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Canada to Align Finance With Climate Targets

An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts

Summary

  • Enacts a Climate-Aligned Finance Act that requires federally regulated financial institutions, CBCA corporations, and federal works to align their activities and financing with Canada's climate commitments (Paris Agreement, Net-Zero by 2050), including decarbonization plans and annual public climate-alignment reports.
  • Limits reliance on offsets, requires absolute financed-emissions targets across portfolios for federal financial institutions, and mandates engagement and potential exclusion of clients not aligning with climate commitments.
  • Directs OSFI to impose climate-risk capital guidelines and systemic surcharges based on financed emissions, empowers OSFI to issue orders, and compels Crown financial bodies — including the Bank of Canada, EDC, BDC, CPPIB, PSPIB, and the Canada Infrastructure Bank — to operate only in alignment with climate commitments.
  • Requires at least one director with climate expertise on specified federal boards, imposes conflict-of-interest disclosures and restrictions relating to non-aligned organizations, and integrates climate reports into annual financial reporting.
  • Orders a government action plan to incentivize climate-aligned financial products via tax and bankruptcy-law changes (including prioritizing certain green bonds and prohibiting pension investments inconsistent with climate goals), with potential criminal penalties for knowingly misleading climate reports.

Builder Assessment

Vote No

The bill ambitiously realigns Canada’s financial system to climate goals, but it does so through highly prescriptive mandates that raise capital costs, restrict financing choices, and risk undermining competitiveness and exports without a clear prosperity pathway. Builders should demand impact modelling, streamlined compliance, and safeguards for energy affordability and financial stability.

  • Major conflicts: expanded red tape and compliance costs; capital surcharges that may trigger a regional credit crunch; constraints on EDC support and resource exports; potential encroachment on Bank of Canada independence.
  • Ambition without clear prosperity guardrails: limited evidence of cost-benefit and competitiveness analysis, risking jobs and investment during the transition.
  • Suggested fixes to align with growth and safety:
    • Phase in requirements and set materiality thresholds to exempt low-emission SMEs; harmonize reporting to ISSB/IFRS S2 with a single, streamlined disclosure.
    • Keep OSFI risk-based and internationally aligned (Basel/NGFS), avoiding prescriptive surcharges that override market discipline and trigger abrupt credit withdrawal.
    • Remove the clause binding the Bank of Canada’s operational decisions; instead require transparency on climate risk while preserving the inflation mandate.
    • Establish a technology-neutral transition taxonomy allowing time-bound financing for methane abatement, grid reliability, CCUS, nuclear, and remote community energy security.
    • Clarify fiduciary duties to consider climate risk without absolute alignment mandates; ensure CPP and PSPIB prioritize risk-adjusted returns with climate integration.
    • Publish full economic modelling on jobs, exports, pensions, and regional impacts; add targeted transition supports for affected workers and communities.

Question Period Cards

What modelling has the government done to quantify the impact of OSFI’s new climate capital surcharges and risk weights on credit availability, jobs, and GDP in energy, mining, agriculture, and manufacturing regions, and will it publish those results before enactment?

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Why does this bill require the Bank of Canada to only exercise its powers in alignment with climate commitments, and what safeguards ensure this does not compromise monetary policy independence and the Bank’s inflation-control mandate?

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What is the projected reduction in EDC-supported export volumes and expected effect on CPP and PSPIB returns from prohibiting or penalizing financing deemed inconsistent with climate commitments, and will the bill provide transition carve-outs for remote and Indigenous communities dependent on legacy energy systems?

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Principles Analysis

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Canada should aim to be the world's most prosperous country.

Could de-risk long-term climate and financial stability, but near-term constraints on energy and heavy-industry financing risk GDP, jobs, and investment; net prosperity impact is uncertain.

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Promote economic freedom, ambition, and breaking from bureaucratic inertia (reduce red tape).

Imposes extensive plans, annual reporting, capital surcharges, board composition mandates, and new enforcement powers; expands regulatory control over financing choices.

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Drive national productivity and global competitiveness.

Raises capital costs for emissions-intensive sectors, constrains EDC support, and could constrain monetary policy; risks competitiveness despite potential clean-tech gains.

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Grow exports of Canadian products and resources.

Disincentivizes financing and insurance for fossil fuel projects and adds climate screens to EDC, likely reducing major current exports before replacement industries scale.

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Encourage investment, innovation, and resource development.

Encourages clean investment and innovation, but the prescriptive constraints and uncertainty may deter broader capital formation and resource development.

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Deliver better public services at lower cost (government efficiency).

Creates multiple new reviews, reports, guidelines, and oversight mandates across several agencies, increasing administrative costs and complexity.

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Reform taxes to incentivize work, risk-taking, and innovation.

Contemplates targeted tax and bankruptcy changes to favor climate-aligned products, but increases complexity and does not broadly reform taxes to spur work and risk-taking.

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Focus on large-scale prosperity, not incrementalism.

The bill is transformative rather than incremental, but its direct focus is climate alignment rather than demonstrable large-scale prosperity outcomes.

Did we get the builder vote wrong?

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S-238

PartySenate
StatusAt second reading in the Senate
Last updatedN/A
TopicsClimate and Environment, Economics
Parliament45