Finance System Must Align With Climate Goals

Summary#

This bill would align Canada’s finance system with national and international climate goals. It sets duties for banks, insurers, pension funds, Crown corporations, and many federally regulated companies to plan, report, and act in line with a 1.5°C pathway and net‑zero by 2050. It also changes bank capital rules for fossil‑fuel lending and adds climate duties for directors and officers.

• Requires many entities to publish annual climate plans, targets, and progress, including full value‑chain emissions (Part 2, s. 6–7).
• Limits use of offsets and assumptions about future carbon‑removal technology in those plans (Part 2, s. 6(3)–(5)).
• Directs the bank regulator (OSFI) to set higher capital charges for fossil‑fuel exposures, including a 1,250% risk weight for new fossil fuel resources or infrastructure (Part 3, s. 9(1)(a)(i)–(ii)).
• Imposes a duty on directors and officers to put climate‑alignment first when acting in their roles (Part 4, s. 15(1)–(2)).
• Requires federal Crown corporations and key institutions (e.g., Bank of Canada, EDC, BDC, CMHC, CIB, PSP Investments) to operate in alignment with climate commitments (Related Amendments; e.g., Bank of Canada Act, Clause 3–4; FAA s. 89(3)).
• Most provisions would take effect one year after Royal Assent; some pension provisions require provincial consent (Coming into Force, s. 24(1)–(2)).

What it means for you#

• Households and consumers

  • You would see more climate‑labelled financial products and disclosures. The government must plan to incentivize “aligned” products and discourage those that are not, and propose related law changes to tax, pensions, and bankruptcy rules (Part 6, s. 16(1), (4), (7)–(8)).
  • Public reports from Crown corporations (e.g., CMHC, BDC, CIB) and federal institutions would need to reflect climate alignment. This could affect what they finance, but no direct consumer fees are set in the bill (Related Amendments; Part 3 Reviews).

• Workers

  • Jobs in sectors that rely on fossil‑fuel financing could be indirectly affected because banks would need much more capital for those loans, which typically increases loan costs (Part 3, s. 9(1)(a)(i)–(ii)). Data on job impacts: Data unavailable.
  • Jobs in clean energy and efficiency could benefit from easier access to aligned finance, per the action plan mandate (Part 6, s. 16(1), (4)). Quantified effects: Data unavailable.

• Businesses (CBCA corporations and federally regulated firms)

  • You must publish an annual climate‑alignment report within 60 days of year‑end unless you had “no or negligible” emissions (Part 2, s. 7(1)–(3)). The Minister may define “negligible” by order (Part 2, s. 8(c)).
  • Your plan must set emissions‑reduction targets for 2025, 2030, 2035, 2040, 2045, and 2050 and show how they align with a 1.5°C pathway and the global carbon budget. You must disclose methods, assumptions, Scope 1–3 emissions, and progress (Part 2, s. 2 “climate commitments alignment report”; s. 6(1)–(2)).
  • You cannot rely on offsets instead of cutting emissions unless strict conditions are met, and you must detail the quality and verification of any offsets used (Part 2, s. 6(3)–(4)).
  • You cannot assume large‑scale future carbon removal outside your control to justify continued fossil‑fuel activity, unless you also help make that removal real and provide economic analysis (Part 2, s. 6(3)(b), (5)).

• Financial institutions and pensions

  • Banks must hold far more capital against loans and investments in new fossil fuel resources or infrastructure (risk weight 1,250%) and at least 150% for other fossil‑fuel exposures, with differentiation among oil, gas, and coal (Part 3, s. 9(1)(a)(i)–(iii)). OSFI must publish these guidelines within one year of in‑force, and use them in supervision and enforcement (Part 3, s. 9(3), (5)).
  • OSFI must add a systemic climate‑risk surcharge based on your financed emissions (Part 3, s. 9(1)(b)).
  • Federal financial institutions must set absolute emissions targets at sector, portfolio, and holding levels, and show how they engage clients to wind down emissions‑intensive activities (Part 2, s. 6(6)).
  • The Superintendent may issue orders to federally regulated financial institutions to help ensure alignment (Part 5).
  • Public sector pension investors (e.g., PSP Investments) must operate in alignment. The CPP Investment Board would face a similar duty if provinces consent (Related Amendments; Part 4).

• Investors and savers

  • Public pension funds subject to this bill must invest in ways aligned with climate commitments. This could change portfolio mix and risk exposures over time (Public Sector Pension Investment Board Act amendment; Canada Pension Plan Investment Board Act, Clause 21). Effects on returns: Data unavailable.

• Federal Crown corporations and agencies

  • Boards must include at least one person with climate expertise for listed entities (e.g., CDIC, CMHC, EDC, BDC, PSP Investments, CIB) (Part 4, s. 12).
  • New appointment restrictions bar board members who have certain ties to entities not aligned with climate commitments, after a 3‑year transition (Part 4, s. 13(1)–(3)).
  • Board appointees may not accept gifts or benefits from non‑aligned organizations (Part 4, “Conflict of interest”).
  • The Bank of Canada and OSFI must operate and report in ways aligned with climate commitments, and table related reports within two years of Royal Assent (Related Amendments; Part 3 Reviews).

Expenses#

Estimated net cost: Data unavailable.

• No explicit appropriations, taxes, or fees are set in the bill text (Bill text).
• New mandates likely create administrative costs for federal bodies:
  • OSFI must develop, publish, and enforce climate capital guidelines within 1 year, plus additional guidelines within 6 months (Part 3, s. 9(3)–(5)).
  • A responsible minister must deliver an action plan within 1 year and table proposed legislative amendments (Part 6, s. 16(7)–(8)).
  • The Bank of Canada and OSFI‑related Indigenous and monetary policy reports are due within 2 years (Part 3 Reviews).
  • Annual implementation reports and 3‑year independent and parliamentary reviews are required (Part 3 Reviews).
• Compliance costs for reporting entities to produce climate reports, targets, and verification are expected but not quantified in public sources (Part 2). Data unavailable.

Proponents' View#

• Reduces systemic financial risk by making banks hold more capital against high‑risk fossil‑fuel assets and by adding a surcharge tied to financed emissions (Part 3, s. 9(1)(a)–(b)).
• Aligns financial flows with Canada’s net‑zero by 2050 goal and a 1.5°C pathway by setting clear duties and reporting across the system (Purpose; Part 2, s. 6–7; Related Amendments).
• Improves transparency and comparability because reports must include Scope 1–3 emissions, assumptions, and progress, and be made public within 60 days of year‑end (Part 2, s. 2 “climate commitments alignment report”; s. 7(1)–(2)).
• Limits greenwashing by restricting offsets and prohibiting unproven large‑scale future removals to justify continued fossil‑fuel expansion (Part 2, s. 6(3)–(5)).
• Strengthens governance by adding climate expertise to key boards and creating a clear duty for directors and officers to enable alignment, with precedence over other duties (Part 4, s. 12; s. 15(1)–(2)).
• Steers public finance (e.g., EDC, BDC, CIB, Crown corporations) toward aligned activity through legal alignment requirements (Related Amendments; FAA s. 89(3)).

Assumptions to note:

• That higher capital charges reflect true risk and will reduce systemic risk (Part 3).
• That mandatory disclosure and target‑setting drive real emissions cuts rather than only reporting changes (Part 2).

Opponents' View#

• Compliance burden: Many CBCA corporations and federally regulated firms would face detailed annual reporting within 60 days, including full value‑chain emissions and verification details; small firms may struggle (Part 2, s. 2; s. 7). Cost data: Data unavailable.
• Credit availability and costs: Prescriptive high risk weights (1,250%; 150%+) could raise borrowing costs and reduce capital for fossil‑fuel projects and connected supply chains, with regional impacts (Part 3, s. 9(1)(a)(i)–(ii)). The scale of impact depends on bank responses. Data unavailable.
• Governance and legal risk: The new duty for directors and officers to give precedence to climate alignment over other duties may conflict with existing fiduciary expectations and create litigation risk or uncertainty (Part 4, s. 15(1)–(2)).
• Regulator discretion: OSFI’s broad order power to ensure alignment may be seen as overreach and could affect competitive neutrality if applied unevenly (Part 5).
• Institutional independence: Requiring the Bank of Canada to act only in climate alignment could be viewed as constraining monetary policy flexibility (Related Amendments, Bank of Canada Act, Clause 3–4).
• Pension returns: Mandated alignment for public sector pensions and, with provincial consent, CPPIB could constrain investment choices; effects on returns are uncertain (Public Sector Pension Investment Board Act amendment; Canada Pension Plan Investment Board Act, Clause 21).

Assumptions to note:

• That increased capital requirements will materially curtail financing rather than be absorbed by banks.
• That reporting timelines and scope are feasible for smaller entities without harming competitiveness.