Canada to Align Finance With Climate Targets

Summary#

This bill creates the Climate‑Aligned Finance Act and amends several federal laws. It sets duties for federally regulated financial bodies, Crown corporations, and many federally incorporated or federally regulated companies to align their activities with Canada’s climate commitments, including net‑zero by 2050. It also directs the banking regulator to adjust capital rules for fossil‑fuel exposures and requires public, detailed climate plans and reports.

• Requires “reporting entities” to make climate plans within 2 years and publish annual climate alignment reports 60 days after each fiscal year (s6(1), s7(1)).
• Limits use of offsets and reliance on unproven technologies in plans (s6(3)-(4)).
• Orders the banking regulator (OSFI) to raise capital risk weights for fossil‑fuel exposures and add a systemic climate risk surcharge, then enforce compliance (s9(1)-(5)).
• Requires at least one board member with climate expertise on specified federal financial Crown corporations; adds conflict‑of‑interest rules and gift bans (s12–s14).
• Binds the Bank of Canada, CPPIB, PSP Investments, BDC, EDC, CIB, and other Crown corporations to act only in alignment with climate commitments (Part 2 amendments).
• Comes into force one year after Royal Assent; several reviews and an action plan follow on set timelines (Part 3; Part 6; Part 7).

What it means for you#

• Households and pension beneficiaries

  • Public pension managers (e.g., CPPIB, PSP Investments) may only exercise powers in alignment with climate commitments. This could change what they invest in and how they manage risk (Canada Pension Plan Investment Board Act amendment; Public Sector Pension Investment Board Act amendment).
  • Annual public reports by Crown financial institutions and many federally regulated firms may make climate risks and actions clearer to consumers and beneficiaries (s7(1)-(2)).

• Workers in emissions‑intensive sectors

  • Banks will have to hold more capital against loans and other exposures to new fossil fuel resources and infrastructure, and face a surcharge tied to financed emissions (s9(1)(a)-(b)). This can affect how banks evaluate such projects and balance sheets. Timing: guidelines to be published within 1 year after the section comes into force (s9(3)).

• Businesses (reporting entities)

  • Who is covered: federal financial institutions; corporations under the Canada Business Corporations Act; entities under federal labour jurisdiction (e.g., interprovincial transport, telecom); and Crown corporations listed in Schedule III to the Financial Administration Act (definition of “reporting entity”).
  • Climate plan due: within 2 years after the Act comes into force; updated at least every 5 years until 2050 (s6(1)).
  • Plan content: include targets; measures to cut value‑chain emissions; capital allocation changes; and links to governance and executive pay (s6(2)).
  • Limits: cannot use offsets instead of reducing emissions except for minimal residual emissions with strict verification; cannot rely on unproven future technologies unless directly contributing and providing detailed analysis (s6(3)-(4)).
  • Annual report: publish a climate commitments alignment report within 60 days after each fiscal year; include targets, plans, progress, emissions data and methods, key assumptions, and how the approach fits the global carbon budget and equity considerations (s7(1)-(2)).
  • Availability: report must be free and easy to access on the public website and attached to annual reports or financial statements if those are required (s7(3)-(4)).

• Banks, insurers, and pension plans regulated by OSFI

  • OSFI must issue climate capital guidelines that increase risk weights for fossil fuel exposures, differentiate among oil, gas, and coal, and add a systemic risk surcharge based on financed emissions (s9(1)).
  • OSFI must use the guidelines in capital adequacy assessments and apply enforcement within its powers (s9(5)).
  • OSFI may order entities it supervises to align with climate commitments and to follow its guidelines (s15(1)-(2)).
  • Federal financial institutions must set absolute emissions targets at sector, portfolio, and holding levels across all debt and equity, and detail engagement, escalation, and exclusion practices with high‑emitting clients (s6(5)).

• Crown corporations and federal financial bodies

  • The Bank of Canada, EDC, BDC, CIB, CPPIB, PSP Investments, CMHC, and other Crown corporations must act only in alignment with climate commitments (Part 2 amendments; FAA s89(3) replacement).
  • Boards: specified entities must include at least one person with climate expertise (s12).
  • Conflicts: board members of reporting entities must disclose ties to organizations not in alignment; reports must note such ties and any recusals (s13(1)-(2)). Gift ban applies to appointees listed in s12 (s14(1)).
  • Timing: disclosure rules apply to appointments made after the third anniversary of this section coming into force (s13(3)).

• Public oversight and timelines

  • Action plan to align financial products and propose legislative amendments (tax, bankruptcy, pensions) due within 1 year; includes potential criminal offences for knowingly false climate reports (Part 6, s21(4)(d), s21(7)-(8)).
  • Indigenous perspectives report and a Bank of Canada monetary policy alignment report due within 2 years (Part 7).
  • Independent and parliamentary reviews every 3 years; annual implementation reports by OSFI and Finance (Part 7).

Expenses#

• Estimated net cost: Data unavailable.

• Fiscal note: No publicly available information.

• Explicit appropriations in the bill: None identified. The bill creates duties (plans, reports, guidelines, reviews) but does not set funding amounts.

• Likely cost drivers (no amounts provided in the bill):

  • Compliance costs for reporting entities to prepare plans, measure emissions (including value‑chain), obtain third‑party assurance for offsets if used, and publish annual reports (s6(2)-(4); s7(1)-(2)).
  • Administrative costs for OSFI, the Department of Finance, the Treasury Board, and the Bank of Canada to develop guidelines and reports, and to conduct reviews (s9; Part 6; Part 7).
  • Capital requirements are prudential rules, not public spending. They may increase private capital held against certain exposures (s9(1)), but the bill provides no monetary estimates.

Proponents' View#

• Reduces systemic financial risk by increasing capital for high‑risk fossil fuel exposures and adding a surcharge tied to financed emissions, improving resilience to transition risks (s9(1)(a)-(b)).
• Improves transparency and accountability through annual public reports with detailed targets, plans, progress, emissions data, and key assumptions; limits greenwashing by tightly restricting offsets and unproven technologies (s6(3)-(4); s7(2)).
• Aligns key public financial institutions with national and international climate commitments, including the Bank of Canada, EDC, BDC, CPPIB, PSP Investments, CIB, and Crown corporations (Part 2 amendments).
• Adds climate expertise to boards and addresses conflicts of interest and gifts, improving governance for climate‑related decisions (s12–s14).
• Sets clear timelines for OSFI guidelines, action plans, and independent and parliamentary reviews, enabling staged and transparent implementation (s9(3)-(4); s21(7)-(8); Part 7).
• Encourages federal‑provincial collaboration on securities disclosure and consumer protection to improve consistency and protect the public from misleading climate claims (s21(2)).

Opponents' View#

• Broad scope and compliance burden: many CBCA corporations and federally regulated entities must create detailed plans and publish annual reports with complex emissions data within tight timelines, which may strain smaller firms (s6(1)-(2); s7(1)-(2)). Data on compliance costs is unavailable.
• Central bank independence concerns: requiring the Bank of Canada to exercise powers only in alignment with climate commitments could be seen as expanding its mandate beyond monetary policy (Bank of Canada Act amendment; Part 2).
• Credit availability risk: higher capital risk weights and a systemic surcharge for fossil fuel exposures may lead institutions to reduce or reprice lending to emissions‑intensive activities, affecting regions reliant on those sectors (s9(1)(a)-(b)). This impact is assumed and not quantified.
• Legal uncertainty: key terms like “alignment with climate commitments,” “emissions‑intensive activity,” and “negative climate change impact” are broad; “negligible emissions” is left to ministerial definition, creating ambiguity during rollout (s2 definitions; s8(c)).
• Investment mandate constraints: binding CPPIB, PSP Investments, EDC, CIB, and other Crown bodies to climate alignment may narrow investment options and affect returns or project pipelines (Part 2 amendments). Effects are uncertain and not quantified.
• Jurisdictional overlap: the bill seeks provincial collaboration on securities disclosure and consumer protections, but alignment is not guaranteed; divergent rules could add complexity for issuers and investors (s21(2)).