Will feds adopt unhinged Senate bill deterring fossil fuel investment?

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Description of Sir John A. MacDonald called the Senate “a place of sober second thought”, which perhaps reflects his appreciation for at least occasional sobriety. But Bill S-243, the “Climate Compatible Financing Act,” is the antithesis of considered reconsideration. Its stated purpose is to regulate investment practices to reduce the risks that financial institutions pose to the climate and that climate change poses to financial institutions. Indeed, it would undermine free markets, with potentially devastating consequences for financial institutions, the energy sector, and Canada’s economy in general.

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Independent Senator Rosa Galvez’s bill could have legs if the government decides the time is right to step up its climate agenda through intervention in the financial sector. After all, Environment and Climate Change Secretary Stephen Gilbolt has never been a model of restraint. At a minimum, the bill shows how willing some parliamentarians are to push us down a path of climate change dogmatism.

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The bill aims to help Canada meet the goals of the Paris Agreement: zero net emissions by 2050, prevent global temperatures from rising more than 1.5°C above pre-industrial levels and drastically suppress exploration for new fossil fuels and infrastructure. The bill includes direct and indirect emissions and all emissions of the value chain at the upstream and downstream stages, that is, all well. And carbon capture and storage will not exempt those who emit it: for financial institutions, the bill aims for absolute zero rather than zero emissions.

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The bill targets federal crown financial corporations, banks, trust and loan companies, pension funds and credit unions. It covers every type of debt or equity financing for the exploration, extraction, production, transportation, storage, export, refining, or retail sale of oil, gas, or coal, and their combustion to generate power in a power plant—basically, everything Canada needs to remain an industrial society.

The bill is not merely ambitious. It urges compliance through oversight, including by the Office of the Superintendent of Financial Institutions (OSFI), the bank’s regulator, which it tasks with developing capital adequacy guidelines. However, the bill itself mandates a specific increase in capital risk weights of 1,250 percent for debt exposure to new fossil fuel resources or infrastructure and 150 percent or more for any loan to existing fossil fuel activity. This arbitrarily increases the amount of capital the bank must hold for credit and market risk for a given loan. Such stringent requirements, far exceeding international standards, would make access to capital much more expensive. The bill also authorizes OSFI to charge additional capital charges related to the extent to which a financial institution facilitates emissions and to order compliance with the goals of the law.

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The bill would discourage—in some cases likely—financing of pipeline operators, natural gas distributors, and fuel companies (even those with green affiliates moving to net-zero). By including downstream emissions, onerous risk weights can extend to: inputs of goods and services, waste disposal, commercial travel, delivery services, and even financing for sparkling water companies (because carbonation is a pollutant) and the livestock industry (because of cow bloating). There is virtually no limit to how broadly Environment Canada officials may interpret the reach of their new powers.

The bill also encroaches on corporate governance. At least one member of certain governing boards of the Royal Institutions must be a “person with climate expertise,” such as someone who “has acute lived experience related to the physical or economic damages of climate change.” After three years, the boards of banks and other financial institutions must disqualify anyone who: owns shares in an “off-limits” company, served on its board of directors, or has been an employee or lobbyist for it in the past five years. Also, the directors are required to act in accordance with the objectives of the bill or are disqualified to serve.

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The uninterrupted market displacement imposed by the bill would be a vain gesture in a world where greenhouse gases continue to reach historically high levels, where big emitters like China and India put development ahead of climate change and fossil fuels still account for 80 percent of energy.

Some supporters argue the bill is ambitious—they’re asking for the moon in hopes of just moving the dial. But what could be more irresponsible than proposing miserable legislation on the grounds that its final form would not be so bad? And in a frantic pre-election environment, with a strong political base demanding action and the need to mollify a restless NDP partner, anything is possible from a government notorious for prioritizing partisanship over principle. Especially if the rallying cry is, in the words of 1964 Republican presidential candidate Barry Goldwater, “Extremism in defense of climate is not a vice. Moderation in the pursuit of net zero is not a virtue.”

Climate-concerns will no doubt find it reassuring that the bill is extreme, without any hint of moderation. Reasonable Canadians should panic.

Joe Oliver served as Minister of Natural Resources and then as Minister of Finance in the Harper government.

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