The information you need to make your sustainability ambitions a reality
In this edition
- Canada bans certain single use plastics
- China issues Green Finance Guidelines
- World Bank’s report highlights growth in the carbon markets
- Basel Committee publishes 18 Climate-risk Principles
- Podcasts – Carbon Removals
Comparing climate-related disclosures – SEC likely to become the go-to framework versus CSA
The US Securities and Exchange Commission (SEC) and Canadian Securities Administrators (CSA) have proposed regulations which, if approved, would require corporate issuers to publicly disclose a range of practices related to climate change. As such, ESG Global Advisors compared these two proposals and their disclosures on various factors (see chart below).
Source: ESG Global Advisors
They conclude the SEC’s proposed regulations are more rigorous than the CSA’s and may likely become the go-to disclosure framework. We would agree with that view and also not be surprised to see the CSA revise its disclosure recommendations to narrow the gap to SEC’s.
Companies can be proactive by formalizing their processes for integrating climate change into corporate strategy, risk management and governance. Specifically – measuring scope 1 and 2 emissions, disclosing details on their net-zero targets, and demonstrating how climate-related risks are considered part of their enterprise risk management framework.
For more information on the CSA disclosures, listen to the Sustainability Agenda podcast on ‘Insight into climate-related disclosures’.
A step in the right direction – Canada bans certain single use plastics
The Government of Canada published the Single-use Plastics Prohibition Regulations in June 2022, prohibiting the manufacturing, importing, selling and exporting of six single-use plastic items on a rolling basis from 2022-2025. Single-use plastics are defined as items used once before they are thrown away or recycled. The six banned single-use plastic items include: plastic bags, cutleries, takeout containers, straws, stir sticks and ring carriers.
In light of a 2019 Deloitte study that found that 3.3 million tonnes of plastic were thrown out annually in Canada, almost half of which is plastic recycling, Steven Guilbeault, Minister of the Environment and Climate Change Canada, had noted that “the government is all-in when it comes to reducing plastic pollution”. However, concerns have been raised as the six banned items make up only 5% of Canada’s plastic waste as of 2019. As such, the Government of Canada intends to enact standards to encourage the adoption of recycled plastic and claims that “they have not closed the door to banning other single-use plastics in the future.”
Canadian farmers push for climate-friendly agricultural practices
In July 2022, Canadian federal, provincial and territorial governments will revise the Agricultural Policy Framework, which governs agricultural spending from 2023-2028, with the aim to strengthen Canada’s agriculture and agri-food sector.
In anticipation, Farmers for Climate Solutions, a national farmer-led coalition, published its Rooted in Climate Action Report, that aims to integrate climate action into the policy by recommending 19 cost-effective, climate-friendly agricultural practices that are proven to reduce greenhouse gas emissions by 14% in the next five years. Notably, some of these practices are in line with current protocols that could generate carbon credits in the future.
Source: Farmers for Climate Solutions
Co-benefits of incorporating these proposed practices into the Agricultural Policy Framework include building resilience in Canadian agriculture and helping Canada meet its 2030 Paris Agreement targets.
Bloomberg’s new climate indices – A tool for decarbonization
Bloomberg added to its equity index offerings, announcing a slew of new indices that will fall under the Bloomberg Climate Index Family. Notable additions include those named EU Paris-Aligned Benchmarks, which allow investors to align their strategies with the decarbonization requirements set out in the Paris Agreement. A key factor in shaping these indices is a focus on using the most conservative emissions estimates, where data is not readily available. This aligns with the United Nation’s precautionary principle, which exists to deter companies from underreporting.
Why it matters? An estimated 45% of US equities are passively managed, meaning they follow a benchmark or an index. Benchmark evolution is an important tool for decarbonization, as it drives demand for the shares of companies which prioritize ESG. You can see the full list of new indices available here.
World Bank’s State and Trends of Carbon Pricing 2022 Report highlights growth in the carbon markets
The World Bank released its annual State and Trends of Carbon Pricing 2022 Report, which highlights the observed development in carbon prices across the compliance and voluntary carbon markets (VCM). On the compliance side, carbon pricing revenue increased 60% from 2020 levels in 2021, growing to US$84 billion. There are now 69 instruments pricing carbon globally, including taxes and emissions trading systems. These instruments account for 23% of global greenhouse gas emissions with record high prices.
In the VCMs, annual value exceeded US$1 billion for the first time, with an emphasis on forestry and land use transactions which more than doubled in 2021. Increased demand, driven by corporate commitments, is driving prices in the VCMs up, however, prices remain highly variable due to the characteristics of credits.
Voluntary Carbon Markets Integrity Initiative issues demand side guidance on the use of carbon credits to claim net-zero
The Voluntary Carbon Markets Integrity Initiative (VCMI) released its Provisional Claims Code of Practice, which outlines how corporations can use carbon credits to make credible net-zero claims. They provide 3 tiers of claims: Gold, Silver, and Bronze, which differ based on the extent to which the company has progressed toward their interim targets on the way to net-zero, and the proportion of their unabated emissions, which the corporation is offsetting using high quality carbon credits. The guidelines require all claims to be audited by a credible third party, and for companies to transparently report the details of their carbon credits (i.e., project type and location), as well as keep a public available inventory of all scope 1, 2, and 3 greenhouse gas emissions. The guidelines are currently being piloted by Google, Unilever, and Hitachi, and will be finalized by early 2023.
This code provides guidance on the demand side of carbon offsetting; how buyers of credits can use them to claim net-zero. Later this year, we expect the Integrity Council of the VCM (ICVCM) to issue its guidelines for the supply side of carbon credits through their Core Carbon Principles, which will define what makes a credit ‘high-quality’.
Climeworks outlines the current state of the direct air capture industry
In their June 14th report, Climeworks, a leading direct air capture (DAC) technology company, outlined the current state of the DAC industry. The report highlights that by 2050, we will need to remove between 3-12 billion tonnes of atmospheric carbon dioxide per year in order to limit global warming. Touching on requirements to scale DAC technology, the report calls for continued investment to bring down the cost curve, improved regulatory clarity, robust first markets created by government procurement, improved access to renewable energy to power DAC facilities, and support for education and engagement within communities.
On June 30th, Climeworks hosted their 2022 DAC Summit, which brought together business, technology, and policy experts to collaborate and discuss high-quality carbon removal solutions to drive industry scale-up. CIBC’s Dominique Barker spoke on a panel discussing the financing of new climate technology solutions.
Canada establishes a domestic carbon offset trading market
On June 8th, 2022, the Ministry of Environment and Climate Change Canada (ECCC) released its Greenhouse Gas (GHG) Offset Credit System in line with the Pan-Canadian GHG Offsets Framework. The system provides municipalities, foresters, farmers and Indigenous communities a market-based incentive to undertake innovative projects that reduce GHGs. In turn, it supports a domestic carbon offset trading market that will create more economic opportunities for companies and municipalities alike.
Steven Guilbeault, Minister of the ECCC, launched the first protocol in the offset credit system, Landfill Methane Recovery and Destruction, which is currently accepting applications for project registration. This protocol sets a consistent approach for measuring emission reductions and generating tradeable credits via recovering landfill gas from operations. The ECCC is currently developing four additional protocols for project registration regarding agriculture, forest management and direct air capture, and sequestration. The public can expect these protocols in the next year.
Brazil’s new national carbon market
The Brazilian Federal Government has announced the creation of a national voluntary carbon market, which could significantly aid the world’s sixth-highest polluting country in reducing its environmental impact. Currently, Brazil aims to reduce its carbon dioxide pollution to 57% of 2005 levels, however, in 2020, Brazilian greenhouse gas emissions rose by 9.5%.
Over the course of the next decade, Brazil’s carbon market is expected to grow up to 20 times due to its abundance of renewable power and natural resources, thus allowing Brazilian companies to offer carbon credits at globally competitive prices. However, the announcement is being criticized as greenwashing; with many calling out the decree for being too vague and that it lacks the creation of an obligation, while others note that it creates a carbon footprint registry system but fails to set deadlines for emissions reductions. If these criticisms are addressed, Brazil has the potential to become a leading carbon credit exporter.
NGFS guidance on mitigating biodiversity risks in the financial sector
The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) is just what it sounds like – it’s about central banks greening the financial system. It also helps mobilize mainstream finance in support of a transition to a sustainable economy.
To further their mandate, in March 2022, the NGFS published a statement acknowledging that biodiversity-specific nature-related risks could have significant macroeconomic implications. As such, the Joint Study Group on Biodiversity Loss Financial Risks and System Stability published five recommendations to central banks and financial supervisors. This includes developing assessments and building capacity in the financial sector to address and anticipate biodiversity-related risks.
Why it matters? This is another proof point of why we believe natural capital is the next ‘hot area’ in sustainability, and we are paying close attention.
Spotlight on Jamey Hubbs – Chair of NGFS Supervision Workstream
Vice-Superintendent of the Office of the Superintendent of Financial Institutions of Canada (OSFI), Jamey Hubbs, has been appointed to Chair the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) Workstream on Supervision. This workstream will continuously foster progress amongst NGFS members towards incorporating climate-related and environmental risks within their supervisory frameworks and practices. This includes nature-related litigation risks, reputational risks and financial solutions.
Canadian Sustainability Standards Board to provide ESG oversight
Canada’s accounting and auditing bodies – The Accounting Standards Oversight Council and the Assurance Standards Oversight Council, are creating the Canadian Sustainability Standards Board (CSSB) amid growing demand from businesses and investors for guidelines on ESG issues specific to Canada. The CSSB will be responsible for ensuring that the upcoming sustainable accounting and audit standards released by the International Financial Reporting Standards are relevant for Canada and, if appropriate, will endorse for its broad use. The CSSB is expected to be operational by April 1, 2023.
Basel Committee publishes 18 Climate-risk Principles to be adopted as soon as possible
The Basel Committee on Bank Supervision released its effective management and supervision of climate-related financial risks report. The report issues 18 principles that seek to provide a common baseline for banks’ risk management and supervisors’ practices related to climate-related financial risks.
Following consultation in November 2021, the 12 bank-specific principles address how institutions should incorporate climate-related financial risks in their overall risk framework, including corporate governance, capital and liquidity adequacy, risk management, monitoring and reporting. The committee expects the implementation of the principles across its members “as soon as possible” and will monitor progress to promote a common understanding of expectations. To prepare, heads of banks should ensure that current internal strategies are consistent with publicly stated climate commitments.
China issues Green Finance Guidelines
On June 1, 2022, China’s Banking and Insurance Regulatory Commission (CBIRC) issued its Green Finance Guidelines. Spanning 36 articles, the guidelines specify how financial institutions and insurance companies across China should integrate environmental and social risk management in their board, management and client engagement processes.
In practice, these guidelines require banking and insurance institutions to support green, low-carbon and circular economy initiatives from a strategic perspective. This includes tackling pollution, reducing the carbon intensity of asset portfolios and implementing carbon neutrality plans.
The Board of Directors of financial institutions are also responsible for setting green finance strategy frameworks and regular disclosure mechanisms, designating a senior manager to lead green finance work, and implementing green finance in employee performance reviews.
Pension Plan Administrators have a duty to account for ESG risk in fund management
The Association of Canadian Pension Management (ACPM) in their report, Fiduciary Considerations Relating to ESG Issues for Canadian Retirement Arrangements, explains that the administrators of Canadian pension funds have the duty to account for ESG risk in their fund management. The ACPM discusses three main ESG investment strategies: ESG integration, divestment and sustainability-focused. This is significant for Canadians, as the majority of those employed in Canada pay into the Canadian Pension Plan. Further, the market value of assets held by pension plans in Canada was C$2.1 trillion in September of 2021. Growing awareness of ESG investing practices within pension management is key to achieving a more sustainable future, as companies who fail to adopt strong ESG operating considerations will miss out on investment from these large pools of capital.
TNFD releases second beta framework with a focus on metrics and targets
The Taskforce on Nature-related Financial Disclosures (TNFD) is a risk management and disclosure framework for the finance and business sector to better report and manage their nature-related risks from 2023 onwards.
On June 28th, 2022, the TNFD released its second beta framework, which includes architecture for developing metrics and targets, increased guidance on pilot testing for companies and financial intuitions, and information on how to undertake internal nature dependency and impact evaluations. A sample of illustrative metrics for pilot testing was also provided: volume of freshwater discharged, absolute number of invasive species and species abundance.
In anticipation of the third beta framework to be released in November 2022, organizations can pilot test the framework or provide feedback via the TNFD online platform.
Climate Overshoot Commission – Three approaches to reduce climate risks
The Global Commission on Governing Risks from Climate Overshoot (the ‘Climate Overshoot Commission’) is an independent group of global leaders who recommend strategies to reduce risks should global warming goals be exceeded. As such, the Commission has stated that the risk of overshooting the 1.5-degree goal set by the Intergovernmental Panel on Climate Change (IPCC) will have profound, irreversible environmental and societal consequences. The chart below identifies predicted impacts:
Source: Overshoot Commission
In response, the Commission proposed three approaches to reduce climate risks including fostering action towards enhanced adaptation, carbon dioxide removal and sunlight reflection methods. Together, these approaches act as an integrated mechanism to prevent a climate overshoot. However, implementation will require systematic assessments and well-coordinated policies… so let’s hope we don’t overshoot.
Learn the investing strategies that are transforming finance
To support the evolving sustainability discourse and broaden the knowledge and capacity of stakeholders across the ecosystem, the Institute for Sustainable Finance (ISF) offers a variety of online courses under its Sustainable Finance Primer series, such as Sustainable Debt, Carbon Markets, Green Bonds and Sustainable Investing.
Notably, the Sustainable Investing program commences from September 28, 2022. This online program explores sustainable investing strategies by analyzing key considerations for ESG investment, including integrating ESG into securities selection and portfolio management processes. Upon completion, participants will receive a Sustainable Investing Certificate of Completion issued by Queen’s University Executive Education. Institutional investors, portfolio managers, ESG accounting professionals or other individuals wanting to deepen their understanding of this emerging space are encouraged to register.
CIBC is a founding contributor to the ISF and has supported the Carbon Markets program with a video interview on how carbon markets can work to reduce GHG emissions with Dominique Barker, Managing Director and Head of Sustainability Advisory at CIBC Capital Markets.
Sustainability across CIBC
At CIBC, we are focused on our goal to make 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.
CIBC Capital Markets announces the closing of the Alpine Sustainability Fund
CIBC Capital Markets announced the closing of the Alpine Global Sustainability Fund (the “Fund”) on May 11, 2022. The Alpine Global Sustainability Fund raised over US$50 million providing clients of CIBC Wood Gundy exclusive access to two of the most pre-eminent and sought-after funds focused on sustainability (Brookfield’s Global Transition Fund, co-led by Mark Carney and Connor Teskey; and Generation Investment Management’s Sustainable Solutions Fund IV). link
CIBC partners leading Universities to accelerate climate action
CIBC recently announced its partnership with the University of Calgary, Schulich School of Business and McGill University. As we continue to grow and further our leadership in the Energy, Infrastructure, and Transition (EIT) Investment Banking business space, we are also furthering our combined expertise, scale and reach to help our clients achieve their ambitions, while delivering growth across our bank. Additionally, our bank is focused on fostering the sustainable finance and energy transition ecosystems with strategic investments in academia to enable new ideas as well as to develop a new generation of leaders.
Podcasts
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
There is a growing demand from businesses and investors for consistent and comparable climate-related disclosures. The chart below documents key dates that mandatory reporting regulations will evolve.
Source: Institute for Sustainable Finance
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