support the recommendations and call for swift implementation.

Nevertheless, the report is primarily about building the foundations of sustainable finance in Canada. It is not a roadmap. Many recommendations are up to federal and provincial governments to determine when and how they are implemented. There is a developing ecosystem in Canada for sustainable financial services, and combined with the urgency of climate change, there is no reason why businesses need to wait for government to act. Businesses who wait will miss out on massive opportunities in the current shift to a low-carbon economy – one that is happening in Canada and around the world.

There are three areas in the panel’s report critical for businesses to be aware of. Our insights focus on the areas of support, transparency, and innovation.


A major component of the panel’s report is enhancing the understanding and awareness of sustainable finance in Canada. The goal is to make sustainable finance ‘business as usual,’ so the ‘sustainable’ moniker is eventually dropped and all aspects of finance will be seen through the lens of climate change and sustainability, the panel said.

The report recommends the federal government allocate funding to organizations who help facilitate education, training and collaboration on sustainable finance (Recommendation 7.1). The goal is to enhance the understanding of climate risks and opportunities within professional organizations, and ensure investors are aware of how climate change impacts investment decisions, on both the risk and opportunity side. The focus on a supportive ecosystem should spur an increase in professional development and accreditation programs to ensure senior managers, board members, and other financial sector actors are fluent in the latest in sustainable finance.

As part of supporting the growth of sustainable finance, the report outlines several steps to remove barriers (real and perceived) from companies implementing a complete disclosure of climate risk. It recommends the Department of Finance work with the Canadian Standards Association to develop a clear taxonomy for green and low-carbon economy transition fixed-income products, to better unlock investor capital (Recommendation 9.1). It also recommends that Chartered Professional Accountants Canada supports the development of a climate lens for accounting, assurance and auditing standards (Recommendation 7.2). As well, the report calls on the Minister of Finance to issue a statement clarifying that climate change is “firmly within the remit of fiduciary duty” (Recommendation 6.1).

Smart and consistent support for Canada’s sustainable finance ecosystem will speed up the transition to a low-carbon economy. The perceived lack of clarity for businesses on what constitutes climate risk and how to disclose it, as well as what constitutes a ‘green’ investment is impeding progress and is a barrier to investment. The advisory community plays a critical role in ensuring businesses can navigate the climate change landscape; without strong knowledge and understanding of sustainable finance, Canadian businesses are at a disadvantage against global competitors who are moving much faster.

For example, just days after the release of the expert panel’s report in June, the EU Technical Expert Group released its sustainable finance taxonomy and green bond standard. Investors in the EU now have a common language and clarity on low-carbon issues that Canada is only just developing. Much of what the EU Technical Expert Group released will be relevant in Canada, and we should leverage it wherever possible to push ambition and urgent action.


Transparency is critical when ensuring businesses are addressing the risks and opportunities of climate impacts and the transition from fossil fuels to a low-carbon economy. The panel’s report lays out a path for Canadian businesses to comply with the Financial Stability Board’s Task Force on Climate Disclosure (TCFD) recommendations.

As part of a ‘comply or explain’ policy, the panel recommends TCFD compliance in Canada proceed in a two phases (Recommendation 5.1). The first phase focuses on the strategy, risk, metrics, and governance aspects that deal with oversight: how does a business oversee and identify climate risks and opportunities. The second phase requires disclosing steps to address and adapt to climate change and how these are integrated into the overall organization, based on assumptions and the application of scenario analysis.

The panel recommends businesses with a market cap of greater than $2 billion comply with the first phase by the end of 2022, and the second phase by 2024 (Recommendation 5.2). Smaller companies have until 2026 to complete the second phase. Despite recommending these disclosure milestones, the report notes the federal levers to compel disclosure are limited; much of the progress on TCFD will depend on action at the provincial level. We believe industry standards and investor concern will call for more urgent implementation than provincial regulators.

While the panel’s proposed compliance timeline for businesses is over many years, concerns over transparency are mounting now and other countries are taking action. This spring, the Bank of Canada listed in its Financial System Review climate change as one of six vulnerabilities to the Canadian economy, partly due to the inconsistent nature of TCFD disclosure in Canada. In the review, the central bank noted “asset prices may not fully reflect carbon-related risk,” resulting from a lack of information on the carbon exposure of firms and from the difficulty associated with accounting for uncertain and complex future events. If assets are mispriced rapid repricing causing “fire sales” coupled with other market vulnerabilities could destabilize the financial system, the bank warned.

Other jurisdictions are moving faster than Canada to bring in TCFD disclosure and enhance transparency for investors. The UK’s Green Finance Strategy, released July 2, 2019, recommends full TCFD disclosure for all publicly listed companies and large asset owners by 2022 – a full two years ahead of the proposed timeline for Canadian companies. Meanwhile, France encoded climate disclosure into their legal system in 2015. It is “the most TCFD-compliant piece of legislation currently enacted among the G20 members,” said a 2018 University of Cambridge report.


The panel detailed a number of innovations the federal government could leverage to expand sustainable finance in Canada. One of the most noteworthy ideas was the proposal to create new incentives for retail investors in climate products by offering taxable deductions greater than 100 per cent on contributions to ‘climate conscious’ products like green bonds (Recommendation 2.1).

The panel also recommends the creation of a new fixed income instrument for climate-transition products—a category different from traditional green investments (Recommendation 9.1). This instrument would help high-emission industries access capital to reduce their carbon emissions – a group traditionally excluded in standard green bond offerings. Fixed income transition products could help drive down emissions while providing another way for investors to support the shift to a low-carbon economy. The panel also calls on Canadian asset managers to create pools of green and transition-linked fixed income products so that institutional-scale investors can access them (Recommendation 9.2.C.)

Innovations like new RRSP deductions for green investments and transition bonds are two ways in which, if implemented, Canadian businesses could take advantage of the global shift of capital moving out of carbon-intensive industries and into greener, more resilient investments. Already, we have seen the Zurich Insurance Group announce it will no longer underwrite or invest in companies that generate at least 30 per cent of their revenue from the oil sands. Last year, HSBC, Europe’s largest bank, announced it will no longer fund new projects in the oil sands, following a similar announcement by BNP Paribas, France’s largest bank that it will cease financing projects that are primarily transporting oil and gas.

In June, more than 400 investors from around the world, managing more than US $34 trillion, signed an open letter calling for the G20 to commit to deeper greenhouse gas reductions, end the financing of thermal coal and speed up the transition to a low-carbon economy. Canadian signatories included BMO Global Asset Management, the Ontario Teachers Pension Plan, Alberta’s pension investment manager AIMco, and the Caisse de dépôt et placement du Québec.

Canada needs to be proactive and see these shifts as an opportunity. By seeing the opportunity for innovative sustainable financial products, being more active in how businesses disclose climate strategies, and creative in how we address climate risk, we can ensure global investment in green business comes to—and stays in—Canada.

The alternative is to let other countries and global institutions shape Canada’s future, both from a climate and an economic standpoint, and invest their capital elsewhere while we sit on the sidelines. We don’t believe that is an option.

No need to wait

While we hope the federal and provincial governments will implement the panel’s recommendations, businesses cannot and should not wait. There is plenty of research and support available right now for businesses to get a handle on what climate change and sustainable finance means for their operations and long-term future.

Manifest exists to address the foundational elements in the expert panel’s report and assist businesses in navigating the sustainable finance landscape. We have assembled an interdisciplinary team of climate experts to provide organizations with insights and support as they consider and manage climate-related risk and opportunity.

We are ready to work with organizations who are ready to address climate change and recognize that they can choose their own future, rather than have it forced on them by global trends or future regulation.