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Canada’s banks and other financial institutions need to overhaul their business practices to reflect the challenges and opportunities posed by climate change, a federal advisory panel said in a report on Friday.

As part of that, the financial sector needs to step up its support for efforts by the oil and gas industry to invest in technology that reduces its greenhouse gas (GHG) emissions, and to demand that companies fully disclose in their financial reports the risks and opportunities that will arise from global warming, the report concluded.

Chaired by former Bank of Canada deputy governor Tiff Macklem, the four-person panel said the country’s financial sector has fallen behind those of other countries in preparing for the transition to a lower-carbon economy and the weather-related effects of climate change. With investors increasingly focused on climate-related risk and opportunities, immediate and sustained action is required for Canadian companies to attract the investment needed for the country to manage the transition.

“It is not an exaggeration to say that our future hinges on how we respond to this challenge,” said the report of the Expert Panel on Sustainable Finance, which the Liberal government appointed. The panel included Mr. Macklem, who now heads the University of Toronto’s Rotman School of Management; Kim Thomassin, executive vice-president at the Caisse de Dépôt et Placement du Québec; Barbara Zvan, chief risk and strategy officer at Ontario Teachers’ Pension Plan; and Royal Bank of Canada board director Andy Chisholm.

Their 60-page report provides recommendations for government and the private sector that would move Canada to the forefront of sustainable finance, a growing field that aims to harness the financial sector in the battle against climate change through investments in new technology, support for efforts to reduce the environmental footprint of traditional sectors and financing for companies and communities to respond.

In releasing the report with other members of the panel at the University of Toronto on Friday, Mr. Macklem warned that a failure by the financial sector to act expeditiously will rob the country of economic opportunities.

“Our environment and economic aspirations need to become one and the same because ultimately they are indivisible,” he said. “We need to address climate change and live up to our international commitments to deliver our share of the global effort to reduce GHG emissions. But we also need to address climate change to remain competitive in a world that is increasingly concerned about environmental footprint."

The report includes 15 broad recommendations for action by the government, financial regulators and financial institutions. They range from tax breaks for retail investors who choose low-carbon options to establishing clear standards for reporting of risk related to climate change to making a sustainable investment model “business as usual” among asset managers.

Alberta Premier Jason Kenney recently called sustainable finance the “flavour of the day.” Philip Cross, a fellow at the Macdonald-Laurier Institute, said on Friday that the panel’s report is “ideological” and would result in a massive government intervention in the economy while providing no assessment of the risks of investments in clean technology.

The panel members endorsed carbon pricing – through a direct tax or cap-and-trade system – saying it is the most efficient way to reduce emissions. Heading into a fall election, the Liberal government is engaged in a political battle with conservative premiers who oppose the federal carbon tax and have launched court challenges to Ottawa’s decision to impose its levy in provinces that do not have their own.

The panel said the oil and gas sector is a pillar of the Canadian economy, but it’s also the largest source of GHG emissions. The panel noted companies are already investing in technology that reduces carbon dioxide and emissions, but need support from government and the financial sector to accelerate that effort. And they need access to markets – including new pipelines for crude oil – to generate the revenue needed to invest in cleaner technology, the report said.

“If we absolutely want the cleanest possible fossil fuels going forward, we should probably work with the companies that are the most transparent, the most responsible and that would help the most in terms of the fight against climate change,” Teachers’ Ms. Zvan said.

Finance Minister Bill Morneau on Friday said the Liberal government is determined to implement many of the report’s recommendations, as other countries move in the same direction. “The challenge will be the speed,” the minister said. "It needs to go faster.”

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