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Institute for Sustainable Finance releases critical capital blueprint for Canada’s low-carbon transition

September 29, 2020

  • New research from the Institute for Sustainable Finance outlines the investment requirements and opportunities to achieve 2030 climate targets, aligning national economic growth with low carbon transition
  • ISF’s Capital Mobilization Plan identifies four key sectors for public-private investment collaboration: buildings, transportation, electricity, and oil & gas

KINGSTON, Sept. 29, 2020 /CNW/ - Today, the Institute for Sustainable Finance launches landmark research to provide a concrete, data-driven capital blueprint for Canada’s low carbon transition. The report – Capital Mobilization Plan for a Canadian Low Carbon Economy – highlights that cooperation between the public sector, private sector, and financial system is critical to securing investments needed to meet Canada’s 2030 climate targets.

“’What gets financed, gets built’,” said Ryan Riordan, co-author of the report and Associate Professor at the Smith School of Business. “This is the heart of the financial sector’s role in helping Canada achieve a more competitive, climate-smart economy.” Responding to a foundational recommendation from Canada’s Expert Panel on Sustainable Finance, this report represents the first critical effort to close the knowledge gap around the scale of Canada’s low carbon investment opportunity. To grasp the competitive advantages of a lower carbon economy, and avoid the increasingly salient costs of inaction, we have to mobilize the capital that will underpin our transition, explains Riordan. “Public and private investors need a solid grasp of that investment horizon. That’s the starting place: a sound and rigorous analysis that shows how and where capital needs to flow.”

Using Canada’s 2030 global climate commitment as the goal post, the report estimates that a ten-year investment of $128 billion, or an average $12.8 billion annually— the annual equivalent of 0.6 % of Canada’s 2018 GDP—is necessary to set Canada on a carbon-competitive path. The report also concludes that a significant portion of this investment can be drawn from private sources, and that blended finance approaches will be key to achieving success.

Key Findings:

  • Canada’s low carbon investment requirement is imminently reasonable and achievable. The estimated annual target of $12.8 billion represents 0.6% of Canada’s 2018 GDP, 2.7% of annual provincial tax revenues, and less than 10% of annual capital expenditures of firms listed on the TSX.
  • Private capital will significantly contribute to the overall required investment. For example, if large publicly traded Canadian firms devoted 5% of their annual capital expenditure to reducing emissions over the next decade, that would cover half of the investment required. Further, financing mechanisms, such as green and transition bonds and green investment trusts, can draw in significant private capital needed to reduce emission. Canada’s Infrastructure Bank is also a key mechanism to create and support public-private low carbon partnerships.
  • Private capital is already flowing, and poised to flow at a more significant pace, in this direction over the next decade. Investors and firms are already acting to avoid the economic risks and seize the opportunities of a global low-carbon transition. For example, green bond issuance in the second quarter of 2020 totaled US$49.5 billion—the third highest quarterly total on record. Last year, Canada broke the seal on sustainability-linked loans, which directly support private investment in carbon-reducing technologies and innovation.
  • The building sector is Canada’s lowest hanging fruit. Canada’s third highest source of emission, buildings is the only sector where, in certain scenarios, reducing carbon emissions is less expensive than maintaining them. Financial and behavourial nudges have the potential to unlock large economic and environmental benefits.
  • Transportation is Canada’s highest stakes play. Emissions reductions in this sector will have the most substantial impact on the ability to achieve provincial and jurisdictional targets, but doing so will require addressing vast amounts of locked in capital. Public-private partnerships can be an effective way to mobilize capital in this sector.
  • Electricity, and oil & gas are the big bets we need to get right. While these sectors are characterized by relatively high emissions abatement requirements, they are also both poised for meaningful low carbon technological disruption over the next decade. Meaningful investments in decarbonizing these sectors will most substantially benefit Saskatchewan, Alberta, and Nova Scotia, where these sectors drive the vast majority of emissions.
  • The costs of not investing are exceedingly high. The Economist Intelligence Unit has calculated that a 5-degree warming scenario would result from public sector perspective in present value losses of US$18.4 trillion globally. Considered purely as a percentage of GDP, it could cost Canadians roughly double the estimated capital outlay to “not” invest in lowering emissions in line with global targets.

Quotes:

“Investment dollars are already flowing and will increasingly flow in this direction. The opportunity and imperative to spur low-carbon innovation—leading to jobs and growth—is abundantly clear. The global investment community has never been more aligned on this fact.”

Barbara Zvan
President and CEO
University Pension Plan Ontario; Member of Canada’s Expert Panel on Sustainable Finance

“As we plan our economic recovery in the face of a global pandemic, it is imperative that we apply a lens of financial resiliency. What this report reveals is that the scale of investment required to transition our economy is achievable and governments need not shoulder the burden alone. The private sector has a significant role to play as we too shoulder the costs of inaction.”

Craig Stewart
Vice President of Federal Affairs
Insurance Bureau of Canada

“The tools of sustainable finance provide a significant opportunity to draw in the private capital necessary to shift our economy over the next decade. Yes, this is critical for meeting our climate commitments. But it is also critical if we want Canadian firms and made-in-Canada technologies to successfully compete and capture market share as the global economy moves even faster in this direction.”

Jim Leech
Chancellor of Queen’s University and former President and CEO of the Ontario Teachers’ Pension Plan

Resources:

  • Executive Summary and full Capital Mobilization Plan report can be downloaded here.
  • The Institute for Sustainable Finance will launch the research in a joint event with Canadian Club Toronto on September 30th from 12-1 pm, featuring diverse perspective from finance, insurance, academia and the oil & gas industry. RSVP to the webinar here.
Media Contact

Hailey MacKinnon
Argyle PR for Institute for Sustainable Finance
hmackinnon@argylepr.com
647-323-8665

Ryan Riordan

“’What gets financed, gets built’,” said Ryan Riordan, co-author of the report and Associate Professor at the Smith School of Business. “This is the heart of the financial sector’s role in helping Canada achieve a more competitive, climate-smart economy.”