Sustainability Newsletter – November 2024

The International International Energy Agency (IEA) released its flagship annual report, World Energy Outlook 2024. It finds that geopolitical tensions and market fragmentation are exposing significant vulnerabilities in the energy system, underscoring the need for stronger policies and investments in cleaner, more secure technologies.

Quick recap: This year’s report highlights key energy security risks impacting the direction and stability of energy transitions. Geopolitical tensions and escalating conflicts, such as in the Middle East and Russia’s ongoing war in Ukraine, demonstrate how quickly dependencies can turn into vulnerabilities – especially applicable to clean energy supply chains that have high levels of market concentration. While some effects of the global energy crisis began to recede in 2023, the risk of further disruptions remains very high. The energy market is also becoming more fragmented, with nearly 200 trade measures around the world affecting clean energy technologies introduced since 2020; this compares with 40 in the preceding five-year period. Other risks include: policy uncertainty as countries representing half of global energy demand are holding elections in 2024; high financing costs and project risks limiting the spread of clean energy technologies to developing economies; insufficient current global investment in electricity grids and energy storage infrastructure; and extreme weather events and cyberattacks challenging the secure operation of energy systems.

The report warns that the world is not on track to meet net zero goals, with current policies suggesting a rise of 2.4°C in global temperatures by the end of the century. The IEA calls on governments and private sector to prioritize security, resilience and flexibility in energy systems, and ensure that the benefits of the new energy economy are inclusive.

Why is this interesting? Prioritizing power grid security and resilience has been a focus of the current US Administration. A recent announcement by the Department of Energy (DOE) confirms nearly US$7.6 billion in cumulative federal funding under the Grid Resilience and Innovation Partnerships (GRIP) program is supporting projects that will enhance grid flexibility and improve the resilience of the power system from climate change risks. Funded by the Bipartisan Infrastructure Law, the selected GRIP projects deploy innovative transmission and distribution infrastructure and technology upgrades to protect the U.S. power grid against growing threats of extreme weather, as well as to lower costs for communities, and to increase grid capacity to meet load growth stemming from an increase in manufacturing, data centers, and electrification. Most recently in October, US$2 billion was allocated to 38 projects across 42 states, which is expected to catalyze over US$4.2 billion in total public and private investment.

Ontario’s Independent Electricity System Operator (IESO) released its 2025 Demand Forecast, projecting the province’s electricity demand will grow 75% by 2050 – significantly higher than the 60% increase previously forecasted in their 2024 Annual Planning Outlook (APO) report in March.

Quick recap: While IESO’s next APO is not expected until Q1 2025, the unusually early release of an updated demand forecast just months since the last APO in March aims to ensure the sector is aware of the rapidly changing demand for electricity in Ontario. According to the latest demand forecast, annual consumption is projected to grow 75% from 151 terawatt-hours (TWh) in 2025 to 263 TWh in 2050, a significant increase compared to the 60% estimate published earlier this year. The growth is primarily attributed to the industrial sector, including electric vehicle and supply chain manufacturing, and energy-intensive data centers. Other contributing factors include an increasing population and focus on electrification.

To support future planning and investment decisions, Ontario’s Ministry of Energy and Electrification recently published an energy policy vision document setting-out Ontario’s affordable energy future which reinforces the importance of several IESO initiatives underway. The Ministry also intends to introduce the province’s first-ever integrated energy resource plan early next year.

The timing of IESO’s demand forecast also coincides with the release of the IEA’s World Energy Outlook 2024. The IEA notes that global electricity use has grown at twice the pace of overall energy demand over the last decade, and projects that electricity demand will rise six times faster than overall energy consumption between 2023 and 2035.

Why is this interesting? Ontario isn’t the only jurisdiction planning for increased electricity demand. Energy ministers in the Scottish, Welsh, and UK governments have tasked the newly formed National Electricity System Operator (NESO) which launched on October 1, 2024, to deliver the UK’s first-ever strategic spatial plan for energy in 2026. The new plan will provide a blueprint for the country’s energy infrastructure out to 2050, which will provide a more strategic approach to cut grid connection waiting times, reduce overall system costs and give stability to investors.

On October 10, 2024, CIBC hosted its 2nd Annual Carbon Summit in Toronto. Over 200 people attended, including carbon project developers, technologists, policy makers and market infrastructure providers who shared insights and practical examples on the evolution of the carbon markets and the important role they play in decarbonization strategies.

Quick recap: The voluntary carbon markets (VCM) are a critical source of financing for emissions reduction and carbon removal activities. In prior years, the VCM experienced intense public scrutiny over the quality of carbon credits and corporate claims, impeding market growth. In the intervening year since CIBC’s inaugural Carbon Summit in October 2023, the market has seen fresh momentum, as many carbon companies are raising funds on the back of strong offtake agreements, new projects are launching, and new initiatives are putting in place guardrails and enhancing market confidence. While short term challenges still persist, a key takeaway from this year’s event is the significant amount of maturity observed in the VCM in just the last 12 months since our last summit, presenting new opportunities for the market and its participants. This includes growing maturation across carbon projects and technologies, buy-side dynamics, and carbon capital and financing.

Read the full event recap and key takeaways here.

Why is this interesting? The VCM has made significant strides to put in place guardrails and enhance market confidence over the past year, but it is still an evolving market. Key initiatives that could drive further momentum await finalization in the coming months, including VCMI’s proposed Scope 3 Claim, SBTi’s revision of the Corporate Net Zero Standard and operationalization of the Article 6.4 UN carbon market. In recent news, the Article 6.4 Supervisory Body announced it has finalized key standards on methodology requirements for developing and assessing projects, as well as for activities involving carbon removal. This paves the way towards fully operationalizing the mechanism which is expected to be a key negotiation focus at the upcoming COP29 climate summit.

The Global CCS Institute released its 2024 Global Status of CCS report, revealing a record 60% surge in the number of Carbon Capture and Storage (CCS) facilities in operation, under construction, or in development in the last 12 months. CO₂ capture capacity is also on track to double to 100 million tonnes per year (Mtpa) – from the current 51 Mtpa – when facilities under construction begin operating.

Quick recap: The report provides a global overview of CCS adoption in the 12 months since its previous report. This year, the report reveals that the number of operating commercial CCS facilities globally has increased to 50 over the period, another 44 are under construction and 534 more are under development, representing a 60% surge to 628 facilities in the CCS pipeline year-over-year. The report attributes the growth to international collaboration and stronger government policies, including multilateral government initiatives, and industry actions built on decades of shared learnings. For instance, the CCS value chain involves diverse competencies rarely held by a single company, prompting collaborations that are helping to move the industry from focusing on early research and early adopters to where more projects are advancing through development stages, accelerating innovation in technology and business models, and reducing CCS costs and risks.

Why is this interesting? The report also discusses potential tailwinds for CCS business models which includes demand for high-quality carbon removal credits, including Bioenergy with Carbon Capture and Storage (BECCS) credits. In related news, CIBC recently attended the inaugural BECCS Leadership Summit, co-hosted by Emissions Reduction Alberta (ERA) and Alberta Innovates, to discuss how to address barriers and accelerate the adoption of BECCS technology in Canada. Throughout the conference, there was consensus on the need for collaboration across industries to make projects work and to address the knowledge gap that exists on the opportunities that carbon pricing and carbon removals present for companies’ decarbonization strategies.

On October 9, 2024, CIBC and Manulife Investment Management co-hosted a breakfast panel discussion on Opportunities in Financing Climate Resiliency. The event was attended by 50 leaders, including ESG-focused asset owners, investment managers, issuers, sustainability governance bodies, and advisors.

Quick recap: As the severity and frequency of natural disasters escalate in Canada, investment in climate resiliency and adaptation is growing in urgency. But challenges exist, including the need to improve data availability to properly assess and value the benefits of resiliency investments, and the need for collaboration between public and private sector to mobilize capital towards crucial resilience and adaptation infrastructure. The panel discussion focused on the tools and initiatives needed to bridge the financing gap for climate resiliency infrastructure. The session was moderated by CIBC’s Siddharth Samarth, Managing Director, Sustainable Finance, Corporate Banking, and included speakers from Manulife Investment Management, PwC Canada, Climate Bonds Initiative (CBI) and Ontario’s Ministry of Environment, Conservation and Parks. The event was held alongside the UN Principles for Responsible Investment (PRI)’s Annual Global Conference, which was held in Canada for the first time in a decade, attracting over 2,000 delegates from 50+ countries.

Read the full event recap and key takeaways here.

Why is this interesting? During the panel discussion, CBI spoke about its newly published Climate Bonds Resilience Taxonomy. Developed in collaboration with the UN Office for Disaster Risk Reduction, the taxonomy will help to define actions taken to withstand and prepare for climate hazards, and enable issuers and investors to identify what constitutes a credible investment in climate adaptation and resilience, initially covering sectors such as Agri-Food Systems, Cities & Settlements, Health, Industry & Commerce, Infrastructure, Natural Systems and Social Systems. The taxonomy comes in response to a critical adaptation finance shortfall, estimated at USD $194 billion to USD $366 billion per year for developing countries alone.

The Government of Canada announced twin policy imperatives to mobilize private capital towards the country’s net zero goals: advancing a voluntary ‘made-in-Canada’ sustainable investment taxonomy and mandating climate-related financial disclosures for large, federally-incorporated private companies.

Quick recap: In May 2021, the federal government established the Sustainable Finance Action Council (SFAC) to provide recommendations on defining green and transition investments. This effort culminated in the Taxonomy Roadmap Report in September 2022. After delays concerning the potential inclusion of natural gas production as an eligible investment in the taxonomy, the government has decided to advance the guidelines, leaving a possibility for some natural gas to be included. The initial focus of the taxonomy will cover sectors such as electricity, transportation, buildings, agriculture and forestry, heavy industry, and extractives. Guidelines for two to three priority sectors will be released within the next 12 months. An arm’s-length, third-party organization will make the final determination of eligible activities, ensuring alignment with international standards for interoperability with other global taxonomies. Once finalized, the Canadian taxonomy will be available for voluntary use by financial institutions, lenders, and companies.

Additionally, the government announced plans to legislate mandatory climate-related disclosures for large, federally incorporated private companies. Canada has long signaled its intention to introduce mandatory climate disclosures, supporting the development of standards by the International Sustainability Standards Board (ISSB) and the Canadian Sustainability Standards Board (CSSB). The government is expected to amend the Canada Business Corporations Act to require these disclosures, although no timeline has been disclosed.

Why is this interesting? Just as Canada has recognized that a robust sustainable finance policy framework is essential for driving transition investments, the UK has announced efforts to scale up its transition finance market. The newly launched Transition Finance Market Review sets-out policy recommendations which aim to accelerate the growth of the UK’s transition finance market; support the development of a UK Green Taxonomy; consider plans to mandate credible transition plans for UK-registered financial institutions and large companies; as well as develop plans to endorse international climate-related reporting standards issued by the ISSB for use in the UK.

The Government of Canada announced a commitment to purchase C$10 million in carbon dioxide removal (CDR) services, between now and 2030, to help it reach net zero emissions in government operations by 2050.

Quick recap: The purchases in carbon removal services (examples can include direct air capture and enhanced carbon mineralization) will be made through the Treasury Board Secretariat’s Low-Carbon Fuel Procurement Program (LCFPP), an eight-year, C$134.9 million initiative to reduce emissions from federal air and marine operations. This investment follows the Budget 2024 decision to expand the LCFPP to include the procurement of carbon dioxide removal services in addition to low-carbon intensity fuels. According to the Intergovernmental Panel on Climate Change (IPCC), the Paris Agreement goals of limiting global warming of 1.5°C and 2°C will be exceeded during the 21st century unless deep reductions in carbon dioxide occur in the coming decades. All pathways project the use of carbon dioxide removal to compensate for residual emissions.

Why is this interesting? According to Carbon Removal Canada’s latest report Procuring with Purpose, Canada is among the first governments in the world to support the carbon removal market. The procurement program is expected to help create demand signals that can help to de-risk technologies and drive down costs, provide a degree of market validation that can help companies unlock financing and attract new buyers, as well as offer operational flexibility to address residual emissions and meet climate targets. The report also offers important insights on how governments and companies can approach designing procurement programs.

At this year’s UN Biodiversity Convention (COP16), the Taskforce on Nature-related Financial Disclosures (TNFD) made two announcements: It reached a milestone observing a 57% increase in the number of organizations voluntarily reporting TNFD-aligned nature-related issues since January 2024; and new draft guidance has been released on nature transition planning for corporates and financial institutions.

Quick recap: In September 2023, TNFD published recommendations that enable businesses and financial entities to assess, report, and act on their nature-related dependencies, impacts, risks, and opportunities. These recommendations support Target 15 of the Global Biodiversity Framework (GBF) established at COP15 in 2022. In October 2024, TNFD reached a new milestone. Over 500 companies now voluntarily report TNFD-aligned disclosures as part of their annual corporate reporting. This marks a 57% increase in the number of adopters year-to-date since January 2024, and includes publicly-listed companies representing US$6.5 trillion in market capitalization, and financial institutions representing US$17.7 trillion in assets under management.

TNFD also released draft guidance on nature transition planning for corporates and financial institutions to facilitate an integrated approach to transition planning and disclosure. The draft guidance builds on market practice for net zero climate transition planning and will help organizations lay out goals, targets, actions, accountability mechanisms and resources to prioritize real economy changes that can help to halt biodiversity loss and put nature on a path to recovery by 2050. Final guidance is expected in 2025.

Why is this interesting? While the market is moving quickly to embrace nature-related financial disclosures, government and policy are still catching-up. Around 80% of governments failed to submit updated National Biodiversity Strategies and Action Plans (NBSAPs) ahead of COP 16, which suggests a gap between commitments and action. With upcoming global environmental conventions before year-end, including the UN Convention on Climate Change (COP29) in the latter half of November, and the UN Convention to Combat Desertification (COP16) in December, there is an unprecedented opportunity to underscore the interconnectedness of the crises they address and to accelerate investment and action in line with global commitments.

In line with our commitment to make sustainability a reality for our clients and the communities we serve, CIBC Capital Markets led significant client deals as part of a focused objective to help our clients become global leaders in environmental stewardship and sustainability.

The volume of sustainable finance debt in the third quarter of 2024 stood at $346 billion, compared to $217 billion in the third quarter of 2023.

Below is a breakdown of volumes by product type.

The CIBC logo and “CIBC Capital Markets” are trademarks of CIBC, used under license.