Canadians are facing a series of interconnected crises: climate, affordability, and housing. To genuinely help Canadians make ends meet, the Government of Canada must ensure that the economy works for people, not against them. Currently, financial institutions continue to side with the private interests of the oil and gas sector rather than the best interest of Canadians​​​​. This sector not only contributes disproportionately to the climate crisis but also worsen the affordability crisis. 

It is essential to take decisive action by shifting the burden of the climate transition away from working people and onto those most responsible for the crises and with the means to address it: financial institutions and the fossil fuel sector. To build a truly inclusive and sustainable economy, financial flows must be aligned with the country’s commitments to climate science and justice. Now is the time for the financial sector to shoulder its responsibility in the transition to a greener future​, which requires modernized financial policies and accountabilities set by the government​​.​ 

Five reasons to implement Climate-aligned Finance Principles in Canada 

  • Addressing the root causes of the affordability crisis. ​Canada will only succeed on its climate commitments if the financial sector is regulated to move in the same direction. ​Climate-related damages already increase the average Canadian’s household’s cost of living by $700 each year and it will only get worse without swift action. Moreover, in 2022, 40 per cent of all higher prices ended up as corporate profit in just three industries including oil & gas and finance & insurance, those 2 sectors being amongst the lead causes of climate change. This underscores the urgent need to ensure that capital flows are directed towards addressing this worsening crisis by reducing our dependence on the primary cause: fossil fuels.  
  • Broad Public Support. A majority of Canadians support climate-aligned financial policies. Recent polling shows that 65 per cent of Canadians desire sustainable finance policies, with this rising to over 78 per cent of people when the regulations are framed as addressing greenwashing, and 80 per cent expressing distrust in banks or financial institutions to deliver on their green promises. Three-quarters of surveyed Canadians want financial institutions to prioritize the long-term good of society over short-term profits, and 70 per cent support requiring financial institutions to develop Climate Transition Plans. On top of that, the Climate-Aligned Finance Act (Bill S-243, also known as CAFA), presented by independent senator Rosa Galvez, is endorsed by over 120 ​financial institutions and ​civil society organizations.  
  • ​​​Cross Party Support. In an era of growing polarization, climate-aligned finance presents a unique opportunity to build bridges within the House of Commons. Notably, MPs from four different parties have united to support a parliamentary motion urging the government to leverage legislative and regulatory tools to align Canada’s financial system with the Paris Agreement. Building on this momentum, the Standing Committee on Environment and Sustainable Development (ENVI) recently issued a series of recommendations emphasizing the urgent need to reform Canada’s financial system to meet its climate commitments, as outlined in Bill S-243. 
  • Keeping Pace with Global Peers. Canada must implement robust climate-aligned financial policies to avoid falling behind. Indeed, international trading partners ​and economic competitors ​like the European Union​, ​the United Kingdom​​, and many economies across Asia have already adopted significant climate-aligned financial policies. Within Canada, provinces like Quebec have taken proactive steps, presenting a valuable opportunity for federal-provincial alignment on climate initiatives. ​​International experts have likewise called for climate-aligned financial policy in Canada: for example, the Climate-Aligned Finance Act (CAFA) has endorsement from international experts such as Eric Usher, Head, UN Environment Program Finance Initiative, and Thierry Philipponat, Chief Economist at Finance Watch. Former governor of the Bank of Canada and UN Special Envoy for Climate Action and Finance, Mark Carney, as well as Nathan Fabian, Chief Sustainable Systems Officer at Principles for Responsible Investment, have also suggested CAFA goes in the right direction.  

The policy that Canada needs 

Canadians expect their elected officials to take decisive action on climate change, with the financial sector playing a key role. To meet this demand and seize the economic opportunities of the transition, the Canadian Government should implement the following key principles from CAFA (S-243): 

  1. Duties for Directors and Officers. Establishing a duty for directors, officers, and administrators to align entities with climate commitments. 
  2. Alignment of Purposes. Aligning the purposes of federally regulated entities, crown corporations, and the financial regulator with climate commitments. 
  3. Transition Plans and Transparency. Requiring the development of climate transition plans, targets, and progress reports on meeting climate commitments, with annual reporting requirements and increased transparency by making them public and freely accessible.
  4. Board Expertise and Conflict Avoidance. Ensuring climate expertise on certain boards of directors and avoiding conflicts of interest.
  5. Proportional Capital Adequacy Requirements. Making capital adequacy requirements proportional to the microprudential and macroprudential climate risks generated by financial institutions. 
  6. Alignment of Financial Products. Amending taxation and bankruptcy laws to incentivize financial products that align with climate commitments and disincentivize those that are not.  

Lastly, it should be remembered that CAFA (Bill S-243) has been described by the Financial Times, the leading international financial daily, as ‘one of the most interesting pieces of climate legislation currently in the works’ in the world.  

Prepared by:

Ecojustice 

Shift: Action for Pension Wealth & Planet Health (Makeway) 

Environmental Defence Canada