Research | Queen’s University Canada

Fixing financial fairy tales – The rise of sustainable finance in Canada

Fixing financial fairy tales – The rise of sustainable finance in Canada

Tim Lougheed
September 14, 2020
Teaser: 

The Institute of Sustainable Finance based at Queen's Smith School of Business is dedicated to exploring how the many different ways in which we spend money might be adapted to reflect the principles of sustainability.

Deck: 

When teenaged environmental activist Greta Thunberg addressed members of the United Nations Climate Action Committee last fall, she chided them for touting “fairy tales of eternal economic growth.” Her colourful language undoubtedly captured the way many people regard the tension between the profit-seeking motives of the business community and the much broader ambitions of those who would rein in humanity’s damage to the natural world. It might seem an impossible task to resolve the many conflicts that separate these perspectives, but an initiative at Queen’s University aims to do just that.

The Institute for Sustainable Finance, which launched in November 2019, is based at Queen’s Smith School of Business. The Institute serves as the linchpin for the Canadian Sustainable Finance Network, which includes over 65 academic researchers and educators from 22 universities across the country, all dedicated to exploring how the many different ways in which we spend money might be adapted to reflect the principles of sustainability.

These principles have become a bulwark of environmental policy. Most of the discussion around sustainability has focused on its scientific and technological aspects, such as the mechanics of obtaining materials or energy and how these processes might be conducted more efficiently. Until recently, few observers were asking more subtle questions about what sustainability might mean for the financial systems that drive these industrial activities.

[Illustration of bar chart and mirrored tree by Gary Neill]

Those questions formed the mandate of the Canadian Expert Panel on Sustainable Finance, which was convened by the federal Minister of Environment and Climate Change and the Minister of Finance in the spring of 2018. When the Panel submitted its report a year later, the document included 15 recommendations for mechanisms and strategies that would integrate sustainability into the way in which major expenditures and investments are made.

“Changes are coming, such as physical and transitional risks,” explains Sean Cleary, Executive Director of the Institute for Sustainable Finance. “And the flip side of risk is always opportunity.”

The consensus is: it no longer makes business sense to ignore either the risks or the opportunities associated with sustainability.

Bridging the Gap

For Ryan Riordan, the Institute’s Director of Research, the growing prominence of sustainable finance was signaled by an invitation to discuss the subject with business reporters at the Toronto Globe and Mail newsroom in winter 2020. Their interest indicated just how much the staid coverage of profit and loss now intersects with much messier considerations that environmental lobbyists have voiced for decades.

“Over the last three years, environmental concerns have been the highest in terms of investor-sponsored topics being discussed at board meetings,” he observes. “There are more and more individuals — investors, money managers, traders — who understand that this is important and we need to do something.”

In addition to conducting research that reveals the extent of attention that is now being dedicated to this field, the Institute intends to build bridges amongst communities that have a shared stake in the outcome.

“There are lots of individual pockets of activity on sustainable finance, but until recently we haven’t been talking to each other,” says Riordan. “Now we’ve realized there’s a whole Canadian community that’s interested in this who didn’t know each other were out there.”

According to Cleary, the Institute is dedicated to building a platform for this kind of forward-looking collaboration, including around issues of responsible investment, fiduciary duty, and adequate climate-related disclosures.

“We’re trying to provide guidance on where we’re going by looking into areas that need additional research, so people have more information to make better decisions,” he says. “We’re saying this is where it seems to be going, this is what would help it go faster in the right direction, and this is what will help to do it in the most prosperous manner possible.”

[Illustration of a flower pot and a windmill]
Illustration by Gary Neill

One of these areas is Canada’s transition to a low-carbon economy, which will require a mobilization of capital to facilitate and provide financing for greener investments. These include the provision of loans, the underwriting of bonds, developing climate resilient infrastructure as well as early and late-stage equity investments. However, the amount of capital the financial system needs to mobilize to meet environmental goals is unclear, and the ISF team is working on a Capital Mobilization Plan for the Canadian economy, in the form of equity, fixed-income and infrastructure markets and public and private investments.

In addition to the mobilization plan, the ISF also plans to develop a Climate Finance Data Lab that will provide businesses access to environmental (flood maps, forests, watersheds), climate, emissions, and financial data. It will gather data from public (e.g. Statistics Canada) and private sources. The lab will aggregate, clean, match and integrate this data in a way that is easy to use for financial and economic decision making. The belief is that, by allowing financial decision makers access to accurate environmental data, they will support informed and effective capital allocation decisions and ensure that the best projects for spearheading Canada’s transition to low-carbon economy are addressed first.

COVID-19 and Sustainable Finance

[Illustration of a calculator by Gary Neil]
Illustration by Gary Neill

The outbreak of coronavirus has threatened our health and communities and the global response  has also crippled our economies and investments. According to Cleary and Riordan, addressing the COVID-19 crisis, which is significant and demands our immediate attention, does not mean we have to stop preparing for the future risks and disruptions from climate change.

Seen through a climate lens, these choices could ensure that a post-COVID world is also a more sustainable one. Even amid COVID-19, our leaders across finance, industry, and government can continue to mitigate future risks from climate change as we have what it takes to grow world-class sustainable finance expertise here in Canada to help us better manage these risks and steer the country through historic transition to a more sustainable economy.

“Governments and businesses are now making massive economic decisions—from relief spending to bail out packages—that may shape the future of industry. Now is the time to think about the future, and how it can be more sustainable for generations to come,” says Cleary.

Centres and Institutes

Institute for Sustainable Finance

Core research: 

The Institute for Sustainable Finance (ISF) is the first-ever multi-disciplinary and collaborative hub in Canada that brings together academia, the private sector, and government with the singular focus of increasing Canada’s sustainable finance capacity.