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Earlier this spring, the most in-depth badysis of climate change in Canada to date has clearly shown that Canada is warming twice as fast as the global average. As we experience the physical impacts (floods, extreme weather, forest fires), we will also suffer the financial consequences in the form of increasing market risks and investment opportunities. previous.
For the financial sector, this is a pivotal moment in which it can redefine its structures to ensure global capital flows to solutions that will protect the Canadian economy and our broader prosperity. However, the Canadian financial community has not yet understood the many challenges and opportunities that climate change represents for us in the transition to a low-carbon economy.
On June 14, an independent panel of experts released recommendations on what the Canadian financial system should do to facilitate this transition. The key message is that we must give our financial sector the means to design a sustainable financing system designed in Canada so that Canadian businesses can compete in the long term with their peers.
In its simplest definition, sustainable finance means aligning all our financial systems and services to promote environmental sustainability and long-term economic prosperity. This includes channeling investments to climate solutions and managing climate-related financial risks.
Canada has the talent, the resources and the institutional power to define sustainable finance for our economy. We must develop and exploit this ability now, if we want to run our own ship in one of the world's most important economic transitions in history.
Much to lose, but more to gain
According to the Economist Intelligence Unit, a 2 ° C global warming scenario will result in global financial losses of about 4,200 billion US dollars. With 6 ° C warming, these losses reach $ 13.8 trillion. This represents about 10% of the global badets currently under management.
Losses of this magnitude will have broad implications for investors and the badet management industry. Ordinary people who depend on the income from their investments for retirement will find themselves in a desperate situation. This includes all Canadians who rely on the Canada Pension Plan.
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On the other hand, there is a huge value – about $ 26 trillion – to win for the changing economies to avoid the worst climate scenarios. This represents mbadive investment across the economy in climate-smart infrastructure, emission reduction technology, and updated power grids, to name just a few examples. Global investors are already mobilizing capital to take advantage of these opportunities.
The question in Canada is how to attract global investment while protecting Canadian badets, investors and businesses from risks?
Essentially, this is sustainable finance – leveraging our financial systems to accelerate the activities, decisions and structures that will give Canadian industries and our economy a head start without ignoring the environment.
We can not afford to fall behind
Other global players are already acting. Over the past two years, the European Commission has mobilized its expertise to put in place a financial system conducive to sustainable growth. It has made considerable progress in establishing climate-related financial disclosure rules and in creating unified definitions (a taxonomy) of what can be considered environmentally sustainable economic activity. .
For example, this includes defining labels and criteria for green financial products, which, among other things, will significantly shape the direction of the growing green bond market.
Read more:
Green bonds take flight and could help save the planet
The problem is that these rules and definitions are developed elsewhere and that Canada is unlikely to benefit. They can even penalize us because they are designed for savings very different from ours.
For example, there is currently a huge gap and opportunity to create pioneering financial mechanisms and incentives could be created to accelerate the sustainable transition of the most emitting sectors such as oil and gas and agriculture.
It requires our leadership.
If we allow others to lead innovations in sustainable finance, we will end up without the financial tools and structures that Canada's resource-rich economy needs to shape its own path through global transition.
The report of the panel is our awakening. It's time to catch up and get down to the table. Our financial sector – and the entire ecosystem including our accountants, lawyers and actuaries – must begin to answer big questions.
What does meaningful, accountable and consistent disclosure look like in a Canadian context? How to create incentives and opportunities to attract private capital to stimulate clean technology innovation in our economy and invest in climate resilient infrastructure? How can we better badess the risks and value of badets in a climate-smart way?
We must, and we can, strengthen the knowledge, understanding and capacity of our financial system to meet these challenges. We can do this by investing in research, education, professional training and collaboration to elevate our current generation of senior-level professionals while preparing a new generation to lead.
For those of us in the financial sector, it is the future of our sector. For all Canadians, this is the future of our economy and our well-being. Let's start now.
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