Institute for Sustainable Finance Releases Critical Capital Blueprint for Canada’s Low-Carbon Transition

The Institute for Sustainable Finance has launched a landmark research report, “Capital Mobilization Plan for a Canadian Low Carbon Economy,” to provide a concrete, data-driven capital blueprint for Canada’s low carbon transition.  

Key Findings:

  • Canada’s low carbon investment requirement is imminently reasonable and achievable. The estimated annual target of $12.8 billion represents 0.6% of Canada’s 2018 GDP, 2.7% of annual provincial tax revenues, and less than 10% of annual capital expenditures of firms listed on the TSX.
  • Private capital will significantly contribute to the overall required investment. For example, if large publicly traded Canadian firms devoted 5% of their annual capital expenditure to reducing emissions over the next decade, that would cover half of the investment required. Further, financing mechanisms, such as green and transition bonds and green investment trusts, can draw in significant private capital needed to reduce emission. Canada’s Infrastructure Bank is also a key mechanism to create and support public-private low carbon partnerships.
  • Private capital is already flowing, and poised to flow at a more significant pace, in this direction over the next decade. Investors and firms are already acting to avoid the economic risks and seize the opportunities of a global low-carbon transition. For example, green bond issuance in the second quarter of 2020 totaled US$49.5 billion—the third highest quarterly total on record. Last year, Canada broke the seal on sustainability-linked loans, which directly support private investment in carbon-reducing technologies and innovation.
  • The building sector is Canada’s lowest hanging fruit. Canada’s third highest source of emission, buildings is the only sector where, in certain scenarios, reducing carbon emissions is less expensive than maintaining them. Financial and behavourial nudges have the potential to unlock large economic and environmental benefits.
  • Transportation is Canada’s highest stakes play. Emissions reductions in this sector will have the most substantial impact on the ability to achieve provincial and jurisdictional targets, but doing so will require addressing vast amounts of locked in capital. Public-private partnerships can be an effective way to mobilize capital in this sector.
  • Electricity, and oil & gas are the big bets we need to get right. While these sectors are characterized by relatively high emissions abatement requirements, they are also both poised for meaningful low carbon technological disruption over the next decade. Meaningful investments in decarbonizing these sectors will most substantially benefit Saskatchewan, Alberta, and Nova Scotia, where these sectors drive the vast majority of emissions.
  • The costs of not investing are exceedingly high. The Economist Intelligence Unit has calculated that a 5-degree warming scenario would result from public sector perspective in present value losses of US$18.4 trillion globally. Considered purely as a percentage of GDP, it could cost Canadians roughly double the estimated capital outlay to “not” invest in lowering emissions in line with global targets.