New Perspectives on the Sustainable Finance Opportunity in Canada

A sustainable finance expert group for Canada could build on the European work to date

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On 14 September, a meeting of Canadian financial professionals in London was convened to discuss and debate opportunities for Canada to build on the work of the European HLEG. Participants from insurance, investment banking, accounting, and policy-making organisations participated in a personal capacity and the event was held under the Chatham House Rule.

Following a breakfast meeting hosted by Norton Rose Fulbright here in London on 14 September, the level of ambition for a ‘Made in Canada’ Expert Group on Sustainable Finance is high. Participants from across the financial sector came together to discuss how Canada could build on the experience of the European Commission and make a uniquely Canadian contribution to fiscal and economic policy for the energy transition. The G7 Presidency in 2018 was identified as a perfect opportunity for Canada to build on European leadership in sustainable finance and to showcase Canada’s contribution to sustainable finance.

The Canadian advantage

Canada is defined by its stable financial system with integrated players and sophisticated regulators. The majority of the financial sector is regulated at the federal level, with close coordination with provincial regulators, and some overlapping areas of jurisdiction, not dissimilar to the structure of the European Union (just don’t say ‘federalism’ in Brussels). Key capital market functions are concentrated, meaning that change and sustainable finance leadership would only require a couple key actors to step forward. The six largest commercial banks hold over 90% of banking system assets. The government-owned Canada Mortgage and Housing Corporation (CMHC) and the listed Genworth Financial Canada insure over 60 percent of all outstanding mortgages by value. The property and casualty insurance sector is similarly concentrated. This concentration of resources and expertise represents a great opportunity.

Participants noted that Canadian pension funds have a global presence, with expertise in infrastructure, debt financing facilities, and other alternative asset classes. This makes them perfectly suited to seize local and international opportunities for investment into sustainable infrastructure. The Bank of Canada already participates in discussions on systemic financial risks and climate change via the Financial Stability Board, and the work of the T20, the research and policy advice network for the G20.The Bank of Canada, financial sector regulators, and other government finance and insurance providers were all considered as key players in building a strategy for Canada to compete on the global stage in clean energy and infrastructure finance. Export Development Canada’s global leadership in structured finance and its recent green bond issuance in Canada were highlighted as signals that Canada is ready to become a global leader in sustainable infrastructure finance and green bonds.

The need for a ‘just transition’
Canada’s unique geography and energy-intensive economy were highlighted as challenges and opportunities in transitioning to a more sustainable financial sector. The transition away from coal power in Alberta and Ontario were both seen as case studies on policy capacity to deliver a ‘just transition.’ The ILO’s ‘Guidelines for a just transition towards environmentally sustainable economies and societies for all’ were highlighted as a potential compass for Canadian fiscal and economic policies to support the real economy and local workers through the transition to net-zero carbon energy systems by 2050. The leadership of Quebec’s pension fund industry on ESG issues was seen as a sign of the unique regional contributions that could come together in the production of a national sustainable finance strategy.

Canadian retail investors and millennial pension savers want new products aligned with social impact and sustainability targets. Participants felt that high-level principles on sustainable investment could provide a clear framework for new financial product development for Canadian savers and for pension funds committed to productive long-term global investment portfolios.

Building on a history of leadership

Participants noted a history of global leadership and willingness to innovate as two Canadian attributes for sustainable finance success. A sustainable finance expert group for Canada could build on the European work to date and incorporate uniquely Canadian elements. From fintech prowess to indigenous land rights and infrastructure investment, participants all had differing views on how policy innovation and ESG factors could help shape the future of finance in Canada. As colleagues in Canada and around the world prepare for COP23 in Bonn and Canada’s G7 Presidency in 2018, there is much to celebrate about the sustainable finance opportunity. Now it is time to get down to work.