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The European Union and China have recently put forward detailed proposals for sustainable finance that will boost their own innovation. As the world moves forward, the United States is turning around.
Where will Canada go?
The Canadian industry's response to Canada's Expert Panel on Sustainable Finance will be revealing. This group, supported by the federal government, has recommended policies and programs that will enable the Canadian financial sector to move toward sustainable growth. Canadian industry will react with reluctance and reluctance or take advantage of the opportunity to play in international financial markets that reward a long-term perspective.
What is sustainable finance?
Sustainable finance is not a tax. It's an incentive that directs capital flows to projects that create value for all Canadians, not just for a handful of wealthy investors.
It encourages investors to broaden their criteria for valuing investments not only based on financial performance, but also on environmental, social and governance performance criteria. Such criteria have been shown to reduce investment risks and encourage long-term growth. These types of investments have created many new financial products, including green bonds, leveraged loans for sustainability, and impact investments.
Read more:
Green bonds take flight and could help save the planet
Currently, many investors are earning money on other investors. For example, it is estimated that high frequency trading affects 40-50% of the volume of all badets. These traders "beat the market" in milliseconds. After an investor's order, high-frequency traders rush in front of him, resulting in a higher price for buyers and lower prices for sellers.
In addition, financial markets favor short-term returns. Short-term capital flight risks complicate the transition of the corporate sector to a clean economy, which often requires heavy investment in research and development and technology.
Sustainable finance helps to solve both of these problems. It highlights the real economy and the long term. It recognizes that investor speculative behavior and short-term capital flows can undermine the resilience of the financial system and society.
What if we do not adopt sustainable finance?
The failure of sustainable finance will affect all Canadians, not just the financial markets. There is a risk to our economy because it is carbon intensive. The Canadian economy relies heavily on natural resources. In fact, compared to other G7 economies, Canada is the country most dependent on natural resources.
As the rest of the world moves away from carbon, Canadian businesses will be mbaded with a heavy load of fixed badets. The Carbon Disclosure Project recently announced that the 215 largest companies in the world expect a trillion US dollars to be threatened by the effects of climate change. The Bank of Canada has recognized the risk Canadians face in different climate scenarios.
Second, there is a risk for Canadians with pension plans, given the short-term speculative behavior of financial markets. Short-term investments hurt returns over the long term. The failure of sustainable finance imperils not only our own well-being, but also the well-being of our children.
And if we adopt sustainable finance?
Sustainable finance will drive innovation that will create new, vibrant, clean, forward-looking businesses. These companies will activate new technologies, such as fuel cells, platform software linking buyers and sellers and product formulations reducing the use of plastics and toxins.
However, to do this, Canadian investors, businesses and society must look to the future, rather than stuck in the past.
Canadians do not have to catch up. We can lead. Canada's diverse, healthy and diverse workforce, as well as our strong capital and physical infrastructure, place us in an enviable position to lead innovations on the world stage.
A call to government and businesses
There is no doubt that sustainable finance will redirect capital and create winners and losers. Resources will be redistributed.
The winners will be those who create true wealth and look to the future. The losers will be those who have benefited simply by arbitration, rather than creating real value. The winners will often be newcomers to the market, small and medium-sized companies. These will include young people and the elderly, and often those who have been left out of the traditional economy.
Chris Barbalis / Unsplash
But the probable losers have every interest in maintaining the status quo. These people will fight against sustainable finance because they are rooted in the past.
Canadians have already faced transitions. We have witnessed the collapse of our fisheries on the East Coast, the forest industries of Quebec and British Columbia and, more recently, the oil and gas industry in Alberta. We have demonstrated tremendous resilience in managing these previous transitions. And through these transitions we have found new opportunities.
Capital markets will open new opportunities. Sustainable finance will take us off the treadmill, which speeds up every day, depleting business and hurting the health of the planet.
The time has come to leave the past behind and move to a new economy that seeks long-term prosperity for all Canadians.
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