A lightbulb on a green background

To the Expert Panel on Sustainable Finance

February 5, 2019

Looking ahead for the long-term

The work by the Expert Panel on Sustainable Finance was a welcome initiative by the federal government. Manifest hopes that this initiative will be successful in transitioning Canada’s economy to one that is based on less carbon intensive assets and is more resilient to the impacts of climate change. We recognize the effort that is required to understand this issue and thank the Expert Panel for the hours of work they have dedicated to this initiative. In response to the Interim Report, we offers the following feedback in three parts: emphasis on key observations, suggested gaps in the material and, lastly, recommendations for the final report.

Key Observations That We Think Should Be Emphasized

Based on over 60 years’ experience with climate-related concerns in multiple sectors, the advisors at Manifest seen the challenges presented by all of the foundational elements in the report. We agree that there are multiple reasons behind Canada’s slow progress in creating a green economy and the Interim Report lists many of these. In general, we see these reasons as separate puzzle pieces that fit together to give a fuller picture. Three key puzzle pieces are: first, the signal to the financial community from policy; second, action by the financial community in developing products, preparing and encouraging disclosures, use of subject matter experts; and third, support to the financial community in the form of reliable and accessible information, clarity in what a sustainable economy can look like supported by standards and taxonomy and availability of experienced service providers.

To go a step further, we suggest that there are some foundational elements that should be prioritized. In general, Canada’s financial community is well-equipped to develop tools, processes and products in response to a clearly articulated ‘gap’ in the market. Canadian financial institutions and service providers are at the forefront of thinking in many of these areas and are seen as sophisticated investors by the rest of the world. However, the experience of the advisors at Mantle is that the industry has been missing clarity regarding moving to a green economy. The message has lacked consistency and strength from the government, associations and clients. Also, the industry has not had the details needed for them to be confident in acting.

Therefore, clarity on climate and carbon policy with relevant and consistent financial regulations should be held as priorities. These should include strong and specific messaging backed by direct regulatory action and support, for example, de-risking and prioritizing specific types of investments broadly across a green economy or minimum requirements on analysis, allocation and disclosure from fiduciaries. Other foundational elements, such as access to reliable information, will be provided by the market if there is a clear demand for them and a willingness to pay.

Suggested Gaps

While we acknowledge that the interim report is a reflection of what the Expert Panel heard, we suggest that there are two gaps in this picture. The first is the issue of culture of change, and the second is the context in which the transition effort is taking place.

First, to transition an economy is a difficult proposition. We recognize that while science may be definitive about the reasons for why we need this transition, a large-scale transition requires a fundamental shift in the way the finance sector thinks about climate change and prioritizes action. Among Canadian financial institutions, there is a resistance to be a first mover and a resistance to large-scale and rapid change. Historically, this has been a positive characteristic helping our economy to remain relatively stable over global rough patches. Also, the type of financing involved in this transition does not lend itself to rapid action, e.g., large infrastructure projects can be years in the planning.

This culture permeates the financial industry for good reasons – stability and predictability in capital markets is highly valued and experimentation is generally limited by those with fiduciary obligations to beneficiaries. However, the climate issues that face us today require urgency. Not only is action needed now, any change in a system as large as the economy will take years to produce results. There is a real business case that delaying today will cause more volatility and degrade value in portfolios arguably in the short, medium and long term.

It is this embedded culture that must be tackled for individual portfolio managers, investors, insurers, bankers and others to objectively consider how their decisions affect climate change and long-term sustainability – topics not traditionally associated with finance. The issue of climate change and sustainability is a social one. To consider all the angles, fiduciaries must bring a human aspect to their work. This is something we have heard people express as being separate from their work. To be clear, this is not values-based investing, but a recognition that human, informed judgement is required to better price qualitative aspects of climate change adaptation and mitigation.

Second, it is undeniable that Canada owes much of its prosperity to fossil fuels. It would be disingenuous to talk about a transition without addressing how or where fossil fuels fit. They are embedded in our economy and provide work for a large portion of our population. Also, many of these companies and funds in affected sectors are also invested in fossil fuel alternatives and low carbon infrastructure support (so we can’t just throw the baby out with the bathwater).

A transparent and objective discussion is needed. It should focus on possible pathways for the use of fossil fuels and how investors can be smart about this while financing a move to a sustainable economy.

Both of these issues—culture change and fossil fuel dependence—are serious challenges to moving financial flows to a sustainable economy, yet are often not addressed. They contribute to the uncertainty related to whether a sustainable economy is one that will continue to grow and reward investors and creditors and whether there is a place for fossil fuels at all in the future.

Recommendations for the Final Report

A subtle theme running through the Expert Panel’s observations and one that we believe reflects the uncertainty in the financial sector players is the desire for a top-down effort. There is a call for centralized sources of data or an agreed-upon climate scenario model or disclosures by public companies and so on. It’s true that if everyone is acting from the same basis, there is less risk in taking the first step. However, we believe this is also a case of perfection over progress. There is a danger that waiting for these things to be in place will delay action. We believe there is more than enough readily available data to spur action and create a clear enough picture of the future with the above noted puzzle pieces in place.

With the above in mind, we urge the Expert Panel to provide recommendations that:

  1. Prioritize where action will be the most effective. Providing a pathway from today’s economy to what a green economy could look like would help to place the challenges into context and direct action where it is needed most.
  2. Incent action in the short-term as well as in longer-term. The transition will take time to happen and we need to start sooner rather than later. Ideas that may help this are:
    1. Detail the specific business case that action today is preferable to the volatility and loss of value that will come in a warmer world.
    2. Prioritize smaller, key items such as creating a taxonomy for sustainable finance. The EU HLEG initiative also suggests this step as it helps to establish clarity on what sustainable finance looks like, can map the understanding of climate and other sustainable data in financial terms and support disclosure
    3. While thorny and complicated issues such as our dependency on the fossil fuel sector and complexity with large infrastructure projects much be addressed, action could be taken in areas outside these traditional ones. The building sector is a large source of GHG emissions in Canada. If finance vehicles that have favourable returns were created, this would be a lower-risk step to a sustainable economy.
  3. Are independent of government action. While government action is key and will be needed in many areas, we recognize that this may happen slowly and can be influenced or delayed by many other items. It will also be important in the long-term to have a green economy that does not solely require government support.
  4. Address the role of fossil fuels in a green economy. The financial sector would benefit from knowing what Canada’s future economy may look like.


We recognize that while there are clear macro reasons for why we need a sustainable economy that accounts for broad and complex issues such as climate change, this does not automatically translate to action. There is a fair amount of conviction and concrete signals needed to incent the finance industry to change. The expert panel should seek to make recommendations to reduce the risk of taking those first steps and then build on the momentum as others join.

There is quite a bit of work to be done to realize this transition and we realize that the ideas in this response are necessarily at a high level. We would be pleased to discuss any of these further should the Expert Panel be interested.