Voters want a financial system aligned with climate action

Last year, elected officials from four political parties committed to align Canada’s financial system with the Paris Agreement, and called for the government to use all regulatory and legislative tools at its disposal to make it happen. Now people are waiting for outcomes. This fall, delivering policy to align finance with climate action should be a priority. Existing solutions are ready and waiting to be propelled forward. The Climate Aligned Finance Act (CAFA), introduced by Indepenent Senator Rosa Galvez in the Senate in 2022, outlines a comprehensive set of solutions. CAFA would align the financial system with Canada’s climate commitment to limit global warming to 1.5 degrees Celsius, including by prioritizing equity, biodiversity, and the best available scientific evidence. Requiring climate transition plans is one key policy, as is clarifying that leaders of organizations should aim to help mitigate climate change and its resulting risks. This would ensure that banks, pension funds, insurers, and large companies align their financing and investment activities with this country’s climate commitments. Modernizing the mandates of regulators is an important part of this solution so that organizations are held accountable for progress. Public opinion supports climate-related financial policies, which means these solutions should have wind in their sails. According to recent polling, 65 per cent of people surveyed want mandatory rules to ensure the financial system invests sustainably. This support increases to 78 per cent—nearly four-fifths—for policies that directly counter greenwashing. Most Canadian financial institutions have climate commitments, but few yet have the plans to deliver on these commitments. Perhaps as a result, less than 10 per cent of people trust their financial institution to take meaningful climate action without mandatory regulations in place. Over 120 groups have specifically endorsed CAFA, including climate expert organizations and members of the financial sector. This broad swath of support shows an opportunity for policy that advances climate and economic goals, and that is sensible and winning in the eyes of Canadians. Some provinces are proactively moving to align their financial systems with climate action. Quebec launched a roadmap for sustainable finance over the summer, and plans to advance a number of core sustainable finance policies. Delivering policies to align finance with climate action is both important and doable. Yet Canada trails behind international peers in modernizing rules for a more sustainable financial system. The European Union, the United Kingdom, and Australia have made concrete progress with climate finance policy solutions.The U.K. and the EU have clarified that the mandates of their central banks and financial regulators should consider climate change, which is an important lever to ensure the whole economy advances climate action. All three regions are requiring climate transition plans. The U.K. government committed to require financial institutions and large firms “to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement." Similar policies in Europe require implementation of a climate transition plan that aligns with the EU’s climate commitments, and Australia plans to advance climate transition plan requirements in the next year. To keep up with global progress, Canada must act quickly. These underpinnings are important for this nation to seize green job opportunities in the climate transition, and to succeed on climate commitments. A safer planet and more stable economy are foundational to a better quality of life for people across the country, and Canadians want to see policy that ensures their financial system moves in a sustainable direction. The solutions are being implemented in other jurisdictions, and Canada has its own versions of policies drafted with popular support. Our government needs to prioritize and implement them. Canada can only meet its climate commitments if the financial sector moves in the same direction. Time is running out. Canadians want policymakers to implement climate aligned financial policy in order to fix this missing piece of our climate plan. Julie Segal is senior program manager of climate finance at Environmental Defence Canada. She was a member of the advisory committee for Bill S-243, the Climate-Aligned Finance Act, and for the Quebec government’s sustainable finance roadmap. The Hill Times