Canada Can Do Better on Climate Change

The only bright post was the climate policy, where Canada secured the 29^th spot, a middle-of-the-pack rating.

The striking disparity between Canada’s high ranking on climate policy and low ranking on the other three categories used by the CCPI methodology indicates a disconnect between action and intention, says Jackie Cook, director of investment stewardship research at Morningstar, in Vancouver, B.C.

“On the one hand is Canada’s political leadership on climate – signing and championing the Paris Climate Agreement, The Clean Canada Plan, the carbon tax (Greenhouse Gas Pollution Pricing Act in 2018), the Canadian Net-Zero Emissions Accountability Act, etc.,” she says, but adds, “on the other hand, [there’s] the lack of commitment from Canadian investors and companies.”

Corporates to Blame?

When it comes to battling climate change, corporate Canada falls below its global competitors. A recent study from the Sustainable Finance Institute at Queens University shows that Canadian corporations on the S&P/TSX Composite lagged other major markets in setting and disclosing greenhouse gas (GHG) emission reduction targets.

The research shows only 27% of TSX companies have stated emissions targets, compared to 53% on the S&P 500 and 67% on the FTSE 100 indices. Further, only two-thirds of Canada’s publicly traded firms disclose GHG emissions, which is similar to U.S. firms, but well below those in Europe (10% higher disclosure levels) and the UK (30% higher).

As well, only a quarter of Canadian companies have set climate targets compared to more than half of companies in the S&P 500, and two-thirds of large UK companies.

The report quotes co-author Sean Cleary as saying: “Despite progress from Corporate Canada, investors are still facing real limitations in getting the information they need from Canadian corporations as they try to assess their carbon exposure.”

“I believe this reflects a more general problem -- inadequate pressure from Canadian investors -- which in turn betrays just how wedded our financial sector is to the fortunes of oil and exports of oil to the U.S.,” reasons Cook.

What Can Investors Do?

Cook argues that Canadian companies are not under pressure from their investors and lenders to align their business strategies and governance practices with the low-carbon transition. “They have not faced credible threats of divestment from our largest institutional investors,” she notes.

Investors have given Canadian companies a free pass for long, slowing down Canada’s net zero transition. The Canada Pension Plan (CPP), one of the world's largest public pension funds, is heavily invested in fossil fuel companies that tie Canadians’ fortunes to oil. A report from the Canada Climate Law Initiative, titled “Troubling Incrementalism” published in September 2020, shows a substantial portion of CPP’s $5.6 billion investment in S&P 500/TSX 60 companies is exposed to oil and gas, given the large weighting of the energy sector in the index. Moreover, CPP’s non-index holdings include another $605 million investment in oil and gas companies, according to the report. 

Canada’s financial institutions have also been found to be major funders of fossil fuels, as outlined in Rainforest Action Network’s ‘Banking on Climate Chaos 2021’ report, published in March 2021. On a brighter note, though, bank shareholders have voted on a resolution asking the lenders to report on fossil fuel lending activities. 

Still, Canadian investors have yet to get tough with heavy polluters in Canada, contends Cook. “Oil has too much economic and political power, and this holds us back from making better progress on the other three categories comprising the CCPI index,” she says.

The Other Side

Cody Battershill, the founder and CEO of Canada Action, a grassroots group that supports resource workers, argues it’s not as bad as it seems.

For starters, he takes issue with the CCPI’s methodology which stacks the deck against Canada. “This report isn’t telling readers the whole story about Canada’s record of global leadership in protecting the environment and the climate,” asserts Battershill.

The report, he points out, uses a GHG emissions per capita method that accounts for 40% of the overall ranking. “This automatically – and unfairly – puts Canada at a disadvantage from the start, without taking into account that our nation provides the world with a lot of the raw materials needed to sustain a high standard of living,” he adds, pointing out that Canada’s emissions are very closely connected to the outflow of raw materials and produced goods to other countries.

Canada is the 4^th largest producer and exporter of crude oil, the 4^th largest producer and 6^th largest exporter of natural gas, and the 5^th largest exporter of agricultural products. In 2017, Canada got 17.3% of its total energy supply from renewable sources, higher than the world average of 13.4% and much higher than the OECD average of 10.2%.

The CCPI report is particularly questionable with regards to energy efficiency and renewables criteria, says Sarah Keyes, principal at ESG Global Advisors. The report’s renewables criteria seem to be measured based on percentage improvements, without factoring in that the starting point could be vastly different for different countries. “In Canada’s case, the ‘very low’ rating on renewables while the country has one of the greenest grids in the G20 is not easy to understand or intuitive,” she argues.

Also not yet reflected in these rankings is several ongoing initiatives in Canada, “including revision of nationally determined contributions (NDCs) and establishing a national roadmap to net zero, that are underway but have not yet published their results and revised plans,” counters Keyes.

Still Room for Improvement

Canada has an opportunity to be a global example of transitioning a natural resource-based economy toward net zero by 2050. “This can be a competitive advantage,” says Keyes. “Not only can we protect our most important economic sectors (oil and gas, transportation, heavy industry, agriculture, mining, etc.), but we can also export low-carbon technologies and solutions to other jurisdictions to help them with the transition.”

That said, transitions take decades and Canada, like the rest of the world, requires “significant capital investments in its key economic sectors to protect jobs and livelihoods while preparing our country to thrive and maintain competitive advantage in a low-carbon future,” adds Keyes.

As the world transitions to net zero by 2050, it is imperative that the planning for and investing in that transition starts today.