HALIFAX — As the number and severity of extreme weather events intensifies, every major political party is promising stronger climate action should they form government after next Monday’s election. While each of their platforms touts some version of net-zero emissions targets and carbon-pricing strategies, they make few references to sustainable finance and its role in tackling the crisis.

“We are seeing some mention of it in a couple platforms, which is more than we’ve had in the past, but there’s not the level of understanding of how critical finance is to solving the climate crisis and hitting [net-zero] targets,” said Adam Scott, director at Shift Action, a non-profit that advocates for sustainable finance among institutional investors, in an interview with The Logic.

“There’s no stability in the financial system, there’s no GDP growth, if we let this crisis run away from us,” said Scott. “There’s really no choice but to completely change the way we’ve been managing finance.”

There’s an emerging consensus in the climate and finance sectors that global regulators should introduce mandatory climate-risk disclosure, in a bid to improve transparency around companies’ emissions use and how they plan to operate in a net-zero economy. 

New Zealand was the first to announce plans for mandatory reporting last September, when it unveiled that about 90 per cent of assets under management in the country would be forced to follow the Task Force on Climate-Related Financial Disclosures (TCFD) reporting framework starting in 2023. The U.K. followed with similar requirements to be phased in by 2025. China, the EU and the U.S. are among other jurisdictions moving toward mandatory reporting.

In Canada, the incumbent Liberals had started exploring mandatory-reporting policies. In June, the government passed Bill C-12, its climate-accountability act, which called for the finance minister to report annually on “measures that the federal public administration has taken to manage its financial risks and opportunities related to climate change.” In May, the federal government launched the Sustainable Finance Action Council, a group born out of the Expert Panel on Sustainable Finance’s recommendations published two years earlier. A month later, Finance Minister Chrystia Freeland joined leaders of the other G7 countries to support making it mandatory for banks and companies to disclose their exposure to climate-related risks, based on the TCFD. The G7 leaders said they “support moving toward mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants.”

The Liberals’ current platform mostly leans on those measures. Building on earlier announcements, it also notes its intent to require federally regulated institutions—including pension funds, financial institutions and Crown corporations—to develop net-zero plans disclosing their climate risk. They did not respond to a request for further comment.

The NDP, meanwhile, said it will review financial legislation, “such as the Bank of Canada Act, the Export Development Canada Act, and the Canada Pension Plan Investment Board Act” to make sure they are equipped to help get the country to its target of net-zero emissions by 2050. 

In an email to The Logic, press secretary Charlotte MacLeod said the NDP will “work with provinces to put in place a framework for corporate climate accountability to ensure mandatory transparency on carbon risk from publicly traded companies,” reiterating what’s in the party’s platform. “And we will ensure that strict rules are in place to prevent big companies from using the purchase of offsets as a way to escape their net-zero obligations.” 

Scott said the NDP’s plan to review legislation related to financial institutions is—while light on detail—a promising commitment. “[The next government] needs to review all the legislation and put the climate regulation function into the mandates of the other institutions that they regulate,” said Scott, noting that mandates of the Bank of Canada and federally regulated entities, including institutional investors like the Canada Pension Plan Investment Board, often preclude the government from directing them to take greater climate action. “They actually have to change the mandate of the institution so that it sees climate [regulation] as a critical part of its job.” 

The central bank’s mandate is up for review this year, which Scott said is an opportunity for Ottawa to strengthen the institution’s onus to oversee climate-related financial risk and scenario-planning. 

The Bank of Canada declined to comment “about party platforms or potential election outcomes,” but spokesperson Sean Gordon pointed to an October 2020 speech from governor Tiff Macklem that highlighted the bank’s efforts to develop “Canada-specific climate scenarios” that could help companies disclose and mitigate risk. And in panel remarks at the Public Policy Forum a month later, Macklem said, “Companies need to assess, price and manage their climate risks, and they need to disclose these risks for markets to function well.”

Despite growing calls for better sustainable-finance practices, mention of financial climate risk is absent from the Conservative platform; the party did not respond to a request for comment on the issue. (There’s also no mention in the platform of the Green Party, which didn’t respond to a request for comment.)

“I think there are high expectations around commitments to the environment this election, but the conversation on sustainable finance seems to be getting lost,” said Milla Craig, founder and president of financial-consulting firm Millani. “In our world, there seems to be real frustration around that.” 

Juvarya Veltkamp, director of the Canada Climate Law Initiative, pointed to some encouraging campaign promises she described as sustainable-finance adjacent that could help bolster the economy while also tackling climate change. One is carbon border taxes, which the Liberals and Conservatives have both proposed implementing on carbon-intensive imports. “We’re not the only ones looking at this, said Veltkamp, noting that the EU and U.S. are also moving to taxing high-carbon imports. “This will become more of a tool that we have to both reduce emissions and keep our economies competitive, as well.”

Like most countries around the world, Canada has largely left it up to the private sector to manage its climate-linked financial risks, a system that has relied on voluntary disclosure. There are signs the approach has had some impact. Last week, Millani published a report showing that 71 per cent of companies on the S&P/TSX Composite Index published sustainability reports for their 2020 fiscal year, up from just 58 per cent a year earlier. However, many of those sustainability reports lacked detail and consistency, making them hard to decipher, the report noted.

“We need to consider just how many critical decisions that shape our ability to address the climate crisis—or make it worse—are made behind closed doors in boardrooms of finance institutions like pensions, banks, insurers, and are not policy decisions,” said Scott, who called mandatory climate-risk disclosure “the floor” and added that government should compel institutions it regulates to require businesses and organizations to have robust plans that detail their paths to net-zero. “Government absolutely needs to step in and pull all the levers if we’re going to be able to address this crisis.”

Craig said she doesn’t necessarily expect the next government itself to mandate climate-related financial disclosure, but anticipates “some regulators or other such capital market’s participants will move on clarifying their positions or expectations for disclosures,” she said. “Let’s not forget that Canadian organizations are part of a global network of capital markets, and capital markets have moved on this topic and expect disclosures on it, or organizations will not have access to capital.”