Thank you very much, Mr. Chair and members of the committee.

My name is Clifton Lee-Sing. I'm the director of markets and securities policy at the Department of Finance. I am pleased to appear before you in support of the committee's study.

In keeping with my responsibilities at the department, I will focus on the Government of Canada's efforts to develop the foundational market infrastructure needed to scale up Canada's sustainable finance market. By infrastructure, I mean the tools and frameworks to provide effective information to boards, managers and owners of companies in the real economy to help them make decisions about their climate-related activities.

The public sector alone cannot fund the net-zero transition, and it is vital to mobilize private sector capital to realize Canada's climate objectives.

I'll speak about two important sustainable finance initiatives the government announced at the October 9 UN PRI conference to promote financial and capital market transparency. The first is a plan to deliver made-in-Canada sustainable investment guidelines, also known as a taxonomy. The second is mandatory, climate-related financial disclosures for large, federally incorporated private companies.

On taxonomy, financial market participants need clarity and standardization—that is, a common language—about what economic activities and investments are considered green or “transition”. This is the purpose of a taxonomy. It is a set of criteria to be used to identify activities and investments that are eligible for a green or transition investment label.

A Canadian taxonomy is expected, among other objectives, to help close the confidence gap that climate investments currently face. This could include financing delays, reduced levels of capital and higher costs of capital for these particular projects. A taxonomy would also give Canada an opportunity to influence the global transition finance dialogue, particularly in the natural resources and agriculture sectors.

Concurrent with the government's announcement to support funding for the taxonomy, the government released a backgrounder, which is a set of expectations for the development and implementation of this taxonomy.

In the backgrounder, the government expects that the taxonomy would be developed at arm's length from the government. What we want by arm's length is to ensure that the taxonomy is developed and deemed to be credible and usable by financial markets, the real economy and civil society experts. They will be consulted and will help to develop the taxonomy.

The taxonomy would cover both green and transition elements, unlike many of the other international taxonomies, which focus just on green activities. The purpose of this is to include transition activities to help mobilize financing to decarbonize these particular sectors.

The taxonomy would categorize activities rooted in scientifically determined eligibility criteria that are consistent with limiting temperature warming to 1.5°C.

Furthermore, the development of the taxonomy would be based on several guiding principles. These guiding principles draw from the recommendations of the sustainable finance action council, international organizations that have opined and worked on taxonomies, and international taxonomy precedents. For example, users of the taxonomy are expected to have net-zero targets, to have well-defined transition plans and to use robust climate disclosure.

The government, when announcing the backgrounder, identified certain sectors the taxonomy will focus on. These were chosen based on the level of green and transition investment opportunities, the importance for decarbonizing the Canadian economy and the economic significance of these sectors in Canada's economy. These are electricity, transportation, buildings, agriculture and forestry, manufacturing and extractives, which include mining and natural gas.

Lastly, the government expects the taxonomy to be a voluntary investment tool. It's not going to restrict continued private and public sector support for projects that are ineligible for a taxonomy label.

The government announced it would contribute funding for the initial phases of the taxonomy development—roughly three years—upon which it is expected that the private sector will take on the cost of maintaining the taxonomy. The Minister of Finance has the authority to select an external-to-government organization that will be in charge of developing the taxonomy. Work on choosing that organization is happening now. As I mentioned, the taxonomy development is expected to take roughly three years, with the expectation that two or three sectors could be completed within the next year.

Next, on climate-related disclosures—building on previous federal efforts to mandate climate-related financial disclosures for federally regulated financial institutions and Crown corporations—the government announced it intends to bring forward amendments to the Canada Business Corporations Act to enable climate-related financial disclosure requirements for large, federally incorporated private companies. Transparent and robust climate-related financial disclosures can ensure that climate considerations are integrated into an organization's culture and decision-making. It will support investors, lenders, insurance underwriters and other stakeholders in assessing and pricing climate risks and opportunities. This is going to help drive net zero-aligned finance and investment decisions.

Extending climate-related financial disclosures to privately held companies is consistent with approaches being taken in other jurisdictions, including the EU, the U.K., Australia and some U.S. states.

The government intends to launch a regulatory process to determine the substance of these disclosure requirements and the size of the private federal corporations that would be subject to them. The government also intends to work with provincial and territorial partners to harmonize these regulations with those that will be required of publicly traded entities by the securities regulators, in order to avoid fragmentation across the markets and jurisdiction shopping.

Thank you.

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