On March 2nd, the Finance and Sustainability Initiative welcomed Timothy Lane, Deputy Governor of the Bank of Canada to Montréal’s Club Saint James to discuss the impacts of climate change in a speech entitled: Thermometer Rising – Climate Change and Canada’s Economic Future. Opened by François Boutin-Dufresne, FSI Board Member and Strategist, Economics and Global Markets at Pavilion Global Market, the event was attended by close to 150 members of the Canadian financial community, business and academia and concluded with a brief address by the Minister of Finance of the Government of Quebec.
Mr. Lane’s speech marked the Bank of Canada’s first-ever public statement on the subject of climate change. The Deputy Governor indicated that climate change and actions taken to mitigate and adapt to its impacts, will have material and pervasive effects on Canada’s economy and financial system. In fact, estimates indicate that, in the absence of action to address climate change, annual costs could reach between $21 billion and $43 billion for the Canadian economy by the 2050s. The Deputy Governor pointed to heightened sector-specific climate change risks present in the forestry, agricultural and mining industries while also referencing the significant impact of Alberta’s wildfires in 2016.
Monetary Policy, Carbon Pricing and Green Finance
After discussing the economic impacts of climate change, the Deputy Governor turned his discourse to tools and policies available to address them: carbon pricing and green finance.
- The Bank of Canada believes that setting of a price for carbon through a carbon tax or cap-and-trade system will create incentives to reduce greenhouse gas emissions in the most efficient way possible. The Deputy Governor recognized the potential negative economic consequences of carbon pricing on vulnerable households and businesses, while also noting that these can be minimized by using revenues from carbon pricing to lower the burden of other taxes. Praising global agreements, such as the Paris Agreement that took effect in 2016, Mr. Lane called for a consistent global regime and harmonized carbon pricing. This harmonization encourages emissions reductions and avoids possible relocation of emission intensive activities to other regions.
- The Deputy Governor also noted that green finance, which facilitates private-sector financial flows into environmentally sustainable investments, is another powerful tool for meeting climate change targets. Moving forward, enhanced transparency and analytical tools will be critical for informing investors of the physical, liability and policy-transition risks that could impact financial assets. Mr. Lane referenced the important work being conducted by both the Financial Stability Board’s Task Force on Climate-related Financial Disclosures and the G20’s Green Finance Study Group.
A major structural shift
Mr. Lane indicated that “the move to a lower-carbon economy is a major structural shift for the global and Canadian economies” and will result in a change in both how goods and services are produced and what goods and services are produced and consumed. These changes will likely be more profound for Canada than for many other countries due to our country’s production of fossil fuels and relative high energy use per capita. The Deputy Governor stressed that the introduction of carbon pricing will have but a transitory effect on inflation and commented the profound structural changes that will be taking place are likely to have important consequences for both aggregate supply and demand and this will be carefully considered as the Bank of Canada conducts monetary policy. Mr. Lane reminded the audience that the Bank of Canada does not regulate financial markets and thus, cannot decide how banks, insurance companies and other financial institutions should prepare for climate change related risks. However, he concluded his speech by indicating that the Bank of Canada will continue to work to account for risks in economic models and policy decisions while also playing an important role in future policy discussions.
The speech was followed by a question and answer period, led by Roger Beauchemin, President and Chief Executive Officer of Addenda Capital, leading to further insight on how the Bank of Canada interprets climate science and carbon risk, how it can influence various policy decisions, and how it incorporates climate related considerations into day-to-day activities. Audience questions and comments led to discussion on the Bank of Canada’s monetary policies and its plans to increase climate change dialogue between the scientific and financial communities.
Quebec Green Bonds
The Minister of Finance, Carlos Leitão, then took the stage to detail the recent establishment of Quebec’s Green Bond program including the issuance of its first-ever green bonds on February 24, 2017, making it the second Canadian province, after Ontario, to implement this innovative financial program. The program is based on the International Capital Market Association’s Green Bond Principles and allows the Government to raise capital for specific projects that have tangible environmental benefits in Quebec such as reducing greenhouse gas emissions or adapting to climate change. Importantly, the new Quebec Green Bonds have the same characteristics as conventional bonds in terms of price, yield, maturity and credit rating. Additionally, the Minister asserted that the program will be deployed transparently and will be guided by a rigorous process of accountability. In conclusion, Mr. Leitão highlighted the important role that the program will play in allowing the province to develop a market for socially responsible investments, in attracting new investors to the Quebec bond market and in moving Quebec towards a less carbon intensive economy.
Alongside Mr. Lane and Mr. Leitão, FSI was pleased to welcome to the head table:
- Mario Albert, Chief Executive Officer, Finance Montréal
- Roger Beauchemin, President and Chief Executive Officer, Addenda Capital
- Ginette Depelteau, Senior Vice President, Compliance and Responsible Investment, Caisse de dépôt et placement du Québec
- Stéphanie Lachance, Vice President, Responsible Investment, PSP Investments
- Jacques Lussier, Chief Executive Officer, IPSOL Capital
- David L. McAusland, Senior Partner, McCarthy Tétrault
- Daniel Simard, Chief Executive Officer, Bâtirente
The event was closed by Solène Hanquier, FSI Board Member and Sustainable Development Advisor at Desjardins Group, who thanked the participants, the event and FSI season sponsors and encouraged the audience to participate in FSI’s upcoming events.
A full copy of Deputy Governor Timothy Lane’s speech and recorded webcast can be found here.