It’s time to stop stalling and advance the Climate Aligned Finance Act

With countries around the world—including Canada—racing to compete in a decarbonizing global economy, governments are committing billions of dollars towards encouraging the production of clean energy, and the manufacturing of clean technologies. But success ultimately hinges on businesses, and the banks that finance them. Which means our financial institutions must align their activities with achieving net zero. Over a year ago, ISG Senator Rosa Galvez introduced Bill S-243, the Climate Aligned Finance Act (CAFA). This gold-standard legislation would align Canada’s financial system with the country’s climate change commitments. But this critical bill appears to be stalled, prevented from proceeding to committee for study. Amr Addas is strategic adviser for sustainability and a lecturer Concordia University's John Molson School of Business. Photograph courtesy of Amr Addas In the time that has lapsed since the bill was introduced, we have learned much more about the costs of climate change already being borne by Canadians, which will only grow absent stronger action. According to analysis from the Parliamentary Budget Office, the impacts of climate change cost Canada’s economy $20-billion in 2021. The Canadian Climate Institute estimates that Canadians already pay over $700 per year for climate-related damage—costs that will keep rising to about $2,000 per year by 2050 if climate impacts become more extreme. This should serve as a stark reminder that we cannot afford further delay, which is why a group of 56 academics have written to Senate leaders calling on them to advance CAFA to committee for study. Discussing CAFA in committee is an essential part of the Senate’s role. This would allow discourse and thoughtful engagement about the systemic risks that climate change poses to Canada’s financial system. In a January 2022 pilot study, the Office of the Superintendent of Financial Institutions (OSFI) and the Bank of Canada found that climate change leaves our financial system exposed to systemic risk and business default, particularly in the fossil fuel sector. The study highlights that "delaying climate policy action increases the overall economic impacts and risks to financial stability." Canada’s banks and institutional investors have begun to publicly recognize climate risks. Many have pledged to align with commitments Canada has undertaken under the Paris Agreement, and even gone further by pledging to align their portfolios with net zero as members of the Glasgow Financial Alliance for Net Zero. We believe most would welcome more regulatory clarity. Other jurisdictions including the European Union, the United Kingdom, Australia, and even the United States have advanced policies to protect their financial systems from climate change risks, and to position them to benefit from the opportunities arising from the transition to clean energy. Business leaders—including from the financial sector—are calling for an “orderly transition.” It’s clear that the status quo is not working and is increasing the risk of a disorderly transition. In 2022, global investment into clean energy matched investment in fossil fuels for the first time ever, with USD$1-trillion invested in each. While that was significant, a successful, orderly transition requires four times that rate of investment in clean energy over the next decade, according to BloombergNEF. However, Canadian financial institutions are not yet achieving even a one-to-one ratio of fossil fuel to clean energy activity. OSFI has drafted guidance that federally regulated entities disclose their exposure to climate-related risks and opportunities. Mandatory climate-risk disclosure is one step, but on its own it is insufficient to drive the transformation required in our financial sector. Canada needs regulatory rigour and clarity to build a more stable financial system. This is also essential to enable investors to take advantage of opportunities in a decarbonizing world. By bringing coherence, transparency, and accountability to the financial sector’s actions, CAFA can help drive the necessary shift to clean energy, and in the process help ensure the orderly transition called for by Canadian business leaders. This bill is the beginning of a conversation that’s long overdue about how we align our financial systems with Canada’s climate targets. It’s time to stop stalling, call for a vote and move the Climate Aligned Finance Act forward for further study, discussion, debate, and consideration. Amr Addas is strategic adviser for sustainability and a lecturer Concordia University's John Molson School of Business. He is also the director of the Van Berkom Investment Management Program and Van Berkom Small Cap Case Competition. Addas has taught at Queen’s University, McGill University, and Sherbrooke University. The Hill Times