Sustainability Newsletter Edition 18

The information you need to make your sustainability ambitions a reality

In this edition

Integrity council for voluntary carbon market to launch core carbon principles

In September 2021, the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) formed the Integrity Council for the Voluntary Carbon Market (Integrity Council) – a governance body to enforce standards of ethics, sustainability, and transparency to the global voluntary carbon markets (VCM). The Integrity Council’s purpose will be to primarily ensure the VCM contributes to the Paris Agreement’s goals by mobilizing finance into projects that reduce or remove GHG emissions while minimizing social and environmental harms.

The first focus of the Integrity Council will be on the Core Carbon Principles (CCPs) supported by an Assessment Framework (AF) – both of which will provide a quality standard for assessing carbon credits, methodologies and programs. The tentative date for the CCPs and AF publication is June 2022, with a near-final draft to be reviewed by the Integrity Council’s Governing Board by mid-January 2022, and stakeholder and public consultation launching in March and April 2022, respectively.

 

Carbon markets primer – What you need to know and Canada’s role

The Research team at the Institute for Sustainable Finance recently published a Carbon Markets Primer. The primer discusses the carbon markets and how they work (compliance and voluntary), where they are located and the concerns that are voiced for the carbon markets.

In 2016, the Canadian government announced that all jurisdictions would need to have carbon pricing – either a carbon tax or a cap-and-trade system – in place by 2018. A federal backstop followed to serve as a default mechanism which would be applied partially or in full by a province that did not come up with a carbon pricing system that met the Canadian government’s requirements. This backstop had two elements: (1) a carbon levy applied to fossil fuels (2) an output-based pricing system for high-emitting industrial facilities.

The backstop’s second element is what creates the compliance carbon market, as facilities that emit less than their associated emissions-intensity standard receive carbon credits and on the contrary, facilities that emit more than their limit must submit compliance units or pay a carbon price (or tax) to make up the difference.

A coloured map showing Carbon Pricing Across Canada

Sources: Government of Canada – after the Federal Carbon Pricing Policy was put in place, six provinces and territories established their own carbon pricing system (grey), three use a mix between their own and the federal backstop (grey and blue), and four utilize the federal backstop in full (blue).

 

A low carbon export strategy – Canada to strengthen conditions for net-zero and shape climate policy towards own interest

The Public Policy Forum (PPF) published a paper to discuss a low-carbon export strategy that aligns Canadian competitiveness and climate change policy for a net-zero world. In particular, the Canadian government should embrace a two-pronged policy agenda to: 1) strengthen the conditions for net-zero in Canada; and 2) shape international frameworks and climate policy in Canada’s interest. 

Currently, under the United Nation’s Framework Convention on Climate Change (UFCCC), exporters are fully responsible for the emissions on the production of goods. This leaves Canada – an export-reliant country – to be penalized when goods are consumed by importing nations. According to the Federal Government’s Industry Strategy Council, 45% of Canada’s carbon footprint leaves the country in the form of exports, while 32% of total emissions are from imports. The net effect is that Canada subsidizes 13% of total emissions (~ 90 megatonnes worth), which is enough to close the gap between Canada’s previous 30% emissions reduction target under the Paris Agreement and the new target of 40-45%. 

A low carbon export strategy must have in place ongoing policy changes that cover competitiveness and climate change; domestic and international initiatives; and national and global collaboration. Discussed throughout the paper are policy recommendations that the Federal Government should pursue to accomplish the two objectives previously mentioned. A few recommended policy changes include:  

  • Ensuring that sustainable finance supports the resource sector’s transition to net-zero through meaningful reductions in emissions (instead of removing access to capital)
  • Launching a new Canadian Advanced Research Projects Agency (CARPA) to accelerate high-risk, high-reward technologies to reduce industrial emissions
  • Pursuing an international framework for accounting for GHG emissions that takes into account the effects a country’s exports on global carbon emissions in calculating its Nationally Determined Contributions (NDCs)
  • Pursuing Internationally Transferred Mitigation Outcomes (ITMOs) and other bilateral arrangements to test different methods of distributing carbon emissions among countries

45% of Canada's carbon footprint leaves the country in the form of exports + 32% of our emissions are imported = Net effect is that Canada subsidizes the carbon consumption of other countries to the tune of -13%

Source: Public Policy Forum

 

Teck Resources – Mining’s role in a low-carbon economy

At the December 15, 2021, CIBC Market Update and Perspectives webcast, Don Lindsay, President and Chief Executive Officer of Teck Resources – one of Canada’s leading mining companies – discussed the important role mining plays in enabling the low-carbon economy of the future.

Our view on key insights from the conversation are as follows:  

  • The COVID-19 pandemic has accelerated the decarbonization movement which will be achieved through electrification, which is generating a lot of demand for copper – long-term demand growth has increased from 2% per year to up to 3-3.5% per year (according to Wood Mackenzie). By 2030, the world will be short 4.5 million tons of copper as supply will be unable to meet demand.
  • Metallurgical coal (steelmaking coal) is needed for a low carbon future. Although, the technology is available to make green steel – this will take trillions of dollars and decades in time for it to be mainstream as the global steel industry is currently producing 2 billion tons per year. The blast furnace will continue to be the main source of steel (especially as populations grow and emerging markets lack capabilities to make green steel). The key to decarbonizing the steel industry is to use carbon capture, utilization and storage (CCUS) and attach CCUS to the blast furnace to reduce emissions in the interim to true green steel. Additionally, the highest quality steelmaking coal – which can be found in Canada – can also reduce emissions in the blast furnace.
  • Canada could be the world’s clean growth powerhouse making a low-carbon transition with the cleanest resources possible. Mr. Lindsey believes we should lean into that potential and make it easier for people to invest in low carbon resource development, and put in place investments and policies to make it happen.
 

Going virtual – Carbon footprints of e-events

Virtual meetings and events could potentially have a high carbon footprint. In 2020, within the Responsible Investment Association’s (RIA) GHG Emissions Inventory Report, Carbonzero produced an estimate of the GHG emissions associated with RIA’s two largest virtual events. The emissions estimates were based on the server electricity use (and its location) to stream the event as well as the home office utility of the attendees (natural gas/heating oil and electricity). Based on a 940 and 725 attendee event, 6.78 tCO2e and 2.81 tCO2e were emitted respectively; highlighting that even virtual meetings/events can have an impact on climate. For comparison, the previous year’s report calculated the GHG emissions associated with the utility usage for RIA’s 2019 in-person event (42,095 sq ft venue). The total GHG emissions totaled to 2.32 tCO2e; lower than both of the virtual events RIA hosted in 2020.

Read more

 

How insurance can enable innovation efforts into decarbonization technologies

Aon recently published a brief paper which reflects on some of the outcomes from COP26, the need for scaling investment into decarbonization technologies, and how insurance can play a role, featuring intellectual property (IP)-backed lending and technology performance insurance solutions.

According to the International Energy Agency (IEA), nearly half of all CO2 emissions reduction by mid-century will come from technologies that are currently in the demonstration or prototype phase. However, major innovation efforts are needed to bring these new clean technologies to market in time – insurance can enable this effort in two ways through: (1) intellectual property-backed lending and (2) technology performance insurance.

  • Aon’s IP solutions allows clean tech companies and their investors to access non-dilutive capital by utilizing a proprietary technology to help their clients understand the value of their IP
  • Technology performance insurance protects businesses against a shortfall in production caused by technology underperformance which in turn, can help an early-stage company secure debt-financing
  • If you have a technology that is in need of funding, an insurance product such as Aon’s may help reduce your overall cost of capital
 

Natural Capital – The new and emerging asset class to combat climate change

According to Capitals Coalition (formerly the Natural Capital Coalition), natural capital is the stock of non-renewable and renewable natural resources (e.g., air, plants, animals, minerals and water) that provide benefits to people. These benefits are commonly known as ecosystem or abiotic services, and serve a greater purpose than only economic development (e.g., environmental, cultural, health, social, etc.).

As an investable asset class, natural capital creates a tool that has the potential to combat climate change and achieve net-zero. Governments and investors can be a catalyst for change by channeling private and public capital into nature-focused projects. Progress is being made with the recent partnership between the New York Stock Exchange (NYSE) and Intrinsic Exchange Group (IEG), creating a platform to list “Natural Asset Companies (NAC)” for trading and enabling the conversion of natural assets into financial capital.

Natural capital’s potential can only be captured if its true value is recognized and accounted for by society as “what get measured, gets managed”. More work is needed to unify these markets behind a consistent set of standards. Additionally, more than half of the world’s economic output – US$44 trillion of economic value generation – is either moderately or highly dependent on nature. Therefore, risk to corporate and financial stability can be caused purely from nature loss. Due to these concerns, the Taskforce on Nature-related Financial Disclosures (TNFD) is currently developing a risk management and disclosure framework for organizations to report and act on evolving nature-related risks. This framework is set to be released by 2023, and will be built upon the structure and foundation of the Task Force on Climate-Related Financial Disclosures (TCFD).

 

EU to label gas and nuclear electricity investments as “green”

The European Union (EU) is drawing up plans to label certain natural gas and nuclear energy projects as “green” investments – we note the threshold for natural gas is very stringent, meaning the electricity produced from the gas must be extremely efficient or have carbon capture associated with it.

The European Commission will propose rules later in January which will help determine whether gas and nuclear projects will be included in the EU’s “sustainable finance taxonomy”. The goal is to create restrictions on the “green” label, thereby avoiding greenwashing from occurring and making those investments more attractive to private investors.

According to Reuters, a draft of the Commission’s proposal will label nuclear power plant investments as green only if there is a plan, funds and site to safely dispose of nuclear waste. New nuclear plants must also receive construction permits before 2045. In the same vein, natural gas power plant investments will be labeled as green if they:

  •  Produce emissions below 270g of CO2e per kilowatt hour (kWh) – although the EU’s advisors recommend that emission be below 100g CO2e/kWh – these are very low levels, compared to a regular combined cycle gas plant at 430g CO2e/kWh according to the United Nations Economic Commission for Europe (UNECE) Life Cycle Assessment Report
  • Replace a fossil fuel plant that pollutes more
  • Receive construction permit before December 31, 2030, and;
  • Plan to switch to low-carbon gases by 2035

Read more

 

Six ocean-based CO2 removal approaches to help reach Paris Agreement’s global climate goals

A Committee at the National Academies of Science, Engineering and Medicine – a private non-profit institution that provides analysis to the U.S. government to inform public policy decisions related to science, technology and medicine – recently published A Research Strategy for Ocean Carbon Dioxide Removal and Sequestration.

Currently, atmospheric CO2 levels are at their highest in the past 800,000 years; this increase is indisputably due to human-caused CO2 emissions. Carbon dioxide removal (CDR) could be valuable in combination with activities that reduce emissions if we want to reach the Paris Agreement’s global climate goals. The ocean covers approximately 70% of the earth’s surface and holds much of the global capacity for natural carbon-sequestration. Three reasons for this are:

  1. The ocean acts as a massive natural reservoir for CO2, holding approximately 50-times as much inorganic carbon as the pre-industrial atmosphere
  2. The ocean already removes a considerable fraction of the excess atmospheric CO2 from human emissions
  3. There are many physical, geochemical, and biological processes that influence air-sea CO2 gas exchange and ocean carbon storage

The Committee was charged with looking at six ocean carbon removal approaches, assessing their knowledge base – governance; scalability; environmental and social impacts; monitoring and verification (carbon accounting); and cost for each approach. A few approaches include:

  • Nutrient fertilization – addition of nutrients (e.g., iron, phosphorus or nitrogen) to the surface ocean to increase uptake of CO2 through photosynthesis by marine phyto-plankton
  • Artificial upwelling & downwelling – artificial upwelling brings nutrients up from the deep sea to stimulate photosynthesis by phyto-plankton and drive organic carbon export to the deep sea
  • Seaweed cultivation – seaweed is grown and transported to the deep sea to store carbon away from the atmosphere
  • Ecosystem recovery – CO2 removal and sequestration through protection and restoration of coastal ecosystems including plants (e.g., kelp forests), and animals (e.g., fish)

In conclusion, emission reduction is the most important step to take but is not enough on its own to achieve the Paris Agreement targets. To achieve this, terrestrial and ocean CDR should be included, as part of a multi-faceted approach on tackling climate change. The next steps should be to implement a CDR research program to provide an improved knowledge base on viability and feasibility for any of the six approaches mentioned in this report.

 

Canadian Net-Zero Emissions Accountability Act – Public consultation on how Canada can reduce emissions by 40 to 45% below 2005 levels by 2030

The Feds announced that Canada’s new climate plan will be available on or before March 29, 2022. Public consultation is underway with an on-line questionnaire open until January 14, 2022; written submissions are welcome by everyone.

From an earlier public consultation held between March and April 2021, the government shared that the top three most frequently mentioned measures for how Canada can further reduce emissions: renewable energy (81%), support for climate-smart agriculture (78%) and conserving, expanding and enhancing natural areas (77%).

In the interim, Environment and Climate Change Canada (ECCC) will be launching specific consultations based on commitments made at COP26: capping Canada’s oil and gas emissions at the pace and scale needed to get to net-zero by 2050; accelerating clean energy transformation by working with provinces, territories, industries, and other stakeholders to ensure that the electricity grid achieves net-zero emissions by 2035; and reducing oil and gas methane emissions by at least 75% below 2012 levels by 2030, as part of the Global Methane Pledge. Four discussion papers will be released before the end of 2022 – net-zero vehicles, net-zero electricity grid, capping emissions in the oil and gas sector, and cutting methane emissions. Regarding capping emissions in the oil and gas sector, Ministers Guilbeault and Wilkinson wrote to the Net-Zero Advisory Board seeking advice – see letter here.

 

Mandate letters – Canada’s cabinet ministers lean towards whole-of-government approach to climate change

Canada’s Cabinet Minister’s mandate letters were recently released, and leaned towards a whole-of-government approach to climate change. Mandate letters signal the government’s expected priorities and Prime Minister Justin Trudeau has led the cabinet to tackle climate change which includes involvement from multiple ministries. The mandate letter for the Minister of Finance and Deputy Prime Minister – Chrystia Freeland – heavily reflected climate change commitments and became the first sustainable finance mandate for Canada’s Minister of Finance. A few climate change focused commitments include:

  • Work towards mandatory climate-related financial disclosures based on the Task Force on Climate-Related Financial Disclosures (TCFD) framework and net-zero plans from federally regulated institutions, including pension funds, banks, and other government agencies
  • Accelerate commitment to eliminate fossil fuel subsidies from 2025 to 2023, develop a plan to phase out public financing of the fossil fuel sector, and eliminate flow-through shares for oil, gas and coal projects
  • Introduce investment tax credits for capital invested in Carbon Capture, Utilization and Storage (CCUS) projects
  • Launch an annual program of green bond issuances with an initial issuance of $5 billion; and consult with financial experts to develop a net-zero capital allocation strategy to accelerate Canada’s transition to a net-zero future

Read all the mandate letters from each Minister here.

 

Green Bond issuers encouraged to report absolute greenhouse gas emission

In November, the Partnership for Carbon Accounting Financials (PCAF) – an industry-led organization that helps financial institutions (FIs) to measure and disclose absolute GHG emissions associated with financial activities – released a draft report for public consultation on GHG accounting methods for green bonds, sovereign bonds, and emissions removals.

This report comes one year after PCAF’s first published report, Global GHG Accounting and Reporting Standard for the Financial Industry, with the initiative growing to over 190 FIs with over US$57 trillion in total assets.

A detail to highlight is that PCAF is urging green bond issuers to start disclosing absolute GHG emissions – scope 1 and 2 emissions with scope 3 emissions covered if relevant – of financed projects instead of prioritizing GHG emissions intensity metrics as seen in many green bond impact reports. If absolute emissions are not available in the impact report or the impact report has not been issued, the FI will need to estimate the absolute emissions using other means. This will lead to improved transparency and alignment with the reporting standard previously published by PCAF.

Read more

 

CIRO’s “Know Your Client” rules to include ESG preference and personal values

The Canadian Investment Regulatory Organization (CIRO) recently published an updated version of the Know Your Client (KYC) rules – an assessment to understand a client’s personal and financial circumstances, investment knowledge, investment objectives, risk profile, and time horizon – which now also include clients’ ESG preferences and personal values as part of their investment objectives.

Section 2.3.3 of the updated KYC states:

  • “Dealers should provide their clients with the opportunity to express their investment needs and objectives in terms that are meaningful to them, such as … investing in accordance with environmental, social and governance criteria or other personal preferences.”
 

Clarity in climate transition definitions

Race to Zero – a United Nations-led campaign that partners with businesses, nations, and investors to coordinate a resilient, zero carbon recovery – released a Lexicon of climate-transition definitions prepared by the Race to Zero Expert Peer Review Group. With climate change and green transition becoming a growing focus for organizations, there are often confusions among definition including ‘net-zero’ and ‘1.5°C alignment’.

This Lexicon harmonizes the language and attempts to clarify key terms that are often used.

 

EV revolution in British Columbia: Mines to mobility

The Pembina Institute, a non-profit think-tank that advocates for effective policies to support Canada’s clean energy transition, recently published “Closing the Loop”, which focuses on the electric vehicle (EV) sector, the mining process and battery recycling in British Columbia (B.C.). The B.C. government introduced the Extended Producer Responsibility (EPR) Five-Year Action Plan, with recycling regulation in hybrid and EV battery type programs operational in 2026, while actively encouraging consumer adoption of EVs to reduce greenhouse gas emissions from the transportation sector.

As the demand for EVs and energy storage grows, so will the demand for metals in batteries and critical minerals for clean energy technologies. As the only nation in the western hemisphere with an abundance of cobalt, graphite, lithium and nickel, Canada has the unique advantage of “mines to mobility” for the next generation of electric batteries. In addition, with EV batteries currently anticipated to have an average lifetime of 8 to 15 years, opportunities and applications exist in “second life” materials and “close the loop” circular economy establishment. Recycling end-of-life and reusing the recovered metals and minerals can help reduce life cycle emissions by up to 51% and save as much as 20-times the energy relative to mining new, raw materials, while saving the battery pack cost for EVs by up to 30%. Currently, less than 5% of EV batteries are recycled worldwide. Capitalizing upon this opportunity, the global EV battery recycling industry is expected to grow significantly, generating billions of dollars in revenue, tax income, and jobs.

Furthermore, the report recommends the B.C. government take a leadership role and develop initiatives in engaging neighboring jurisdictions, establishing clear guidelines, accelerating the regulation timelines, supporting pilot projects, and collaborating with the federal government.

 

Gone with asking polluters for emission data – now using satellite imagery, big data and AI to monitor emissions

A podcast by TED Climate invited high-tech environmental activist, Gavin McCormick, to discuss Climate TRACE: a coalition of scientists and technology companies using satellite imagery, big data and AI to monitor and report emissions from across the world. A few key insights from Gavin McCormick are as follows:

  • In 2021, most countries and sectors in the economy still processed and calculated GHG emissions by verbally asking polluters, and recording it manually (sometimes on paper). There is a need for more robust information if we are to tackle climate change seriously.
  • There are more subtle problems in GHG inventory data – if a company reports that it reduced its emissions, there is currently no way of verifying it.
  • A small cluster of NGOs traded computer vision AI algorithm to look at hundreds of thousands of photos to learn what a powerplant looks like from space when it pollutes – these clusters of NGOs partnered together to build an AI algorithm that scans visual imagery every few days to calculate pollution by analyzing every powerplant around the world.
  • With Al Gore’s and other organizations support, this objective expanded from only looking at powerplants to all human emissions from all sources. Each partnering organization specialized in one or two forms of a particular emission and shares it all into a database – Climate TRACE – which is free and publicly available for anyone to use. The next step is to make every emitting asset in the world visible.

Listen to the detailed podcast on Spotify or Apple

A graphical user interface showing a breakdown of Canada's 1.5% share of the global carbon footprint

Source: Climate TRACE

 

Sustainability across CIBC

At CIBC, we are committed to making sustainability a reality for our clients and the communities we serve. Whether through greening their balance sheet or providing sustainability advisory services, our objective is to help our clients become global leaders in environmental stewardship and sustainability.

A businesswoman types on a keyboard while looking at the computer

 

Publications

The Sustainability Agenda

CIBC Capital Markets’ podcast series focusing on the evolving complexities of the sustainability landscape – with a view to addressing current issues in a concise format to help you navigate and take action.

Chart of the day:

Share of Energy Consumption by Source, Canada

A line graph showing the change in Canada's energy consumption source: The graph shows increases to wind, solar, nuclear, and gas, with drops to oil, hydro, and coal as of 2020

Note:  To convert from primary direct energy consumption, an inefficiency factor has been applied for fossil fuels (i.e. the “substitution method”).

 

Share of Electricity Production by Source, Canada

A line graph showing Canada's Electricity Production by Source: Hydro accounts for around 70%, while Nuclear, gas, coal, wind, oil, and solar make up the rest, in that order

 

Source: Our World in Data based on BP Statistical Review of World Energy & Ember

Canada has one of the cleanest electricity grids in the world with approx. 80% of our electricity coming from non-emitting sources with goals to make that 100% by 2035, according to data from the Government of Canada. To learn more about the decarbonization efforts of the utilities sector (US-focused), listen to the Sustainability Agenda podcast on the utilities industry here, with discussions on the Utility Transition Hub and the challenges the industry and financial institutions face in transitioning to low carbon.

Of note, on December 29, 2021, TransAlta Corporation announced the full phase out of coal in Canada as it has completed the last of 3 planned coal-to-gas conversions (CTG) at its Alberta Thermal power generation facilities close to Wabamun, Alberta. Converting to natural gas from coal will reduce CO2 emissions by almost 50% from ~0.86 tonnes CO2e per MWh to ~0.43 tonnes CO2e per MWh.

Stay tuned for the upcoming Sustainability Agenda podcast where CIBC’s Dominique Barker will speak with Kevin Kelly (Executive Vice President of Finance and Chief Financial Officer) and James Scongack (Chief Development Officer and Executive Vice President of Operation Services) both of Bruce Power, to discuss their recent Green Bond – the first ever for nuclear power globally – and the role of nuclear in achieving net-zero emissions in Canada.

 

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Roman Dubczak
Deputy Chair
Susan Rimmer
Managing Director And Head, Global Corporate & Investment Banking
Dominique Barker
Managing Director and Head, Sustainability Advisory
Siddharth Samarth
Managing Director, Sustainable Finance
Robert Todd
Managing Director, Energy, Infrastructure & Transition
Giorgia Anton
Managing Director and Head, Research
Gayatri Desai
Managing Director, Global Corporate Banking
Adam Janikowski
Executive Director Global Investment Banking

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