Prime Minister Justin Trudeau went into this week’s global climate summit armed with ambitious new emission reduction targets. Corporate Canada will have to shoulder much of load, and as things stand, the private sector is not ready.
At the virtual meeting of leaders hosted by U.S. President Joe Biden, Canada said it hopes to cut greenhouse-gas emissions by 40 per cent to 45 per cent from 2005 levels by 2030. That “stretch” target is up from the 36 per cent announced by the Liberals in last week’s federal budget.
The budget number was accompanied by $8.75-billion in spending over the next five years on 43 different green programs, including the Net Zero Accelerator, a fund dedicated to “decarbonizing” large emitters.
Here’s where the struggle lies. Canada’s ambitions are lower by percentage than the United States, Britain and European Union, which have also upped their respective games (Mr. Biden has pulled the U.S. back into the climate-change fight after his predecessor made a big stink about backing out of global efforts). But don’t get caught up in percentages. Our numbers are among the most difficult to achieve. Even Environment Minister Jonathan Wilkinson acknowledged the policies to hit the new mark have yet to be written.
As Canadians know well – after many blown targets going all the way back to Kyoto – goal-setting is the easy part. It can all come apart when trying to establish the necessary policies and plow money into effective programs. The private – from which much of the greenhouse-gas emanates – faces a massive challenge and is still ill-equipped in many cases.
The problems stem from how our economy is heavily dependent on the export of natural resources, and especially hydrocarbons, as well as companies’ slow take up of the global disclosure standards necessary to gauge progress and risks. At some point, government and regulators are going to have to get tough on enforcing adherence.
The statistics show the tough road ahead, especially around Fort McMurray, Alta. According to federal figures, Canada’s emissions totalled 739 megatonnes (MT) in 2005, and since then they have declined just 1.2 per cent to 730 MT. In that time, emissions from oil and gas extraction is up by two-thirds to 105 MT. The oil sands are the main reason. As production has surged, emissions from those companies have increased by 127 per cent (to 2018, the most recent available year) to 84 MT.
Of course, industry- and government-funded research and development is under way in hopes of hitting upon a moonshot-type revolution in technology, or a series of small breakthroughs to deal with emissions from the oil sands. But the numbers suggest pressure on the rest of the economy, especially transport and electrical generation, to get past 40 per cent to 45 per cent as 2030 draws near.
Meanwhile, Canadian companies in all sectors have a long way to go to present an accurate picture of emissions – and the outlook for reduction – so that greenhouse gases can be cut and offset. Of the 222 companies in the S&P/TSX Composite Index, just 150, or or 67.6 per cent, provided any emissions disclosure in 2019, according to a recent study by the Institute for Sustainable Finance at Queen’s University’s Smith School of Business. Not all are presented consistently.
The world is coalescing around using the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) as the standard template for disclosing emissions and analyzing the risks on businesses from climate change and policies aimed at combatting it. Yet just 32 per cent of companies in the composite index align fully or even partly with the TCFD, according the Millani, a Montreal-based ESG consultancy.
Ottawa is pushing for its adoption. In the budget, the government said it plans to “engage” with the provinces and territories to make TCFD part of regular disclosure practices. It is also mandating its use among Crown corporations. The private sector currently has no requirement to adhere to the TCFD, although it is facing calls from the country’s largest pension funds, as well as a recommendation from a task force charged with modernizing the Ontario Securities Commission. Britain and New Zealand are already moving by creating regulations to phase in mandatory disclosure consistent with the TCFD.
None of this suggests the task is impossible, but it certainly will be costly and, in some cases disruptive, as businesses are forced to transform their operations to give Canada credibility in the financial fight against climate change. That is, if the new target isn’t another moveable goal post.
Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. Email him at firstname.lastname@example.org.