How safe is your pension from climate change? A new tool could predict that — if companies use it

Corporate bean counters can now implement “landmark,” made-in-Canada environmental standards as part of their bookkeeping, to be more transparent about how profits could be affected by climate change.

In December, Chartered Professional Accountants of Canada enshrined the standards in its official handbook used for preparing financial statements. Industry watchers say the push towards corporate transparency is likely to continue despite recent moves by businesses and politicians in the opposite direction.

Transparency rules help the public see where risks are hidden. Take real estate — fossil fuel pollution is making floods and wildfires more extreme, which is driving up the cost of insurance, driving away coverage, devaluing properties and making the housing market riskier. Or take the fossil fuel industry, where a company selling oil, gas or coal might find itself facing a financial crisis if customers choose cleaner energy alternatives that don’t jack up extreme weather.

Investigating problems. Exploring solutions

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Investigating problems. Exploring solutions

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for a weekly dose of independent journalism.

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In Europe, climate transparency rules were introduced in 2023. Data show a major uptick in green investments there, from 191 billion euros that year to 249 billion euros in 2024, according to Kyra Bell-Pasht, director of research and policy at Investors for Paris Compliance.

“Fundamentally, it’s providing necessary information to the market, and it’s helping track whether or not a company is aligning itself with this overall trend in the economy, and therefore allowing shareholders to better value the company,” Bell-Pasht said.

Unearthing climate-related risks is doubly important when the financial interests of the fossil fuel industry are enmeshed in other parts of the economy. Canadian banks continue to provide fossil fuel financing and authorities that oversee retirement savings are worried these investments will be on shaky ground in a low-carbon world.

“The big institutional investors need this information, and a lot of them are requesting it, and they’re having a hard time getting it from corporations,” Adam Scott, director of the charitable initiative Shift: Action for Pension Wealth and Planet Health, said.

The majority of Canadian firms don’t measure climate risks in dollar figures, according to business advisory service PwC Canada, and the nation’s auditor general has said Canada “lags behind countries at the forefront.” It’s partly why a parliamentary committee recommended “reforming Canada’s financial system to align with climate commitments” last fall.

“There are tons of companies in the market that are claiming to be low risk, that face very existential transition risks,” Scott said.

To combat this problem, the Office of the Superintendent of Financial Institutions, which is Canada’s federal banking regulator, set out expectations in 2023 for how big banks and other financial institutions should report on their climate-related risks.

The office told The Narwhal it expects to align its expectations with the new Canadian standards — but its emphasis in the next few years will be on consistency and accuracy in measurements, with disclosure to follow after.

“Ensuring disciplined recognition and measurement of the financial risks associated with climate change … is critical to financial system resilience,” a spokesperson said.

And while those eventual disclosure expectations are meant to supervise how banks are managing such risks, they don’t actually require banks to set greenhouse gas targets or align their loans with net-zero goals.

Meanwhile, the banking regulator doesn’t directly supervise capital markets like the Toronto Stock Exchange, where Canada’s large public oil and gas companies trade. That’s the job of provincial regulators, which are represented by the group Canadian Securities Administrators.

The group has had a climate transparency proposal since 2021, but held off making those rules mandatory, claiming its members needed to wait until the Canadian standards were finalized.

In December, after the Canadian standards came out, the provincial regulators’ group said it would consider the standards, and revise its 2021 proposal. It did not commit to a date for mandating transparency rules.

A spokesperson for the group declined comment when asked by The Narwhal whether political or economic developments would influence its decision whether to mandate.

New guidelines ‘should help clean up a little bit of the wild west’

In the meantime, companies are free to follow the new Canadian standards if they choose.

For years, both corporations and regulators have complained about a lack of consistency between rules set by different levels of government, industry groups and international bodies, and having these made-in-Canada standards means that ambiguity is now gone, Scott said.

“This is basic carbon accounting. It isn’t all that’s required, but at this level it should help clean up a little bit of the wild west, so that everybody’s using the same standards and rules,” he said.

“That’s helpful, and it should bring a lot more of those corporations in particular that haven’t been properly reporting in line sooner rather than later. It’s inevitable that will happen now, and so they might as well get on with it.”

The Canadian Sustainability Standards Board, the group that designed the rules and is funded and staffed by the Chartered Professional Accountants of Canada, called them “landmark standards to drive consistency and comparability in sustainability reporting.”

The Canadian Chamber of Commerce, which represents hundreds of thousands of businesses, has also supported climate financial transparency.

At the same time, Scott said the new rules could be considered “bare bones” compared to other jurisdictions. They include a long delay in implementation for some of the information, he said, which some pension funds have called unnecessary.

And even as progress is being made on some transparency fronts, other corporate sustainability commitments are being reversed.

Last summer, the bosses of Royal Bank of Canada (RBC), TD Bank Group, BMO Financial Group, Scotiabank and Canadian Imperial Bank of Commerce (CIBC) publicly pushed back on calls to reduce their oil and gas funding.

Now, the last few months have seen all of those plus National Bank of Canada pull out of an international commitment to align their capital with climate goals called the Net-Zero Banking Alliance.

Royal Bank of Canada in particular scored the “lowest of the world’s biggest lenders” on a Bloomberg analysis of energy financing in January that compared investments in low-emissions projects with those in traditional fossil fuels.

The net-zero rollback was prelude to an ongoing, shocking attack on the foundations of science in the U.S. by the Donald Trump administration, which moved on its first few days in office to freeze billions of dollars in research funding, including for climate science, tear up environmental rules and delete vital public health and climate data.

Regardless, Bell-Pasht said the global trend is headed towards a greater alignment of corporate sustainability commitments and financial statements, and companies will find it harder and harder to avoid this reality.

Some Canadian companies have long been using an older set of international voluntary standards without being forced to do so, she pointed out.

Despite pulling out of the net-zero alliance, the big banks say they remain committed to helping clients weather the energy transition and address climate change, and will continue to report on their environmental strategies.

The Canadian Bankers Association, a group that represents all the big banks and dozens of other domestic banks and foreign bank branches and subsidiaries, said it was “encouraged to see progress” in climate transparency standards coming to Canada.

“Banks in Canada will continue to engage with regulators and standard setters both domestically and internationally as they establish rules in relation to social and environmental risk management, including climate risk management and disclosure,” reads a statement from the group.

It said a standardized disclosure framework will help companies including banks be more transparent about their efforts to deal with climate-related risks.

Another way to align finance with climate goals

Karine Peloffy, project lead for Sustainable Finance at Ecojustice, said her organization is “not super excited” about the new climate-related financial disclosure guidelines.

She said they’re not nearly as thorough as “more ambitious” environmental transparency rules, for example in Europe. “The Canadian example is a delayed version of a watered down standard,” she said.

One problem is that scientific studies have repeatedly shown the oil and gas industry is significantly underestimating its carbon pollution, Peloffy said. As a result, simply mandating financial disclosures may not get at the underlying issue of whether a company’s data is accurate, she argued. In that sense, it could wind up being a form of greenwashing.

Peloffy argued there is a more efficient way of ensuring the markets are transparent about climate risks, and it involves ensuring that lending money to the fossil fuel sector is more expensive to do in the first place.

That was the objective of the Climate-Aligned Finance Act, Peloffy said, a bill, introduced by Senator Rosa Galvez that was dropped off the legislative agenda when Prime Minister Justin Trudeau prorogued Parliament in January.

Peloffy worked on the bill as an advisor in the senator’s office, a job she held until last year. The bill aimed to take a holistic approach, considering an organization’s climate commitments not just in isolation but in the context of impacts on others, as well as biodiversity, Indigenous Rights and other social issues like vulnerable communities, food security and inequality.

“We will never achieve our climate goals without the full and proactive participation of the financial sector,” wrote Galvez in a statement after the bill died in prorogation.

“I remain committed to fighting for a financial system that is sustainable, inclusive, and fair.”