THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, April 18, 2024
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:30 a.m. [ET] to Bill S-243, An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Hello, and welcome to everyone in the room and also joining us online. Welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy.
My name is Pamela Wallin, and I serve as the chair of this committee. Let me introduce the members of the committee with us today: Senator Loffreda, the deputy chair; Senator Deacon; Senator Marshall; Senator Massicotte; Senator Miville-Dechêne; Senator Ringuette; and, Senator Galvez is with us today. That’s all I can see in the room. Thank you very much.
I just want to say today that we have added another witness to our time, so I’m going to ask senators to keep their questions crisp and our panellists to keep your answers on point. We would appreciate that. Just over the next few weeks we’re going to be putting a lot of witnesses in front of us, so the rules will apply going forward.
Today we continue our examination of Bill S-243, An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts. First off, today we have, representing the Agriculture Carbon Alliance, the pleasure of welcoming Dave Carey, the Co-Chair; and Cathy Jo Noble, Steering Committee Member. Welcome to you both. Thanks for joining us. We will hear your opening remarks, and I think we’re going to begin with you, Mr. Carey.
Dave Carey, Co-Chair, Agriculture Carbon Alliance: Thank you, Madam Chair. Thank you for the opportunity to be here today to provide comments on Bill S-243. I will share my time with my colleague, C.J. Noble. Ms. Noble and I are appearing today on behalf of the Agriculture Carbon Alliance, or ACA. By way of background, I am the Vice-President of the Canadian Canola Growers Association and Ms. Noble is the Vice-President of the National Cattle Feeders’ Association.
The Agriculture Carbon Alliance is a coalition of 17 national farm organizations committed to promoting meaningful and collaborative dialogue around carbon pricing and agri-environmental policy. Our membership encompasses major agriculture commodities, including grains, oilseeds, pulses, cattle, sheep, pork, fruit and vegetables, dairy, forage and grasslands, seed, ornamental plants and poultry. Collectively, we represent 190,000 Canadian farm businesses that steward over 62 million hectares of land, which is approximately 7% of Canada’s land mass. Our members provide food and other agricultural-derived products that feed and fuel Canadians and the world.
Agriculture is roughly 7% of Canada’s GDP, about $135 billion to the annual economy, and one in nine jobs are directly attributed to the agriculture and agri-food sector.
The ACA is concerned about the unintended consequences for Canadian farmers should Bill S-243 pass into law. The Agriculture Carbon Alliance was established to ensure policy makers recognize Canadian farmers’ sustainability practices that are already in place and to foster a policy environment that maintains farmers’ global competitiveness, supports their livelihoods and leverages their critical role as stewards of the land. We are concerned that Bill S-243 will counter the ongoing sustainability efforts of the agriculture sector and deliver the opposite results of its intended objective.
We know the committee has heard from witnesses who have spoken to those unintended consequences of this legislation, for example, on the oil and gas sector. These unintended consequences extend well beyond oil and gas and could also have devastating effects on Canadian farmers too.
Farming is a capital-intensive industry with farming equipment and inputs costing millions of dollars for individual producers annually. Loans are a common tool for farmers to help manage their cash flow and to make these critical purchases, particularly as agriculture is often a seasonal business. Loans are also essential to allow the next generation to enter the agriculture sector. According to Statistics Canada, in 2022, the average Canadian farm had over $730,000 in outstanding debt.
Over to you, Ms. Noble.
Cathy Jo Noble, Steering Committee Member, Agriculture Carbon Alliance: Farmers also need access to capital through loans to invest and implement new technologies that both make their farming operations more efficient and also further improve their environmental footprint. Some of these technologies include fuel-efficient machinery, seed varieties that require fewer resources to grow, and efficient barn and greenhouse cooling and heating systems.
Farmers have a proven track record of reinvesting available capital back into their operations to improve efficiencies, productivity and, ultimately, the sustainability of their operations.
Thus, our concern with Bill S-243 is that it may undermine access to loans that are essential for the growth and sustainability of Canadian agriculture.
The bill includes agriculture and land use activities in the “emissions” description, and the legislation defines “federal financial institution” as banks, credit unions, but also Farm Credit Canada, or FCC. These are organizations through which farmers seek financing.
Ultimately, the legislation may further complicate the process of applying and accessing capital to keep farms afloat. It will create unnecessary regulatory burdens that either takes time away from farming or requires the assistance of accountants or consulting firms, thus adding additional costs to the farmer.
Canadian agriculture is well into its journey toward adopting environmentally sustainable production practices. To continue this commitment, additional capital investment is needed, necessitating increased access to loans. Any legislation that creates more barriers to accessing these funds is counterintuitive to the sustainability goals of the sector and the country.
Further, the legislation could create barriers to new entrants into the farming business, which is already a significant challenge for the sector. It will create inequitable access and compound an already complex process. On behalf of the 17 national farm groups that represent ACA, we encourage senators not to support Bill S-243. Thank you, and we welcome your questions.
The Chair: Thank you very much for your remarks, Mr. Carey, Ms. Noble. Just a reminder for those who may have joined us late today, we have another witness added into our system, so I’m asking senators to keep their questions short and tight and the answers the same if we’re going to cover the ground in our allotted time.
Let’s begin our questioning, then, with Senator Loffreda, the deputy chair.
Senator Loffreda: Thank you to Mr. Carey and Ms. Noble being with us this morning.
The sustainable finance act is an important bill that we are looking at and studying. I would welcome further comments that you may have on the most important potential benefits — you didn’t discuss any of the benefits — and risks associated with the proposed measures to promote sustainable finance outlined in the bill.
Mr. Carey: I can begin. The Agriculture Carbon Alliance, upon review of it, of course, the sustainable finance act is important. With Bill S-243, we have not found anything that would benefit the on-farm sustainability practises of farmers. We are finding it increasingly difficult for farmers to navigate other government processes that are happening in place, such as the federal government, with their new Sustainable Canadian Agriculture Partnership, tying all safety-net programs for farmers, business risk management programs for farmers, to environmental linkages, and those linkages have been downloaded to the provinces. We’re seeing a piecemeal rolling out of that across Canada, and farmers are struggling to find their path forward, which is increasing the cost on farms. At this point, Bill S-243, we feel, will exacerbate that. Perhaps Ms. Noble can elaborate further.
Ms. Noble: We want to make sure this bill is not moving forward in a silo either. As you may know, there is the Canadian Sustainability Standards Board or CCSB, and they are in a process right now of adopting Sustainability Disclosure Standards. So that is their mandate, and they are building upon international standards that have been put forward, and making sure they work for Canada.
That is a process that is ongoing right now. Comments are due on June 10. While it’s not identical, there is some important overlap, and we are involved and support that process and opportunity to consult with the Canadian Standards Sustainability Board. That’s where we see a more holistic approach to how we do this and, most importantly, extensive consultation.
Senator Marshall: Thank you very much for being here today. My background is not in agriculture, so could you get a little bit more explicit about some of the problems this bill would create. I can understand when you talk about loans having to be green. I get that concept. But you also talked about the extra regulatory burden, which we’re all concerned about, and also possibly creating barriers to finance technologies that contribute to climate mitigation. That one is really puzzling to me. Could you just elaborate and give us a couple of examples so we can relate to it?
Mr. Carey: Absolutely. It’s not that this bill is the issue, it’s the amount of change happening in the sector at one time. The different pieces don’t seem to be in any way harmonized. Again, as Ms. Noble said, it is a silo-based approach.
What we are seeing is, with a number of government programs right now that are designed to incentivize farmers to invest in the efficiencies of operations to drive both economic and environmental gains, they’re incredibly cumbersome and difficult for farmers to navigate. One of the things we have heard is, for farmers to access some of these programs, they are forced to hire accounting or consulting firms, like MNP, to then put through the grant proposals.
This is a major issue we’re seeing in British Columbia right now where the complexity of those programs, both at the provincial and federal level, are requiring farmers to work through it. A firm like MNP is often raised. It has been raised that they’re paying MNP to file the grants for them, and that MNP is then taking 20% of that grant once received. We are seeing farmers who are really struggling to navigate the complexities.
The other thing, senator, we’re not seeing this happen with the major competitors around the world. We are not seeing the United States, South America, Australia facing these similar things, which makes us less competitive.
Senator Marshall: That’s the regulatory issue. What about the issue of creating barriers to finance technologies that contribute to climate mitigation? I don’t understand that one at all.
Ms. Noble: Sure. I’m happy to speak to that. No one needs to convince a farmer to be sustainable, right? If their land and animals aren’t healthy — sustainability, before it was a buzzword, we’ve been stewards of the land for years.
When we want to invest in something for the farm, we need to go to the bank to get that loan. This is just one more barrier, process and cost for farmers in order to access that loan. In many cases, what they’re doing is accessing that loan to make improvements on the farm that actually have environmental benefits. An example in the beef industry is we have farmers who want to put this roller-compacted concrete in their pens, which is better for the health of the animals. What it does is create a clean manure that is not mixed with dirt, then we’re putting it in biodigesters. That’s a multimillion-dollar process to take on. That’s an example of the stuff we’re doing.
We just don’t need another barrier in our way in regard to accessing those loans. It’s a barrier, because we’re doing it already. Let’s let the industry do what they’re doing.
Senator C. Deacon: I want to focus more on the capital needed to become more climate-friendly and the work that has been done by our own Agriculture and Forestry Committee on soil health.
One of the challenges I see globally is that there is increasing effort to reward farmers for the carbon they can sequester, not just punish them for the carbon they must produce in producing food.
I believe there are other ways to get there as it relates to agriculture and having farmers increasingly contribute to reversing climate change. Could you speak to some specifics on that? I’m thinking about additives to cattle feed to reduce methane production.
Precision agriculture has produced input costs of a lot of what’s used in herbicides and other things. Could you speak to that? The amount of money that has to be invested to do that astonishes me, how much farmers are working in multiple lines.
Mr. Carey: Thank you for the questions.
The agriculture sector is one of the most capital-intensive sectors in Canada. Again, it’s not broadly understood as it is often in rural parts of the country.
A piece of machinery used to plant — I can speak to the plant side and let Ms. Noble speak to the cattle side — used to cost a couple hundred thousand dollars.
Now, if you’re looking for the most up to date and environmentally friendly piece of farm equipment to plant your crop, you’re looking at $1 million for that one piece of machinery alone, where a tire on that combine would cost over $10,000 for one tire.
What we’re seeing increasingly is the investments needed to become more environmentally efficient are predicated on farmers having the capital available to make those investments, which are then depreciated over a long period of time.
One of the issues we are also seeing is Canada again falling behind our global competitors when it comes to both the regulatory and legislative environment that is encouraging companies to invest R&D dollars here.
On the plant side of things, farmers in the United States, South America, Australia and Japan have a clear path to commercialization for plant varieties of gene editing, which can reduce input costs, drought resistance, disease tolerance. There is a clear path to commercialization in almost all parts of the world.
In Canada, we’re nine years in and we still do not have the last piece of our regulatory puzzle, which is the feed regulations from the Canadian Food Inspection Agency.
What we are seeing is that farmers are not being rewarded for the work that is being done. There are tools being challenged. Then, when you overlay a financial institution going more toward the greening of the economy, which we’re not opposed to. What we are opposed to, however, is all of it being downloaded onto the farmer.
You also have the data and privacy concerns. You have a great example, I know, from the beef sector on feed additives.
Ms. Noble: Yes. The beef sector, there is a lot, environmentally, that is being done on the grasslands and biodiversity. Also, our cattle eat a lot of food waste, which takes away an environmental challenge too.
One concrete example is 3-NOP, which is a feed additive that you add a very small amount to the feed of the cattle and it reduces their methane emission significantly. If a farmer wants to do that, the consumer at the other end, or the processor, they’re not paying the farmer for that. It’s not viewed yet as something people would pay for, so that’s the farmer paying for that. They do invest in that because they want that environmental sustainability certification.
The way they treat the feed, my feed lots have thousands, tens of thousands of animals; the faster they can grow those animals, the more profit they make. The faster you grow those animals, the less water they use, the less methane they emit.
There’s a lot of environmental technology they use to process the feed like steam flaking, which makes the cattle able to digest and put on weight faster, and get to the processing stage quicker. Again, that’s millions of dollars for a steam flaker or to have that feed additive. We’re willing to do it. Right now, consumers don’t pay for it. We do need access to significant capital to be able to achieve it.
The Chair: Thank you.
[Translation]
Senator Bellemare: I understand that this bill will lead to major impacts on the agricultural sector. Even though you haven’t studied it, you are able to say it will affect you. From what I understand, there will be a negative impact on production, which will make you less competitive.
I have two questions. First, do Quebec agricultural producers share your position? Are you in contact with them? Given that their system is different from that in other provinces, is their position the same?
Second, which transparency requirements in the bill or the initiatives do you agree with? Could you give us a better idea about what these requirements or initiatives look like?
[English]
Mr. Carey: I can start with the first part.
We are a national umbrella organization of 17 national farm organizations, all of which have operations in Quebec, whether it is the Grain Growers of Quebec, Les Producteurs de lait du Québec, Poultry Breeders of Quebec, they are all members and they all feed up nationally.
We do keep our scope to the federal side of things. I can’t speak to the views of Quebec as a lone entity, but their national organizations are among our membership.
I would need more clarity on the second part of your question. What we are experiencing is it’s not so much a bill. It’s called the Sustainable Canadian Agriculture Partnership, which is a five-year framework, every year, between the federal government and provincial governments as agriculture is a shared jurisdiction.
So underneath that framework is what’s called business risk management. With climate change and geopolitics, farmers are not necessarily able to weather some of those unforeseen items, whether they have a drought, which we will potentially have on the Prairies this year.
The new program called Sustainable Canadian Agricultural Partnership, or Sustainable CAP, was put in place just recently. They’re now linking on-farm safety net programs. So, if a farm has a cataclysmic year, for which they cannot receive any compensation, there is a program called AgriStability that kicks in. Now, by 2025, every farmer needs to have an Environmental Farm Plan in place to be eligible for that safety net program.
We have had time and will ramp it up, but because of the shared jurisdiction of agriculture between the federal and provincial governments, every province is enacting it in their own way. There is no harmonization nor transparency in what Saskatchewan wants versus what Alberta or Quebec would want. So, we’re seeing fragmentation, and it’s leading farmers to an increasingly challenging place where a farmer in Saskatchewan might have an easier job accessing business risk management programs than one in Ontario because the Ontario and Saskatchewan governments are taking different approaches to make sure the farmers have the Environmental Farm Plan.
Again, it’s not so much that farmers are not doing this, but the issue is the time it takes to articulate it on paper, go through government processes and fill out paperwork, which is not harmonized. What often happens in the agricultural sector on environmental policy is that the agricultural sector is much broader than just farmers and ranchers, but all of it is downloaded to the farm gate level. The farmers are being asked to make the changes, not necessarily the companies. The farmers are marketers, engineers, mechanics and many things, but navigating government programs is not one of their strong suits. They’re seeing additional costs being added so that they can navigate these processes. It creates a lack of certainty, which means they’re not investing in the same capital into their operations. When you look at their ability to access capital being linked to environmental causes, they’re not opposed, but they just don’t understand them. The value to the farmer or the rancher has not been articulated.
Ms. Noble: It’s integrated agriculture globally, particularly with the U.S. We have to track alongside our global competitors, and there is a piling on: The underused housing tax, the programs that Mr. Carey is speaking about, the Canada supply chains act, the labour and the temporary foreign workers. This is just one more thing on the pile that is starting to reach a limit for Canadian farmers.
Senator Miville-Dechêne: I’m trying to follow your train of thought. I will ask you a specific question: What specific provision in the bill prevents farmers from accessing financing or loans to purchase green equipment? What specific provision does that? It seems to me that the bill does the exact opposite by disincentivizing non-green financing and — the reverse — incentivizing green financing. That’s the whole point of the bill. Tell me where in the bill you see the problem.
Ms. Noble: Again, if a farmer is not successful in any element of his farm, he can’t invest in innovation and technology. The whole bill. That’s my answer. The fact that there has to be an additional barrier between a farmer accessing capital — it might not always be for building a biodigester; it may be for many other reasons — if they can’t access that easily without additional red tape and barriers, they won’t necessarily have the funds to invest in innovation either.
Senator Miville-Dechêne: Why do you think agriculture would be covered? I’m going back to the bill, and in a different definition of who’s covered, I don’t see agriculture. Are you an “emissions-intensive activity”? Is it the case that a farm “hampers the development or deployment of low-emission alternatives”? This is the definition on page 5, so where do you see that agriculture is captured? It doesn’t seem to be captured in what I’m reading in the bill, because we’re discussing this bill.
Mr. Carey: Agriculture is considered to be emissions-intensive. It is obviously in the target of the current government. Approximately 10% of emissions can be attributed to agriculture either on farms or indirectly. It directly talks about land use, and 7% of Canada’s land use is farm land. Agriculture is absolutely within the scope of the bill.
Senator Miville-Dechêne: Is it the case that agriculture “hampers the development or deployment of low-emission alternatives”? Do the people in your association refuse to go green?
Mr. Carey: No, they do not refuse to go green. The other concern that we have with this bill is that it is duplicative of some of the Office of the Superintendent of Financial Institutions, or OSFI. I know the Canadian Bankers Association elaborate on that point. Ms. Noble and I are not bankers. It is duplicative, novel, precedent-setting and not something that any of our competitors around the world are currently facing. Agriculture is in scope because they talk about direct land use. What we’re seeing, increasingly, is that when farmers go to their financial institutions —
Senator Miville-Dechêne: It is written. The fact that I can’t find you in this bill makes me doubt that it’s covered. That’s what I’m saying.
Mr. Carey: Okay, thank you.
The Chair: You believe you are covered. Thank you.
Senator Massicotte: I’m on the same subject. The way I understand it is that you can’t give me a clause and say, “amend this clause,” and your concern disappears. What you’re really saying is, “I’m not too sure, but it is possible that I could suffer damages from this proposed bill.” Am I correct in saying that?
Mr. Carey: Yes.
Senator Massicotte: You’re scared to be scared. You’re not too sure it will affect you. We can’t help you by amending two or three paragraphs?
Mr. Carey: You’re right. I think the issue that we have and I believe other sectors have brought up is the unintended consequences of this bill. It is broad, overreaching and sweeping, and we’re not seeing other jurisdictions taking these sorts of steps. The other issue we have heard from farmers is increasingly the lack of competition in the lending space. We’re not seeing consolidation increasing. There is a movement toward open banking and consumer-driven banking. Many farmers access capital through local credit unions, which would then have to look at the green lands for some of these things and potentially the local credit unions, from which many farmers are on board, are very concerned about their ability to access credit locally and in their communities.
We’re not the banking industry. We think this bill needs significant due diligence insofar as the concerns and ramifications are potentially far-reaching for something which is direct taxation regulatory policy. As Ms. Noble said at the outset, there is already a significant consultation through the CSSB, underway to align our concerns globally, and it also speaks to a lack of harmonization. We’re seeing Canada go in a direction that we’re not seeing the United States, Australia or New Zealand going in that direction. We’re concerned about farmers’ ability to access capital.
Senator Massicotte: You are saying that there is nothing we can do by changing a few paragraphs so that your concerns would disappear. It’s too broad.
Ms. Noble: We’re not asking for amendments; we’re asking the Senate to not support the bill and respect the process of the entity which has the mandate, which is the Canadian Sustainability Standards Board.
Senator Petten: I understand your concerns with the financial matters insofar as I’m from Newfoundland and Labrador and am acquainted with natural resources and fisheries; I get what you’re saying. The question I have for you is: Does your association have emission targets? I’m thinking about climate change. Or are you just relying on some of the banking pieces of the OSFI or do you think that some of what they say should be the emission targets?
Mr. Carey: No, each commodity within our organizations is further along that path. Some of the supply management folks have things up in the window as to what they’re doing. No, what we’re simply implying is that agriculture has been on an improvement sustainability when it was carrot versus stick, and now we’re seeing an inverse. A statistic that I find compelling is that between 1997 and 2017 according to Agriculture and Agri-Food Canada, the emission intensity of agriculture has remained static. The emissions remained the same over that 20-year period, but production doubled. That is world-leading.
It doesn’t come down to farmers merely thinking that we want to save the environment. It’s that the fewer inputs a farmer is purchasing, the less environmental output there is and the more they’re saving at the end of the day. Farmers’ pricing so that they are judicious with inputs — whether it be fertilizer, fuel, crop protection products or whatever it might be — is very significant, and individual commodities in the ACA, have dedicated goals. Some are proposing net zero, others are on a path to sustainability and a lot of us sit around the Sustainable Agriculture Strategy under the federal government which is Agriculture and Agri-Food Canada and Environment and Climate Change Canada. Those goals are being developed through the Sustainable Agriculture Strategy in concert with the government to make sure they’re achievable, but Canadian farmers also need to continue producing the food that feeds Canada and the world.
Ms. Noble: If I could speak about beef, we have 15% fewer greenhouse gases per kilogram than we did in 2014. What you have to remember is if you keep piling taxation and regulations onto Canadian farmers, the products will be produced somewhere else on the globe. Canada’s beef is less than half the global average of emissions.
What we’re asking, this is one more piece of legislation that is put on the pile, making things more challenging for Canadian farmers, and we want Canadian farmers to be producing the global food supply because we are very sustainable compared to other countries who will take it over if we don’t.
Senator Yussuff: Thank you, witnesses, for being here. Farming is an important part of our country, so we’re not planning to get rid of farmers. I do appreciate the incredible work that farmers do on a day-to-day basis, recognizing they are working within small margins to keep their farms successful.
When we come to financing, the bank has many streams they apply with regard to loans. It’s not just any loan because you apply for one, whether you’re a farmer or somebody else. There are currently screens. The bank has to consider what risk they are taking and whether or not they will get their money back. Recognizing that this bill is applying a number of different lenses to what lending institutions should be looking at, those things are evolving anyway. They are evolving at the international level, which you were talking about agreeing to international standards.
In trying to understand where you’re coming from, I understand you don’t like the bill, but we are dealing with it here. I think what my colleagues are trying to ask you, are there things in this bill we can mitigate with regard to some of what you may see as how it might impact? Recognizing that farmers have to go through a huge hoop to get loans from banks right now, it’s not a given that they will give you the money. They want to make sure your business is sustainable. They want to make sure you can repay your loan, and the risk they are taking is part of one of the measurements they will use — this is a good farm, we’ve lent you money before, we think you’re going to repay your loan, your assets and stock look good, the list goes on.
So if you’re applying a climate lens, which is going to be so we don’t have stranded assets and we’re not taking undue risk in the country, wouldn’t it be fair to say, “tell us what we have to comply with,” because we’re doing a lot. I’m not here to doubt you or challenge that farmers are not doing a lot of things to mitigate their climate change responsibility, but is there a way that this bill can mitigate some of the things that you’re maybe overly anxious about that we could fix in regard to this legislation?
I’m trying to be as patient as I can and ask you to help me as opposed to tell me, “don’t pass the bill.” That may be a consideration, but if we don’t end up there, I hope you can help us in the direction that would be of value to the committee.
Mr. Carey: I can take a stab at that, senator. I recognize I’m a witness and I’m not here to ask you questions, but the concern we have is we’re not sure how this fits in with all the other initiatives that are happening in this space. There is the Sustainable Finance Action Council, which some of Canada’s biggest banks are looking at. Farm Credit Canada, which lends about $9 billion per year of capital to farmers, has their own initiative. We have the Canadian Sustainability Standards Board doing their own initiative. What we are trying to navigate is, how do all these fit together and what is the output of that? What ends up happening when a farmer walks into a local credit union, bank or Farm Credit Canada to apply for a loan? How do all these different pieces of legislation, regulations or policy direction actually fit on the farm?
Often, when we look internationally, typically for Canadian agriculture, we are not usually thrilled with the direction of the European Union when it comes to their views on policies and agriculture. I know the European Parliament recently rejected a very similar piece of legislation because they were concerned about the unintended consequences. That was from the Canadian Bankers Association testimony, I believe, at this committee.
I guess our question is, how does this fit in with all the other climate-focused, business risk management, environmental sustainability pieces the Canadian Sustainability Standards Board and the big six or seven banks are doing? How does a local credit union and a farmer navigate all the pieces?
Perhaps there are ways to improve the bill. You’ll hear from other witnesses in the finance sector, which would be better positioned. We’re asking from a farmer’s perspective — how are they possibly going to navigate all of these changes at once?
Then farmers also get very concerned about some of the data and privacy disclosure agreements they end up having to do when they’re just divesting what they’re doing on their farms, on thousands of acres. How do all these pieces fit together? How does that make Canada stand up globally among our competitors? Because for the majority of our members, we are price takers. The price of commodities is set by the Chicago Mercantile Exchange, so we are constantly adapting to that. We are seeing the United States investing tens of hundreds of millions of dollars into their agricultural sector to compensate farmers for not tilling their land. It’s additive and it’s compounding. Again, this is just another concern we are hearing from farmers — how do I now navigate this on top of the half dozen other examples I provided, senator?
Senator Yussuff: I want to be fair. You’re asking very valid questions. There are a lot of pieces to dealing with sustainable finance. We don’t regulate the credit unions at the national level. Those are provincially regulated, but I do take your point. I can’t answer your question.
In terms of the federal jurisdiction, I think you’re asking a reasonable question. Does this pile on in terms of other things you have to respond to, or is it so muted it’s not worth discussing? I do hear what you’re saying. You’re asking a valid question, and I think we will endeavour to ask other witnesses who come before the committee. Hopefully, they can shine a light on this. Thank you.
The Chair: Thanks very much. You made a comment earlier that, “there was no consultation.” Just so you understand the process. This is a bill, and although it involves the regulation of financial operations — which is the purview of the federal government — it has come the other way. This is a private member’s bill in the Senate, so there was no process for you to be consulted on. You’re just looking at the bill now, and you have had no opportunity to go back and forth.
The other thing I just wanted to clarify, I don’t know if these numbers are up or down given the circumstances, but in 2022, the average Canadian farmer — some would be higher and some lower — carries about $730,000 in outstanding debt. This is how you operate. You borrow the money to put in the ground, and then you are in debt until you can hopefully take it off and pay it?
Mr. Carey: That’s correct.
The Chair: So you’re financing. Thank you very much.
Senator Galvez: Just for my information, do you provide any financial services to your members? Do you loan credit or provide insurance or financial advice to your members?
Mr. Carey: The Agriculture Carbon Alliance does not. The organization that I work for does. We are the largest administrator of the Advance Payments Program.
Ms. Noble: The organization I work for does not.
Senator Galvez: Thank you. So I will insist that somebody who is really affected by this legislation be invited to talk about the issue of finances.
I think we all agree with the fact that we are moving into sustainability. We have to. Actually, on the Prairies, climate change and planet warming is affecting the best lands that we have in Canada for agriculture.
On one hand, you have these things that climate change is affecting with fire and floods, but on the other hand, you have these financial institutions that are becoming more difficult to access because of everything you have explained. What is your proposal?
At the same time, you’re saying that it’s so fractured. Everything is fractured, many people have different initiatives and all of this is a burden. Well, this bill is exactly trying to harmonize all of these things. The bill says it does not promote, foster or exacerbate food insecurity or inequality in society. It’s preventing what you are scared of, as my colleague said. How will you solve this issue from your respective associations?
Ms. Noble: In my viewpoint — and Mr. Carey can confirm — a climate policy that works for farmers is a government that approves innovation in a timely manner. That 3-NOP additive I spoke to earlier took years. I think 34 other jurisdictions had it before us. Let us have access to the innovation and incentivize farmers to use that innovation. That will help us move forward in the same direction that we all want to. However, creating more hoops, which is how we view this legislation, is not helping us to be able to help government reach their climate goals.
Mr. Carey: I think farmers are on the front lines of climate change, as you articulated. It’s amazing how far we have come over the last 20 years. One of my board members from Saskatchewan had drought conditions last year. With almost no rain, he had an average crop. If his dad had been in that circumstance, they would have had a total failure and relied solely on crop insurance or on business risk management programs to stay afloat. Because of advances in technology, he is able to still get an okay crop off in drought-like conditions.
However, what we’re seeing is that Canada has not taken the next step that all of our jurisdictions have. Give farmers the best tools possible and the best legislative and regulatory framework possible to work under, and their goal is to be more environmentally sustainable. The way farmers farm today versus 30 years ago is night and day as far as soil preservation and conservation. However, it’s very capital intensive. Farmers cannot continue their environmental sustainability journey if they are not economically viable because those investments cost hundreds of thousands of dollars. We are looking at some of the concerns such as whether this will increase lending rates and make access to farm capital more expensive when interest rates are quite high. It’s not necessarily one thing or the other — it’s a compounding effect. The average farmer is just trying to get a crop off so their kids can continue to farm.
We have seen that Canada is not a jurisdiction where new products are being commercialized. They are being commercialized in the United States, which have environmental benefits. But in our legislation, there are so many moving pieces across Health Canada, the Canadian Food Inspection Agency, Agriculture and Agri-Food Canada and Environment and Climate Change Canada that farmers in Canada are not currently nearly as competitive as farmers in Australia and the United States because of our regulatory framework.
If you want farmers to be more competitive, give them the tools they need. As one senator said at the outset, look at what they have already done. Canola is one of the best field crops for sequestering carbon. Some studies say up to 70% of all carbon is sequestered by canola. However, we have no real baseline data from the government to prove any of this.
What we are seeing is farmers not being compensated — at least the early adopters not being compensated. Some of the laggards are. We have not seen farmers compensated for what they are doing. Again, if farmers can’t invest in their operations, they can’t improve their environmental journey. In order to do that they need access to capital. It all comes back around on itself. Perhaps there are parts of the bill which would benefit farmers, but the farmers we have spoken to have expressed concern that this is another piece of the puzzle that is going to make them less competitive. Perhaps through our witnesses that will be proved not to be the case. But there is significant consternation and concern from the farming community about another initiative that seems out of touch on farm.
The Chair: Thank you.
Senator Loffreda: You mentioned the farmers you represent constitute 190,000 farm businesses and that the average Canadian farmer has $730,000 of outstanding debt. According to clause 2, all businesses incorporated under the Canada Business Corporations Act and federal work undertaking or business as the finance section 2 of the Canada Labour Code would be reporting entities under this bill.
Are most farms incorporated? Would they be encompassed as a reporting entity? If you could further elaborate the types of challenges farmers would have in trying to comply with this bill?
Mr. Carey: Most farms are incorporated. If you think of a corporation having a board meeting, most of the time it’s mom, dad, son, daughter, sister, aunt, uncle. They are farmers. They are the incorporate. They are the shareholders. However, they are not necessarily bankers or regulatory affairs specialists. However, most farms are incorporated in the livestock sector.
Ms. Noble: Yes.
Senator Loffreda: Under clause 2, they would be included and would have to comply with this bill. There was some discussion previously that it’s just the generalities of the bill — but it’s specific.
Mr. Carey: That’s a great point, senator. Yes, they are incorporated for a number of purposes whether it’s from going from unlimited to limited liability, or because it’s simply the way they are structured. It allows for different amortization and depreciation. I would be hard pressed to find a fully operating farm that is not a hobby farm that would have to be incorporated for a number of reasons, especially if you’re looking at temporary foreign workers or any of those sorts of things.
I don’t have the clause in front of me, senator. But they would be included, based on your description.
Senator Loffreda: I have looked at it and studied it in detail.
The Chair: From what I am able to read here, the Canadian Bankers Association agrees it’s included and so does Farm Credit Canada. They talk about the risk weighed on any loans for exploration, which would be more energy, but also for infrastructure, which is agriculture.
Senator Loffreda: [Technical difficulties] the clause 2 that they are included.
How does the Agriculture Carbon Alliance propose balancing the need for climate action? Because it’s important; let’s face it. I mean, we’re not saying it’s not important. It’s extremely important for ensuring the agricultural sector’s continued viability and growth. What would you suggest?
I think many senators have suggested these questions: Are any amendments possible? Are any improvements possible? Is there anything we can do to keep the farming sector competitive, viable, strong and growing?
However, climate action is still extremely important.
Mr. Carey: I can start. I think that one of the best programs the government has rolled out over the years was the Climate Action Incentive Fund, which allowed farmers to partner with the government at a minimum $25,000-dollar investment from the farmer. That program was extremely successful because it was accessible to farmers. They understood it wasn’t onerous. It has been pointed to by the government a number of times as a good program, which is true. However, it has been closed for applications since June 2020 because it was oversubscribed.
When the government looks at designing programs, I would suggest the government trial balloon these programs with farm organizations to understand whether there will be uptake from farmers. The government should design programs for which there will be uptake.
There is another program called On-Farm Climate Action Fund, or OFCAF. Those are good programs. However, we also have a myriad of other programs that are extremely complicated for farmers to navigate. As such, they simply don’t. There is no silver bullet, but when it comes to research and rebates, there are a number of really strong on-farm programs. However, we are seeing them underfunded, or as soon as they get oversubscribed, they are shut down. We are seeing money going out the door but not in a way that farmers are necessarily able to capitalize on. In my view, it’s troubling that you want farmers to participate, but they have to hire an MMP to figure out a government program.
The Chair: Thank you very much.
Senator Miville-Dechêne: I will follow up on Senator Loffreda.
You keep listing in your answers a number of Canadian regulations and initiative focusing on climate change. However, they are really not working. We have not attained our goals on emissions reduction compared to the G7 peers. We are really not there at all. As Senator Galvez said, this bill is an attempt to try a new approach that could make a difference — if it works.
Is it your view that our current initiatives are working? Are the programs you are referring to working, since we’re not attaining our goals?
Mr. Carey: I guess the question would be which goals explicitly and specifically. Because Canadian agriculture is among the most environmentally sustainable in the world. Ms. Noble talked about the number of emissions for cattle in Canada. I’ll let her speak to that.
The Global Institute for Food Security just came out with a recent report that said that Saskatchewan-grown products like wheat and canola are the most environmentally sustainable and the least carbon intensive in the world. Part of that is government programming. Another part is just that Canadian farmers are innovators. We have a very short growing season. We call it sustainable intensification, which is producing the same amount of food or more on the same acreages using fewer inputs. Canada — again, not across the entire economy but from agriculture — is among the most sustainable in the entire world.
Senator Miville-Dechêne: In that sense, why would this bill be problematic? If you’re saying your sector is really good and has really become green, it seems to me you have nothing to fear.
Mr. Carey: Do you want to start?
Ms. Noble: Yes, I agree with Mr. Carey. We are reaching our goals, and a great amount of that is industry-led. In the beef industry, we have the Canadian Roundtable for Sustainable Beef. We are meeting our goals. As I say, what we don’t need are additional costs associated with jumping through another hoop to get financing when we already have a number of government policies — and I’m happy to expand on some of them — that are costing us many dollars already.
When policies are being made by the government, they do understand how the policies will imapct farmers. That’s what we’re saying in this case, too. There are processes that have just started. Maybe you want to have the Canadian Sustainability Standards Board come forward, because they are consulting now on the general requirements for disclosure of sustainably related financial information. We’re getting involved in that process. We’re meeting our goals, and exceeding them.
[Translation]
Senator Bellemare: I also believe that we need to save the planet. This is a major, important issue, and we see the ongoing problems. However, it is a complex bill. I personally find it complex, and I’ve asked the people behind it to explain to me how the whole thing will work once it is adopted. In your sector, one of the federally regulated financial institutions affected is Farm Credit Canada. If the bill is adopted, how will that change things for Farm Credit Canada? How will that affect the agricultural sector?
[English]
Mr. Carey: Significantly. Farm Credit Canada, which is a government agency, has increasingly become a larger lender. I think they’re up to about $9 billion a year, so they are significant.
I can’t articulate all the potential downstream effects, but what we are hearing and the concern we have, which I know the Canadian Bankers Association and others have, is will this bill make access to capital or capital more expensive? Will this increase interest rates because agriculture can potentially be viewed as one of the sectors? Will this make it more expensive for farmers to access capital? Will this make it more difficult for local credit unions to give capital within this space? I know they are provincially regulated, as the senator rightly pointed out.
Farm Credit Canada has a number of lending practices. They have been given a mandate by the previous minister to look at the whole suite of environmental, social and governance, or ESG, commitments as part of their lending practices and are beginning to roll that out to farmers and sensitize that and try to help with the understanding.
We’re not sure how this bill fits into Farm Credit Canada’s mandate. It is quite complex, but the main concern that we heard from farmers when we discussed this internally is, “Will this make it even more expensive for me to access capital?” The average farm, say a $5-million-a-year farm, that’s a lot of capital they are investing in. “Will this make interest rates higher? Will this make collateral — I need to give more. Will this be harder for my son or daughter to take over the farm?” Those are the questions. We don’t have the answer, because we don’t know, if this is passed, what the output would be. Anything that makes capital more expensive right now with what the interest rates are, where prime is, is a concern for farmers, particularly as we look to another drought year in the Prairies.
The Chair: Thank you very much. I really appreciate that. Anything else that you want to offer to us later, you can do that by way of paper, as you know. We would appreciate that if there is anything specific. We have talked to other organizations here about the specifics of what it would mean for actually lending criteria for particular individuals, and that’s part of the unknown, of course. We wouldn’t know, and banks would have to try and figure that out, including the smaller ones.
Our thanks to Dave Carey, Co-Chair; and Cathy Jo Noble, Steering Committee Member, of the Agriculture Carbon Alliance.
Senator Ringuette: If I may, because I have to leave later to attend a briefing.
The Chair: Is this a question?
Senator Ringuette: This is something I want to bring in front of all my colleagues. The issue is, for many years now, and our meeting yesterday was an example of this, we have all been questioning the productivity issue in Canada. I want to propose to all the members of our committee that the next study that we start should be exactly on that, productivity, and that we do a deep dive and look at all the issues: training, the interest rate, the tax credit, and the incentive and disincentive with regard to productivity.
I want to thank my colleagues for listening to my suggestion. Thank you.
The Chair: Perhaps you could write us a couple of paragraphs, and we’ll take that to steering as soon as possible.
For the second panel, we have Julie Segal, Senior Program Manager of Climate Finance, Environmental Defence.
Welcome, and thank you for joining us today. We’ll begin with your opening statement.
Julie Segal, Senior Program Manager of Climate Finance, Environmental Defence: Good morning. Thank you for inviting me to appear. My name is Julie Segal, and I lead a climate finance policy program at Environmental Defence Canada. I previously managed a portfolio of sustainable investments. I now work on climate policy because I recognized specifically a policy void in Canada when it comes to policies that align the financial sector with climate action and that ensure the sector is prepared for climate change. I am pleased to testify today about Bill S-243, to enact the climate-aligned finance act, because this bill is an important solution for that void.
First, I will highlight that financial policy is an essential part of public policy. Canada has a plan to adapt our country to the damages from climate change, but until a policy like the climate-aligned finance act is implemented, financial policy remains the missing piece.
Rules for the financial sector have a purpose, including to ensure resilience and to protect people across the country, which is what the climate-aligned finance act intends to do.
Canada right now is recognized as a global laggard when it comes to modernizing financial regulation in light of climate change. Other jurisdictions are up to four years ahead of us on this. The European Union for example, integrated sustainable finance policy as a core part of the region’s Green Deal in their 2020 legislation, and the United Kingdom committed three years ago to transition their financial and economic system to become the world’s first net-zero aligned financial centre. These are significant financial hubs moving in the direction in which the climate-aligned finance act would bring Canada.
Canada should follow suit by implementing climate-aligned finance act. It is key to modernize our financial system. Banks and pension funds have made voluntary commitments to advance climate resilience, but they have been insufficient. They do demonstrate the opportunity for policies like the climate-aligned finance act, but these voluntary commitments have been insufficient and not thoroughly implemented on their own accord.
I will also add that Canada is not succeeding on our climate commitments. We are the only G7 country where emissions have increased over the past 25 years. We have missed every federal climate commitment. Our financial sector is recognized globally as negatively contributing to climate change, and Canada can only start to succeed on our climate commitments if we advance climate-aligned financial policy like the climate-aligned finance act.
Oxford academics recently highlighted in a Nature article that voluntary climate commitments from the private sector are insufficient and unreliable but that new ground rules like the climate-aligned finance act for climate-aligned financial policy are now the key piece and the next important stage for global climate and economic stability. So financial policy is a key part of climate policy and public policy that Canada should be moving forward on.
Second, Canada is expected to experience severe negative economic impacts and financial risks from climate change. We already are. Policy like the climate-aligned finance act would help mitigate this from becoming more severe. Climate change is inflicting losses on the global and domestic economy, including harming agricultural yields, physical infrastructure and labour productivity, not to mention the severe human and environmental costs of climate disasters across the country.
Looking economically, the Canadian economy would lose $25 billion in GDP by next year, 2025 — that’s from the Canada Climate Institute — which is over half of our expected GDP growth. By the mid-2030s, over $100 billion of investments are expected to lose their value because of Canadian investors being underprepared for the climate transition.
Climate change is making life more expensive and dangerous for people across the country, which means financial institutions should be investing in ways that help make climate change less severe and make us all more resilient to the damages we’re experiencing. Designing a financial system that mitigates the severity of climate change is very much in our best interest, both socially and economically.
A third point is that people across the country are aware of climate-related risks —
The Chair: You have about 30 seconds left. I just want to give you that heads-up.
Ms. Segal: Thank you.
They want Bill S-243 to be passed into law. I encourage senators on this committee to pay attention to this point. I believe you have received over 6,000 letters from individuals expressing their desire to move forward with the climate-aligned finance act. It has received international and domestic support. Over 100 organizations and academics have supported the bill, including by encouraging this committee to study it thoroughly. Polling shows that over two thirds of people in Canada want the federal government to implement sustainable finance policy like the climate-aligned finance act.
Globally, international experts, like the former Chair of the Securities and Exchange Commission and international banker groups, have celebrated the importance and global interoperability of the climate-aligned finance act. This is a world-leading policy proposal which would protect people across the country and build our economy. Labour unions, financial institutions, federal political parties have supported Bill S-243, or the climate-aligned finance act, and the principles behind it —
The Chair: Okay. Thanks for the opening. I’m sure there will be lots more questions as they come.
Ms. Segal: Thank you for the opportunity.
The Chair: Just before we begin, can you tell me what Environmental Defence Canada is, whom you represent, how you’re funded, just so we have some context for whom you’re speaking on behalf of?
Ms. Segal: Absolutely. Environmental Defence is a leading Canadian non-profit. We work on a variety of climate and environmental issues, specifically doing significant research and mobilization for policy solutions to build a healthier and cleaner environment in the country.
The Chair: How are you funded? Is this donation or government funding?
Ms. Segal: We are a non-profit organization separate from the government.
The Chair: Pursue that later.
Senator Loffreda: Thank you, Ms. Segal, for being here. I do agree that climate — the environment and climate change are a concern, a global concern today, and it’s extremely important, and this is an important bill we are looking at. I thank you for your comments.
You mentioned that our financial institutions should be making a greater investment in sustainable climate finance. You did mention they’re laggards — we’re behind in doing so.
To what extent do you believe that legislation should be a national initiative or more a global initiative, internationally collaborated between international financial institutions, by international legislation? My concern there is we’ll limit our financial institutions — and I think it’s important that they do have sustainable climate finance strategies, but what would hinder a Canadian petroleum company from making a loan with a U.S. bank, with an international bank? They still obtain financing elsewhere in the world. All we would be doing is taking those tax dollars, sending them over to the U.S. or other countries that would finance our energy sector, if we want to call it such.
On the other hand, do you believe in a just transition? In essence, do we have the infrastructure today to impose such a bill with what some witnesses have said is overreaching policy?
Ms. Segal: Thank you, Senator Loffreda.
To be clear, Canada is lagging behind international allies and competitors when it comes to sustainable finance policy. There are two pieces here where Canada is behind. Yes, as you noted, our big five banks are behind on climate investment. They invest about four times as much into fossil fuels as clean energy, which really hampers Canada when it comes to building a good green economy and building good jobs in that green economy.
Yes, our banks are absolutely behind. Also, our policy environment is behind. When we talk about global harmonization, I’ve named a number of other regions, which isn’t even all of them, who have moved forward on climate-aligned financial policy like the climate-aligned finance act. Internationally, Canadian banks are significantly critiqued for moving too slowly on the climate transition and for excessively investing in fossil fuels relative to clean energy investments. Policy like the climate-aligned finance act would simply bring Canada up to speed with other economic directions from countries that are moving forward with climate-aligned financial policy to ensure that their economies can be competitive and there are good green jobs for people in their countries. So the climate-aligned finance act would bring us up to the international level.
It’s actually quite a savvily designed policy because it draws on international best practices to make them fit for purpose in Canada. It tackles both domestic suitability and international harmonization.
Senator Loffreda: You mentioned it would bring us up to speed with other international institutions. Could you mention which countries? Could you mention specific legislation? That would allow us to amend this bill, and we don’t want to reinvent the wheel. If that is the case, we could amend it, improve it, put it forward. Maybe you could be more specific on that. That’s my question, because internationally we do live in and operate in a global environment, so we have to be globally competitive in every sector — energy, financial. I would like you to be more specific on how we could be more globally competitive in every sector, and amend this bill if we have to, or propose it as is if you feel that other countries and other financial institutions around the world have imposed such restrictive policies or legislation?
Ms. Segal: I appreciate the opportunity to revisit international examples. As I mentioned in my opening remarks, a number of other jurisdictions have implemented this, including, specifically, the European Union in 2020. They have integrated sustainable finance policy as a core part of their green deal, their climate plan, and their economic modernization. So that was back in 2020, and they have implemented many updates to their sustainable finance policy over the past four years, and the climate-aligned finance act draws very significantly from those, as I’ve studied both in depth.
The United Kingdom as well committed to become the world’s first net-zero-aligned financial sector back in 2021. Of course, that is quite a notable global financial hub still. They have moved forward on policies like moving toward requiring credible climate plans from companies across the economy, under their Financial Conduct Authority.
As well, California, which is equivalent to one of the world’s largest economies, has implemented very forward-looking sustainable finance policies as well, which I would be happy to expand upon perhaps in another conversation, Senator Loffreda.
I’ll just add, thousands of companies are covered by those European Union and Californian regulations. Moving forward with the climate-aligned finance act would simply be more consistent and would level the playing field for companies which are already covered by policies not made in Canada.
The Chair: Thank you very much. We’re over time on that.
Senator Marshall: Thank you for being here today. The bill, for some of us, is very comprehensive, complicated and complex. I see from the material we’ve been given that you advised on this piece of legislation. How familiar are you with the construction of the bill? The bill itself doesn’t have what I would call overwhelming support. If the bill were to be amended, is there a way to deconstruct the bill? Was the bill constructed in layers? Is it possible to deconstruct the bill and take out a certain portion and then take a look at the bill to see if it would be more palatable? Could you just comment on that?
Ms. Segal: Senator, I very much appreciate that question. I would highlight that I strongly call on the Senate Banking Committee to advance climate-aligned finance act, on behalf of my organization, dozens of climate and finance expert organizations and myself. I would love to highlight that the bill does have quite overwhelming support. As I mentioned, I believe this committee has received over 6,000 letters — from individuals who don’t tend to pay attention, necessarily, to Senate procedures or financial policy — calling for the climate-aligned finance act to move forward.
A number of global and international experts, including international banker groups, the former chair of the U.S. Securities and Exchange Commission have lauded and celebrated the bill. Over 100 climate organizations and financial academics from within Canada have supported the bill, including by writing to encourage this committee to move it forward and to deliver a proper study of it.
Senator Marshall: Just address the part about the construction of the piece of legislation and possible amendments. Is it possible to deconstruct it in an orderly fashion so that if there were something specific in the bill that didn’t have the required level of support, it could be taken out? Is that something that could be done, or is the bill itself so integrated that there is no way to break off pieces of the bill?
Ms. Segal: Yes. The Senate would have the opportunity to revise the bill. In fact, I very much encourage a sophisticated discussion evaluating the bill and its very positive utility, including, if necessary, discussing amendments to make it even more fit for purpose in Canada.
As I mentioned — and as Senator Galvez noted — I was part of a very significant advisory and input-gathering process led by Senator Galvez in designing this bill, which looked at taking global policies and fitting them for purpose in Canada. I very much encourage the Senate Banking Committee to continue those fruitful discussions, those fruitful hearings, and to give it proper analysis to make sure this is well suited.
I understand that, perhaps, you haven’t been hearing overwhelming support from the witnesses who have been called here to date. A number of groups have called for the Senate to give this bill a very thorough study, including calling for a balanced roster of witnesses. I hope that I am only the first of many climate experts whom you have the opportunity to hear from this topic —
The Chair: Did you get an answer?
Ms. Segal: — just to enrich your understanding of the bill.
Senator Marshall: I’m looking for a yes or no. To amend something in the legislation, will it be complex? Is it something that you think could be done even though it’s a big piece of legislation? Could some amendments be made without much difficulty? I’m just asking how the bill is constructed and, therefore, is it possible to deconstruct certain things if we must?
Senator Galvez: I can answer that, and the answer is yes.
The Chair: I’m sorry, Senator Galvez, we have witnesses. Thank you.
Ms. Segal: Thank you so much. Apologies. I had intended to specify that at the top. Yes, I encourage a sophisticated discussion of the bill. There are opportunities for the Senate committee to make sure this is appropriately fit for Canada and, yes, technically, this bill can and should be evaluated by the Senate Banking Committee to make sure it’s the right fit.
The Chair: Thank you.
Just for clarification, as you know, we are the recipients of many, many email campaigns, as we were on this bill and many other bills. That is not the same as testimony.
[Translation]
Senator Bellemare: Thank you for being with us, Ms. Segal. I will offer a few comments to give you some context for my question.
In committee, we are now studying a bill that has already gone through the Senate, and the principle of Bill S-243, An Act to enact the Climate-Aligned Finance Act, or CAFA, has been heard. We agreed to study the bill supporting the principle of aligning funding with reducing greenhouse gases. The bill before us needs to comply with some specifics. It cannot have a financial impact on the government or credits since it is a Senate bill.
I understand from what you’ve said that countries, meaning governments, have adopted legislation on that front. You mentioned the European Union, but that is a union of many countries. I would like you to submit to the committee any ongoing bills related to aligning funding with reducing greenhouse gases that would comply with the CAFA. That would be very useful to us.
Please understand that we can’t bring the government into it because it is a Senate bill. While the principle of the bill has been heard in the Senate, we are analyzing the details of the bill. Understanding how it will work is very complicated, since it is not allowed to have any financial implications. There are some problems with that. Perhaps the government should adopt such a bill rather than the Senate. That’s where things currently stand in the Senate. We are asking ourselves whether this bill can be a Senate bill. Isn’t this a government bill rather than a Senate bill? What do you think?
I’d like you to submit the laws in place in the European Union countries to the committee. That would be very informative. Thank you.
Ms. Segal: Thank you. I will continue in English, but thank you for the bilingual question.
[English]
There are a few different pieces there, and I would like to cover them all. First, I’m glad to hear of your interest in the specific policies globally. I understand the distinction between a Senate bill and a bill that comes through the House of Commons. I understand that the climate-aligned finance act was very delicate in its drafting to make sure it falls in the appropriate level of federal-related policy that comes from the Senate and does not infringe on any spending. I will keep that answer brief because the work was quite thorough to keep on the right side of that.
I also add that, in the House of Commons, a number of parties forming federal parties have demonstrated support for the principles behind the climate-aligned finance act. There could certainly be more action from the House of Commons on this; yet the climate-aligned finance act is a very comprehensive bill in a positive way. As we heard from the previous panel, small businesses and farmers are experiencing frustration with fragmented pieces of climate policy across the board. The climate-aligned finance act is actually quite brilliant in tying things together in a comprehensive way to clear up what needs to happen in one action.
The Chair: Thank you.
[Translation]
Senator Miville-Dechêne: Welcome, Ms. Segal. I would like you to put the matter of impact into layman’s terms. The bill requires financial institutions not only to be concerned about the risk of banks investing in polluting industries, but also to assess the impact of these industries if funding is provided with no real guarantees.
How can the impact be calculated? Are there thresholds, or is it left up to the judgment of bankers? Is the double materiality criterion enshrined in the European laws you are referring to?
[English]
Ms. Segal: Thank you. Yes, absolutely, the European Union and other global approaches consider both the impacts from climate change on finance and from finance, which is the double materiality that you mentioned.
Senator Miville-Dechêne: Okay, but could you explain to us in lay terms what you’re talking about here, the risk versus the impact and how we calculate that? Because it happens over many years, and it can be a long-term impact that we don’t know about. Tell us a bit more precisely or simply how it changes the way banks lend money.
Ms. Segal: Gladly. The impacts from banks or pension funds, financial decisions related to climate change, as you mentioned, happen over a long period of time but also in the short term, given how advanced climate change is. When financial institutions like banks or pension funds that are managing the money of Canadians invest in, for example, expanding fossil fuels, they are contributing to worsening climate change. We know oil, gas and coal contribute to well over 80% of climate-warming pollution that is causing devastation across the country. At the same time, if they’re underinvesting in renewable energy or other clean solutions, then that’s leaving Canada’s economy behind.
Moreover, if they’re not investing in climate resilience because they’re continuously putting money toward fossil fuels or other polluting activities, then it also leaves Canadian infrastructure worse off.
As an example, none of Canada’s big five banks have committed to phasing out coal financing, even though the Government of Canada is one of the spearheaders of the Powering Past Coal Alliance. What happens when we put our money into banks and pension funds and they invest that into projects, they’re defining what our economy looks like tomorrow and what our pollution looks like today. If they’re investing in sustainable industries, this helps to move Canada toward a greener economy and future, yet if they’re investing in polluting industries, it is making climate change worse, harming people across the country and globally.
A lot of the initiatives that we’ve seen so far, like the CSSB — which I would be pleased to chat more about and to clarify — focus only on the economic risks to the financial sector. As I mentioned, over $100 billion of investments are at risk of completely losing their value in Canada because of our financial institutions moving too slowly on climate action.
Those risks are big and should be accounted for, and the climate-aligned finance act does tackle that. However, the climate-aligned finance act also ensures that investments move in a way that helps keep a safer environment and, therefore, a more stable economy. The best way to reduce —
The Chair: Okay, we have about 30 seconds left, Senator Miville-Dechêne.
Ms. Segal: Thank you.
Senator Miville-Dechêne: I don’t know if you heard the previous witness who said they were fearful that agriculture would be impacted. From your understanding of the bill, what do you think about that?
Ms. Segal: Agriculture is at significant risk from climate-related damages, and the best way to reduce those damages is to reduce emissions today. The bill would help ensure financial institutions reduce pollution in a way that would benefit people across the country, including farmers and agricultural workers —
The Chair: But I think the question here was whether it is your understanding they are included in the bill. Is the financing of agriculture covered by the bill?
Ms. Segal: I think if agricultural workers and farmers are as sustainable as the previous testifier has outlined, then they would, in fact, be benefiting from the bill if they are aligned with climate solutions.
Senator Petten: The previous witnesses talked about the Canadian Sustainability Standards Board, or CSSB, and the work they’re doing right now. They said this bill would overlap with their work. Could you talk about what the CSSB is doing and their interactions with this bill?
Ms. Segal: Great, thank you. I appreciate this opportunity to clarify some of the points that the previous speakers mentioned. I’m grateful for the opportunity to clarify these facts for the Senate because I appreciate that financial regulation in Canada is nuanced, and the previous speakers may be less familiar with the nuances of financial regulation.
The CSSB is not a regulatory initiative. It’s a private sector led initiative. It’s entirely separate. Regulators like securities regulators, which exist in provinces across the country, would then be making their own decisions, which would relate to policy.
The Canada Sustainability Standards Board is not a regulator. They do not have a democratic mandate the way government institutions do to move forward on these solutions. I hope I outlined that clearly because I think that’s a very important point. The climate-aligned finance act would be a government-led policy, and it would be policy, which is a very important distinction from what the CSSB is. I’d also be glad to discuss that further and clarify that with the previous speakers so they can have a better understanding of it.
Similarly, other regulators in Canada like OSFI, which has testified on this bill, they, in fact, unlike the CSSB, do have a mandate for regulation of the financial system. They have taken positive initial steps exactly in the direction of the climate-aligned finance act, although not yet as far. They have moved toward climate-related financial policy in terms of disclosure, as previous senators had asked about the risk factor. The climate-aligned finance act would build on progress from existing actual regulators to give them more space to continue in the direction of climate-related financial policy.
Senator Ringuette: I believe you have a hard time answering with specifics, so let me get into your field of being broad.
I believe that the approach is wrong. I believe that when a banking institution analyzes the risk of a business for a loan, the longevity of that business is in question because the world is going green. If the business is not going green, it’s a higher risk for the banking community.
Don’t you think that the approach should be that banking institutions should provide preferential interest rates for green projects instead of — this is kind of the stick instead of the carrot? That’s my question.
Ms. Segal: Thank you. I have endeavoured to provide very specific responses, including examples of data, but would be glad and grateful for the opportunity to clarify anything that has not been explicit for the committee.
If I understand the question you’re asking, why would we not pursue incentives for green investment rather than what you were referring to as sticks. First of all, I would go to the point of the capital requirements part of this bill, which is what I think you were referring to as a stick. I would say that’s simply a risk-mitigation factor. The rest of the global economy is moving toward green solutions at quite a significant rate. Renewable energy has outpaced year over year, so the risk of fossil fuel investments are actually quite significant over the coming years as global demand plateaus and then declines. Having more money against those risks is simply prudential risk management.
In terms of incentives, I know there are a number of incentives across the country for green investment, including what the federal government put out in the recent budget days ago as well as in previous budgets. In fact, the missing pieces for Canada are some rules that clarify the way our financial system works. So, complementary to existing incentives, this bill would clarify and offer policy certainty to businesses about the direction of the green transition happening globally, regardless.
Senator Ringuette: I beg to disagree, but thank you.
The Chair: Thank you. On the specifics, one of the things I wanted to raise earlier is that when you’re talking about the other jurisdictions pursuing this idea, they are not jurisdictions that happen to have a huge part of their economy based on energy, on oil and gas in terms of jobs, contribution to the GDP and support for many other industries across the country. I could go on about that but I won’t.
When we heard from the Office of the Superintendent of Financial Institutions, they said they didn’t need any other tools. They were fine where they were in terms of regulating. This bill has mandated specific increased capital risk waits of 1,250% for debt exposure to new fossil fuels — I’m looking at something very specific here — and 150% or more for loans for existing fuel activity.
The numbers aside, did you consult directly with financial institutions on that? Who advised you to use those specific numbers in this bill? I know that you were a part of the consultation process working with the senator on this. So, how did you come up with those numbers? Did a financial institution suggest those very numbers or how did you come to that conclusion?
Ms. Segal: I was not the individual who completed the mathematics on that number, but I understand it went through significant consultation including with financial institutions and economic experts, both domestically and globally.
Senator Massicotte: Thank you for being with us this morning. I read the bill and the summaries but I am having difficulty understanding what it is going to do and why this is helpful. Could you give me something very simple and plain: What is being proposed? Give me the one issue that is very important to you. Why is this going to be good for Canada?
I’m certainly disappointed — as you are — with the government who has never met their targets so far, but that’s irrelevant. Can you tell me what your thoughts are? Why is it positive?
Ms. Segal: The climate-aligned finance act would ensure that banks and pension funds use their investments in a way that help limit climate damages for people across the country and that move us toward a better, greener economy. To achieve this — the tools it would use — it would upgrade regulators’ oversight of climate-related factors to offer them an opportunity to think with this broader lens. In addition, one piece I find most interesting is that it would require plans from banks and pension funds to outline how their investments would reduce emissions and advance climate resilience.
As I have outlined — I won’t belabour this again — climate change is costing Canadians in very human ways as well as in economic ways. It’s increasing the cost of living as well as creating very acute damages across the country, including wildfires burning down entire cities.
Senator Massicotte: I’m going to run out of time. Let’s leave your thoughts. You’re saying that what this does most importantly is to force pension funds to use part of their capital to invest in green energy, and you are also saying that relative to the banks, you would charge a fee which costs them quite a bit in order to influence their behaviour. Is that a good summary of what you’re proposing?
Ms. Segal: What I’m saying is that this bill defines credibility for plans from banks and pension funds. I have not used at any point the words “force of hand.” I see this as something that creates appropriate guidance and policy clarity to define what keeps our financial institutions resilient as well as encourages them to invest in a way that is in the best interest of our environment and economy. I hope that is clearer.
Senator Massicotte: You would force them to use part of their capital to invest in something you think would be very good for us over and beyond what the current structure is. Is that a good summary?
Ms. Segal: It would require public reporting of how they are investing money and how that has an impact on climate change either making it better or worse.
Senator Massicotte: You’re basically imposing a tax. You’re going to increase the cost of funds for the big banks — if you wish — and the pension funds to try to achieve a positive green effort or strategy.
Ms. Segal: No, that is not what I’m saying. Apologies. That’s not what I’m saying. This bill is not a tax. In fact, it’s a spend-free solution to add clarity to the market and to encourage both transparency and appropriate action.
Senator Massicotte: I thought you said earlier that it’s important we encourage them to use part of their capital to invest in green energy. If you’re going to encourage them — call it what you wish — it’s a tax or an outflow of cash in any sense which comes back to my point.
Ms. Segal: Of course, banks and pension funds are making investments all the time. They are allocating money to different projects. This bill would encourage them to be much more strongly informed about the climate-related risks and opportunities of where they are putting their money.
Senator Massicotte: Use part of the capital, which is also our capital — it’s the pension funds — to spend money using somebody else’s money to get a certain desired result?
Ms. Segal: It’s not spending. They are making investments and they are either allocating that money to things that make the planet worse or to those that make our economy better. This bill would encourage them to move things, to allocate the money and invest it in ways that actually have a productive result.
Senator Massicotte: So good and so positive. Do it automatically. If they don’t do it, it’s because it’s not automatic because it’s not that good.
Ms. Segal: This is certainly part of quite a larger factor, but — in fact — fossil fuels are continuously subsidized in ways that —
Senator Massicotte: Pension funds —
Ms. Segal: — misconstrue the investment opportunity, as well as most financial institutions use historical data rather than forward-looking data, which means they are assuming that fossil fuels are still a good investment because they were in the 1990s, even though they are not going to be in 2025, through 2030 and 2050.
Senator Massicotte: What you’re saying is that they’re not smart enough, so we are going to help them to spend their money on something else.
Senator C. Deacon: Thanks for being with us, Ms. Segal. Nice to see you again.
I believe in climate change. I think humans are causing climate change. I think we need to act on climate change, without question. I laud the intention of this bill.
I want to build on Senator Bellemare’s point. I want to ask about any interactions you have had with Finance Canada or other officials, political or bureaucratic. Hopefully, you have had some feedback, because if there is a government that would want to implement a bill like this with this intention, it’s this government.
What advice have you been given? I’m assuming that you and other experts have met with officials and political staff to understand their perspectives. Help us to understand why this government would not be pursuing this initiative and making changes within their powers that would move us down this road?
Ms. Segal: Thank you, Senator Deacon. I have had a number of conversations with department officials as well as ministry officials on the subject of climate-aligned financial policy across various ministries and departments.
I know many of them have been following the climate-aligned finance act with significant interest and are keen to see these processions moving forward as a way to understand the climate-aligned financial policy.
As well, a number of elected officials, members of Parliament from four of the large federal parties have endorsed the climate-aligned finance act and called for the government to use all regulatory and legislative tools at its disposal to align the financial system with climate action.
There is a significant opportunity for the elected portion of the federal government to move forward with climate aligned financial policies like climate-aligned finance act, and I think a thorough analysis by this committee of the bill and moving forward with continuous study helps advance these types of policies at all levels of government.
Senator C. Deacon: Did they give specific feedback for you? We know OSFI’s Guideline B-15 is heading down this road, how this bill would, perhaps, accelerate this movement, or why they would not want to proceed with it? Is there feedback you could share with us?
At this point and time, we need something in order to understand how, potentially, this bill could move ahead with the support of the government, because it will need that at a certain point in time.
Ms. Segal: I understand that. I will stick to my own opinions and knowledge in sharing today. I have seen significant interest from a number of elected officials to move forward with the climate-aligned finance act and who would be very glad to see this moving forward and to engage in the next steps of this.
From a regulatory perspective, I think OSFI does a very good job of sticking within their mandate, as a regulator should. I believe they were quite thoughtful and intentional in testifying here not to step outside of that in terms of saying what should or shouldn’t happen in other branches of the Government of Canada. From my perspective, however, the changes in the climate-aligned finance act for regulators such as OSFI would offer more space for them to continue moving forward in the direction. They have started to take first steps, but do need to go further.
The Chair: Because this discussion and this bill is about regulating the financial sector, did someone from Finance or OSFI or Environment, or I don’t know where, say to you, “Yes, we’re interested in this, and we’re going to pursue it. Because it regulates the financial sector, it’s better if it’s a government bill?”
Ms. Segal: I have not been told that people want to have this go through a different avenue than it’s going through, if I’m understanding that question correctly.
The Chair: That’s the issue that Senator Bellemare raised very articulately.
I will not pursue this.
Senator Yussuff: Thank you, Ms. Segal, for being here. Let me start from a number of things.
I think it would be fair for those of us on the committee to recognize — and I think we have — that the country we call Canada is not uniform. It is different, and it depends on what region of the country you’re looking at.
In the context of public policy that will impact one sector of the country versus another sector, there is always sensitivity as to how to manage that so we don’t do harm without recognizing that we can’t treat every part of the country as being the same.
Clearly, we want to ensure our climate policies are having an effect to reduce our greenhouse gases. As such, financial issues can play an important role.
It would be fair to suggest that OSFI is doing part of that job, and this bill would move it much faster, no question about that.
The other side to this, of course, is this bill gives some significant weight to certain investments that could have a detrimental impact on those sectors of the economy that are still an integral part of this country. It’s a balancing act, because we cannot simply just disconnect ourselves from that. How do we do that?
I think OSFI is attempting to do that in a way that would bring us to the international standard, but also ensuring that our financial institutions are not taking undue risk with the capital they are lending that is going to eventually leave Canadians in a place that makes them much more vulnerable.
Given the complexity of the bill that the senators are trying to wrap their head around, without having something like OSFI guide us in the direction that would be of value to the regulatory and the legislative side, but also recognizing we have to take the whole country into consideration, this is the reality that we are struggling with.
To go one step further, as you know, private pension plans are regularly assessing where they are investing their money, because it is their members’ money. They want to get returns. They want to ensure they can pay the pensions. I know from my knowledge that many of my union colleagues are doing an incredible job in regard to how they can mitigate the risk in how they are providing lending institutions.
I’ll end on this one point: BlackRock, which is probably one of the largest private enterprises in the global market, made the decision that they are not going to finance any fossil fuel sector with their lending habits. They have done it successfully as private capital. Now they are providing leadership in that regard. They are showing the world that it can be done, recognizing that’s their choice. They have actually taken that into consideration with their lending habits in regard to the returns that they have to produce for their investors.
There is a balancing act here, and we are trying to figure out what the balance is with regard to this bill, so we can assist a colleague who is trying to tell the government that we need to drive our policy in a way that could move us much faster in a direction, so we are not left following the global trends.
If you can make any comments in that regard, I would appreciate it very much.
The Chair: There is one minute left in the senator’s time to do that. Thank you.
Ms. Segal: Thank you, Senator Yussuff. I will be brief then.
You mentioned a voluntary initiative from Black Rock, where they have made commitments related to their fossil fuel investments. As I mentioned in my opening remarks, I would encourage reading of a recent Oxford academic nature article which highlights that voluntary climate commitments provide an opportunity for regulatory and legislative solutions like climate-aligned finance act, but those commitments are unreliable in themselves. They don’t have consistency across the economy. It creates an unlevel playing field between companies, and it doesn’t have the reliability that government policy does.
Black Rock could change that policy tomorrow. They are not accountable in the same way that government policy is. That’s one very important point.
Second, you highlighted Canada’s significant production of oil and gas. I would say that the risk from having to transition away from those and to finance new industries comes not from a bill like the climate-aligned finance act but from the global trajectory. The International Energy Agency expects global demand purchase of fossil fuels to peak and decline in the coming years.
All to say that policies like the climate-aligned finance act will help ensure that Canada’s starting to invest in the future economy rather than just sticking our heels in the sand from what was.
Senator Loffreda: Thank you once again for being with us, Ms. Segal. We all share deep concerns about climate change, and urgent action is imperative. I agree.
Our economy is essential to our well-being. You have heard the concerns today, from the senators. Jobs are crucial to our economic growth.
Have you analyzed at all that impact — if so, forward it to our attention — in order to mitigate the numerous concerns regarding our economy, jobs and investments? If you have a quick response to that, I would appreciate it.
Finally, how are you engaging? You have discussed your engagement with financial institutions. Have you engaged with the energy industry and other stakeholders to fund our transition to cleaner energy sources? This is the same industry that has to do that, the financial industry. Do you view this as a critical initiative, and do you believe the proposed bill will effectively support this endeavour?
Ms. Segal: Thank you, Senator Loffreda. When it comes to consultation, yes. A number of financial institutions, as you noted, have supported the bill, including credit unions such as Vancity and Desjardins, as well as a number of investment manager funds.
When it comes to jobs, this is a very important point, to make sure that we’re building a good green economy for Canadians today and in the future.
Jobs in the oil sands and oil production are set to decline by well over 90% in the coming decades. That’s not because of any Canadian policy, but because of the global trajectory.
Policy like the climate-aligned finance act will prepare both our workforce, our industries and our financial sector to move ahead and fill the gap that is happening from exogenous factors away from oil and gas. Over two million jobs are expected to be created in the clean energy sector over the coming years. It’s a very significant area which I think we need more investment to make sure that we can create and seize those good, green jobs.
As well, from a general economic perspective, climate action, including renewable energy transition, is shown to have cost savings for Canadians on their heating and home bills. Overall, to your question, Senator Loffreda, yes, moving toward a green economy will create better opportunities for Canadians, both by lowering the bills and by increasing job opportunities.
Senator Loffreda: Thank you.
The Chair: Thank you very much. With that, we will bring our session to an end so senators can get back over to the other building. Julie Segal, Senior Program Manager of Climate Finance at Environmental Defence Canada, thank you for joining us today. Thank you senators for your interest and questions. We’ll see you again in two weeks.
Ms. Segal: Thank you very much.
(The committee adjourned.)