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A fishing boat passes the West Pubnico Point Wind Farm in Lower West Pubnico, N.S. on Monday, Aug. 9, 2021. The operation includes 17 Vestas V-80 turbines which produce 30.6 megawatts of electricity, enough to power more than 9,000 homes.Andrew Vaughan/The Canadian Press

The financial industry was already set to play a starring role in United Nations climate talks planned for Glasgow, Scotland this November. Now expectations have gone up a notch.

A UN report detailing the increasingly destructive forces of climate change adds urgency to the proceedings, and underscores the need to drain carbon out of the global economy. The world will be watching to see if banks and other financial institutions will finally spell out a new philosophy for weaning the world off fossil fuels. Canada, meanwhile, risks missing yet another target for emissions reductions as a result of a hands-off approach to the financial sector.

In this country, a tug-of-war rages between banks, which advocate for helping oil industry clients reduce emissions, and environmental activists, who demand an end to lending and capital raising for the fossil fuels sector. UN Secretary-General Antonio Guterres suggested there may not be a happy medium, saying the report “must sound a death knell for coal and fossil fuels.”

UN report ‘must sound the death knell’ for fossil fuels as Canada faces climate urgency

It is the financial industry, with its allocation of capital, that ultimately sets the agenda for the adoption of clean technology and the transition to lower-carbon energy. While Canada hesitates, Europe is pushing ahead with a series of financial reforms to compel banks to add climate calculus to all investment decisions.

There is no shortage of drama in the pages of the report, produced by the UN’s Intergovernmental Panel on Climate Change (IPCC). The global team of scientists concluded that global warming affects every place we live, and that there’s no longer doubt that humans are contributing to a rate of temperature increase that has now surpassed any time in the past two millennia. Avoiding disaster, the report says, will require massive changes to economies in the next few decades.

Rising sea levels and disappearing Arctic ice have been slow-moving disasters, and many of the effects have become irreparable, the report says. Many people are struggling with the impact of severe weather today. This summer’s heat waves, drought and wildfires in Western Canada put that all in sharp relief – the loss of property and livelihoods, the displacement of residents, the strains on the health care system.

As part of the Paris agreement for cutting greenhouse gases, countries agreed to institute plans to get to net-zero emissions by 2050, in order to keep the average global temperature rise to well under 2 C. The report says the 1.5-degree threshold is likely to be crossed in the next 20 years. Still, the IPCC makes clear that the worst effects of climate change are not assured. Immediate action to slash emissions to net zero will start the process of stabilizing temperatures over the following couple of decades.

So what of finance? Over the past year, much has been said and written about banks, insurance companies and asset managers, and how their investment decisions influence the fight against climate change. Many institutions have made their own net-zero pledges and are going about the task of aligning their portfolios accordingly.

That means investing in large-scale renewable energy and smart power-grid technology, as well as electric vehicles and carbon capture and storage – all areas that have generated good financial returns since the start of the pandemic. Mark Carney, the former governor of the Bank of Canada and Bank of England, and now the UN’s man on climate finance, has been leading efforts to push the financial world to net zero.

In April, he announced 160 global financial institutions that control US$70-trillion in assets had pledged to “mobilize” some of that clout to help governments meet their Paris goals, with Glasgow to be the stage for plans to speed up the transition to a net-zero economy.

Canada is coming up short on this front. It has set a tough goal of reducing emissions by as much as 45 per cent from 2005 levels by 2030, but has so far eschewed formal mandates that would push financial institutions to adhere to the toughest templates for disclosing climate risks. The country’s big banks were not among those that joined Mr. Carney for the launch of the Glasgow Financial Alliance for Net Zero.

European governments and regulators are leading the charge. Last month, the European Union rolled out a host of regulatory, tax and trade policies aimed at getting it to its goal of reducing emissions by 55 per cent from 1990 levels by the end of the decade. The 27-country body challenged the rest of the world to follow suit.

But in many ways, Canada is still stuck in yesterday’s battles. Alberta Premier Jason Kenney last week used Twitter to amplify a newspaper column that urged Canada to slow down measures to deal with climate change. The column repeated the tired and defeatist excuse about the country’s relatively small overall contribution to global greenhouse emissions.

As the IPCC report clearly shows, urgent action is needed, and only the financial world can direct the necessary capital to getting the job done. Canada should be leading these efforts to find innovative solutions, not resisting them.

Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. Email him at jeffjones@globeandmail.com.

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