As global temperatures rise, divestment from fossil fuels is becoming a hot trend. Funds worth more than $11 trillion (US) have pledged to pull out of the sector and more than 20 banks have stopped funding coal power plants.
But this has got to change if we’re to build a sustainable future.
Thankfully there’s a growing chorus of voices calling for change – and some of them are coming from inside the industry.
Andrew Chisholm, a board member at RBC, is one of Canada’s leading advocates of sustainable finance, and he’s clear that the path to a greener economy runs through Bay Street.
“If we are to reach our objectives on climate change, we need a significant shift in every industry,” he says. “The real economy has to make that shift, but it’s the financial industry that enables it.”
Change in the financial industry has an outsized impact because it greases the wheels of the whole economy. With Moody’s calculating that climate change could cost the global economy $69 trillion (US) by 2100, sustainable finance proponents want to see climate risk factored into all investment decisions, so money flows toward innovative, environmentally responsible projects and away from carbon-intense industries.
As a member of the federal government’s Expert Panel on Sustainable Finance, Chisholm recently co-authored a report calling for substantial changes to Canada’s financial system to make it a world leader in sustainability. Among the report’s recommendations were measures to expand Canadians’ options for investing in environmentally responsible ways and to clarify fiduciary duty rules to give fund managers confidence that the law has their backs if they build climate risk into their calculations. It also called for major investment in innovations to reduce the carbon intensity of Canada’s oil and gas sector, which is one of the largest in the world, and the creation of new financial vehicles to support emissions reductions projects in the oil sands.
In November, Chisholm will be speaking at the Social Finance Forum at MaRS, where he will explain how he sees the relationship between sustainable finance and the fast-growing impact investing market. In many cases, sustainable infrastructure projects already make financial sense. The cost for renewables has tumbled and innovations like electric vehicles and energy-efficiency retrofits in buildings can pay for themselves over time. But Chisholm also sees an important role for financial innovation. Environmentally conscious impact investors or government funds could, for instance, open these markets to more profit-driven investors by putting up first-loss capital or accepting a lower rate of return so that co-investors receive more.
“There are lots of structures that are already being used in the capital markets,” says Chisholm, “we just need to apply them here.”
Although Canada is a clean technology powerhouse – 12 of the world’s 100 most promising cleantech companies are based here – Chisholm stresses that our resource-heavy economy means that we have further to go when it comes to transitioning to a sustainable economy than many other countries. “We have to turn this adversity into advantage by innovating, moving fast and getting the benefit of crossing the bridge to a sustainable economy first,” he says.
And for those countries and industries that fail to innovate? “The laggards will do just fine for a while, then all of a sudden the lights will go out.”
During the panel discussion at the Social Finance Forum at MaRS on Nov. 7, Andy Chisholm will speak with leaders from UBS and others financial institutions, comparing and contrasting approaches to generating impact alongside financial returns.