Thank you, Mr. Chair.

Thanks to the committee for inviting me to appear and to contribute to its study. I can only express the hope that other parliaments around the world will follow your example and tackle this subject.

My name is Nathan de Arriba-Sellier. I work as the director of the Erasmus Platform for Sustainable Value Creation, as noted by the chair, in the Netherlands, from where I join you today.

I have a Ph.D. from Leiden University and Erasmus University Rotterdam. Before my current position, I was the research director of the Yale initiative on sustainable finance and a lecturer in financial law and policy at Yale University, just somewhere south of where you stand.

To introduce this testimony, I would like to recall a few facts.

Since 2005, Canada has reduced its greenhouse gas emissions by 7%, performing well below other countries in Canada's peer group. Furthermore, Canada is not yet on track to uphold its legal commitments under the Canadian Net-Zero Emissions Accountability Act. In fact, Yale's environmental performance index—the EPI—ranks Canada 166th in the world when it comes to projections of reaching net zero by 2050.

In the meantime, climate change continues unabated, and the window for limiting global warming to 1.5° Celsius is closing, as mentioned by the United Nations no later than this weekend.

Partly as a result, the Canadian financial system is highly exposed to climate risks, both physical and transition risks. I don't need to remind you of the examples of physical risks that regularly and increasingly in a most exponential way threaten your constituents.

Transition risks are also on the rise, regardless of what Canada decides to do or not. The Canadian economy and financial system is and will be influenced by external initiatives, such as the U.S. Inflation Reduction Act, the European Green Deal and the policies of the People's Republic of China, which have rapidly made it the world's largest producer of renewable energy and electric vehicles.

Solutions will not come from the market. Already in 2007, as Lord Nicholas Stern, professor at the London School of Economics, rightly pointed out, “Climate change is a result of the greatest market failure the world has seen.” ESG hype or not, the market has been incapable, so far, of addressing its own failure. This fact has been most recently evidenced by the so-called “Big Five” Canadian banks who, in spite of their net-zero commitments, have increased their financing of fossil energies, unlike their European or American counterparts.

Solutions must therefore be dictated by public authority, all the more so as the Government of Canada, not corporations, is bound by the Paris Agreement.

Timid prudential supervision initiatives such as guideline B-15 of the Office of the Superintendent of Financial Institutions, or OSFI, have been established in the financial sector.

I would like to review with you several of the initiatives now under way.

First, let's discuss the sustainability disclosure standards proposed by the Canadian Sustainability Standards Board, the CSSB.

It is vital that there be accountability for greenhouse gas emissions, including scope 3 emissions, because failure to do so would be tantamount to distorting the true carbon footprint of the companies concerned. There's a strong consensus on this.

As a result, the International Sustainability Standards Board, the ISSB, has unanimously adopted that standard. Are those standards alone enough? The answer is no, but they are a necessary first step because you can't manage what you haven't measured.

We must also ensure that financial and sustainability disclosures made by companies are consistent.

Then there's the Canadian taxonomy.

First, I encourage you to take advantage of the reform of the Canadian Business Corporations Act to ensure that the taxonomy is included in the publication obligations for enhancing transparency. This does not mean that all companies must comply with the taxonomy, but rather that they must publicize the degree to which they invest in taxonomy-aligned activities.

Second, I draw your attention to the fact that it's important to exclude fossil energy activities, whatever they may be. Why? Because a taxonomy sends a signal to investors and businesses regarding economic activities that support the transition to carbon neutrality. Including fossil fuels undermines the credibility of the Canadian taxonomy, as was the case of the European taxonomy with regard to gas. I refer you to the scientific conclusions of the International Panel on Climate Change. Every year counts, and fossil fuels are not part of the solution.

Lastly, Senator Rosa Galvez introduced Bill S‑243, An Act to enact the Climate-Aligned Finance Act. I support that bill, and I encourage the committee and the House of Commons to take it up as soon as parliamentary procedure permits. Once passed, it will advance Canada toward carbon neutrality and significantly reduce the transition risks to which the Canadian economy and financial system are exposed.

In conclusion, I wish to draw your attention to monetary policy, which is often a blind spot in these debates. Monetary policy has a role to play in the strategic framework of government as a whole. Acting within its mandate, the Bank of Canada can assist in preventing and reducing climate risks while supporting the transition to carbon neutrality.

I will be pleased to provide you with further details on these various aspects and to answer any other questions you see fit to ask.

Thank you.