What happens after COP26? Canada’s $2-trillion question

Darryl White is CEO of BMO Financial Group and Perrin Beatty is president and CEO of the Canadian Chamber of Commerce 

Baseline estimates assume a $2-trillion price tag for Canada to reach net zero carbon emissions by 2050. It’s a big number for a big challenge, and one Canada cannot afford at the rate of economic growth we’ve achieved over the past quarter century. 

Without a viable, concrete plan to unleash economic growth and a business environment that creates incentives for the transition to a lower carbon future, Canada’s path to net zero will be a road to nowhere. 

Canada’s ambitious climate plans can’t happen in a vacuum. We need broad collaboration between the public and private sectors. As the international community works toward a net zero future, the Canadian business community is poised to lead the way. 

Companies in Canada are investing in carbon capture technologies, carbon-to-value solutions such as recycling carbon into plastic, low-carbon hydrogen infrastructure, zero-emissions vehicles and increased efficiencies in company operations that drive important short-term emission reductions. 

Achieving this transformation in a way that is inclusive and supports the energy needs of the global economy requires financial institutions, along with federal and provincial governments, partnering with all Canadian businesses that are investing in this space, from social enterprises, to firms developing clean tech, to energy companies that are investing in low-carbon solutions. 

This will not be easy, or inexpensive. We cannot achieve our climate goals without major, continuing investment. We have much work left to do as part of – and moving beyond – the recent COP26 discussions centred on international efforts to limit rising global temperatures in the 21st century. 

We must focus on how Canada can support the investments that equip Canadian businesses with the tools and economic predictability they need. Simplifying and standardizing the way businesses report on emissions, and thereby attract investment, will be vital to establish an innovative, efficient pathway to net zero. 

While there is increasing focus on sustainability and the underlying approaches for things such as disclosing carbon emissions and defining sustainable finance, there is still little international agreement on these core issues. Without a common approach, the outcome will be new layers of unnecessary complexity that hinder businesses’ innovation. 

So, what should Canada do to supercharge the private sector’s move toward net zero? 

First, we need to find harmony in reporting. In tandem with the proposed global carbon price, Canada should encourage a global, harmonized approach to ESG (environmental, social and governance) reporting, carbon offsets and broader climate policies among regulators and the international community. 

Stakeholders within Canada are already moving in this direction. The Canadian Securities Administrators (CSA) consultation paper on a proposed climate-related disclosure framework is an important step toward addressing the need for more and better data, information and efficient markets. 

Second, we have to leverage leadership. Canada has a new role as a global leader in the development of sustainability disclosure standards and must use that position to meet the needs of investors and financial markets.  

On Nov. 3, the International Financial Reporting Standards (IFRS) Foundation announced the new International Sustainability Standards Board (ISSB) will have offices in multiple jurisdictions, including Montreal (with the board’s headquarters in Frankfurt). 

The ISSB, when it is launched in 2022, will have the goal of developing a common global ESG framework that supports sustainability standards, transparency and a common business environment that will encourage investments and fair competition. 

Why does that matter? Canada cannot achieve its net zero ambitions without solving data gaps, creating efficient markets with disclosure rules that foster awareness of opportunity and risk, and reducing complexity while enhancing transparency and accountability.  

Investors want to be able to easily understand and evaluate a company’s green progress and contributions to net zero in a global context, which is why internationally standardized sustainable finance rules will help increase funding for businesses to make green shifts. 

As 2050 draws closer, Canada must maintain its global competitiveness by ensuring its businesses can still access capital, while ensuring Canadians benefit from low-carbon technologies and new economic opportunities from the energy transition.  

Our goal should be an orderly net zero transition, meaning we start early and avoid sudden changes that will increase costs and risks. To achieve this goal, we have to provide Canadian businesses with the supports they require to lead in a low-carbon global economy. 

In the aftermath of COP26, Canada must promote a net zero vision that focuses on collaboration with its business community and the role of sustainable finance in funding the energy transition. Although the cost of net zero is significant, we have an opportunity to build a plan, define the approach, and execute it in an orderly way.  

Canada’s financial players are keen and committed to being central to this effort. But without an answer to the $2-trillion dollar question, that vision will be blurry and the path forward obscured. 

It’s time we get to the business end of net zero. 

This article originally appeared in The Globe and Mail