“There is a great opportunity to leverage CPA expertise in reporting and assurance in developing robust standards and practices related to sustainable finance,” says Rosemary McGuire, director, research, guidance and support at CPA Canada (Getty Images/Cavan Images)
In 2018, the federal government created the Expert Panel on Sustainable Finance to look at how the financial sector can help fight climate change by encouraging and directing funds toward initiatives that benefit the environment. Now that the panel has come out with its final report, it’s clear that securing a sustainable future will mean major changes on many fronts. And CPAs have a huge role to play in the process.
“Adopting the recommendations in the report will require shifts in business models, strategies, governance and reporting practices,” says Rosemary McGuire, director, research, guidance and support at CPA Canada. In fact, as the report says, “If Canada is to meet its long-term objectives, sustainable finance must become, simply, finance.” [See What is sustainable finance—and what does it mean for your company]
The fifteen recommendations in the final report are wrapped around three pillars:
1) THE OPPORTUNITY
The first three recommendations look at the opportunities inherent in sustainable finance. They include a call to establish a standing Canadian Sustainable Finance Action Council (SFAC) to advise and assist the federal government in implementing the report’s recommendations.
2) FOUNDATIONS FOR MARKET SCALE
Recommendations four through eight focus on the building blocks necessary to scale sustainable finance markets, including the establishment of the Canadian Centre for Climate Information and Analytics (C3IA) as an authoritative source of climate information and decision analysis. The C3IA will assist in building climate-related risks into financial regulations by, for example, modeling climate scenarios to support stress-testing analysis in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and provide climate-oriented financial, economic and corporate analysis.
3) FINANCIAL PRODUCTS AND MARKETS FOR SUSTAINABLE GROWTH
Finally, recommendations nine through fifteen identify opportunities to develop and scale up impactful market structures and financial products in industries such as oil and gas, clean technology, infrastructure, and electricity generation. These include expanding Canada’s green fixed income market, setting a global standard for transition-oriented financing (financing initiatives that move Canada towards the goal of an 80 per cent drop in net greenhouse gas emissions from 2005 levels by 2050), and developing Canadian green and transition-oriented fixed income taxonomies.
SETTING A STANDARD
However, summarizing the report, none of these goals can be accomplished without change. And for those changes to occur, we need a plan.
“Mapping Canada’s climate goals into clear industry competitiveness visions and capital plans would spell out the size and horizon of the investment opportunity,” the report notes. “Meanwhile, an incentive for Canadians to make climate-smart investments would drive demand for financial products and services that promote sustainable outcomes.”
In 2017, the Task Force on Climate-related Financial Disclosures (TCFD) released recommendations around voluntary climate-related financial risk disclosures for companies. Given that the framework is on its way to becoming a global standard, the report notes the importance of developing a Canadian approach to implementing the task force’s recommendations, and the federal government echoed that endorsement in this year’s federal budget. The final report provides timelines for this implementation and discusses the need to expand the scope of fiduciary duty to include climate-related risks.
THE CPA’S ROLE
In one of its recommendations, the task force looks at the need for federal funding for education, training and collaborative initiatives to help build a knowledgeable financial support ecosystem. This includes supporting CPA Canada's efforts. “This is a new and complex topic for accounting professionals,” the report says. “Training and guidance will be needed.”
McGuire agrees. “The final report acknowledges the important role CPA Canada is already playing in developing guidance and other resources to enable professional accountants to apply what it calls a ‘climate lens’ in their everyday jobs—whether they be in industry or public accounting,” she says.
The panel also recommends that climate-related risks be embedded into the monitoring, regulation, and supervision of Canada’s financial system, and that stakeholders develop Canadian green and transition-oriented fixed income taxonomies. Industry-specific recommendations are aimed at oil and gas, construction and cleantech, and the panel urges asset managers to promote sustainable investment as “business as usual”.
“There is a great opportunity to leverage CPA expertise in reporting and assurance in developing robust standards and practices related to sustainable finance,” says McGuire. “My advice to CPAs is let’s take a leadership role as a profession and have an active voice in shaping this space rather than managing it after the fact.”
CANADA AND CLIMATE CHANGE
Learn more about the Canada’s sustainable finance movement, explore disclosure issues raised by climate change and the questions directors should be raising.