The second iteration of the Bloomberg New Energy Finance report, released last December, highlighted how, for the second year in a row, Canadian banks rank amongst the worst in the world when measured on how much funding is directed to fossil fuels versus renewable energy.

Last December, while testifying at the Senate banking committee studying Bill S-243 — the Climate-Aligned Finance Act — Superintendent of Financial Institutions Peter Routledge also stated that loan portfolios have not materially shifted from emitters to clean tech. While this can be partially attributed to the lack of sustainable finance disclosures standards, it does affirm the Canadian banks are still very much investing in fossil fuel producers.

Indeed, Canadian financial institutions are among the most entangled with fossil fuel interests in the world. A CBC investigation revealed eight out of Canada’s 10 largest pension fund managers have at least one high-ranking member who is actively directing a company in the oil or gas sector. Another investigation that analyzed 15 countries found Canada had the highest degree of ties between bank directors and extractive industries.

This raises legitimate questions. Is this a good governance practice? Are fossil fuel interests superseding the interests of banks’ customers and, more broadly, the interests of Canadians? What role does this entanglement play in Canada’s delay in its transition to a low-carbon economy and consistently not achieving its emissions reduction targets? Where is the necessary climate expertise?

The truth is emerging south of the border. A report released by the U.S. House of Representatives Committee on Oversight and Reform revealed how oil and gas companies are repeatedly and deliberately greenwashing with misleading or outright false claims about their climate-related actions, in order to undermine the urgent need to sharply reduce heat-trapping emissions and to stall and obstruct oversight and accountability.

Still, in the U.S. there are currently more than 30 court cases where local governments, including the state of California, are suing fossil fuel corporations for their campaign of deception to delay critical action leading to mounting damages from the unabated climate crisis.

Such court actions could move to Canada, where various greenwashing complaints have been filed with the Competition Bureau. While these climate damages lawsuits could reach the trillions of dollars globally, investors are “flying blind” when it comes to assessing the litigation pillar of climate-related risks, according to new research published by the Oxford Sustainable Law program.

Failing to address the entanglement of fossil fuels and finance in Canada leads to continued inaction that will hurt all Canadians. In fact, Canada is the country that will lose the most GDP per capita from failing to address the climate crisis.

Climate change is already having a catastrophic effect. It has increased the cost of living for Canadian households by $700 per year — a direct, and often overlooked, contributor to the affordability crisis. The climate emergency and the country’s affordability crisis go hand in hand; to address both requires changing corporate governance in the financial sector.

That’s why the Climate-Aligned Finance Act proposes specific solutions as part of its comprehensive package to fill the main gap in Canada’s climate policy: financial regulation. It requires planning and acting for a fossil fuel-free future, and it would institute a world-first conflict of interest disclosure obligation and eventual prohibition of board members with ties to organizations that are not aligned with climate commitments.

It would also mandate climate expertise on the boards of important financial Crown corporations and the public sector pension board. And it would institute a superseding public interest duty to align with climate commitments.

The average Canadian will pay the consequences if climate risks are not addressed, and the economy will suffer. It is in everyone’s best interest to see this bill through so that we can truly ensure the financial system prioritizes long-term benefits to society over short-term profits for a few.

Future-proofing the economy and aligning the financial system with our climate commitments is the way forward.

Senator Rosa Galvez represents the Bedford division of Quebec. She is a member of the Senate Committee on Energy, Environment and Natural Resources. 

This article was published in the Toronto Star on March 30, 2024 and in the Waterloo Region Record on April 1, 2024.