Canada’s release of its 2023 federal Budget: A Made-In-Canada Plan, comes at a pivotal moment in global commitments to a clean energy transition. From President Biden’s historic signing of the Inflation Reduction Act south of the border (85% of which focuses on climate), to robust sustainable finance and greenwashing-busting legislation in Europe, Canada too includes various investments in and tax credits for clean technology in its new budget.
The federal budget targets three priority areas: healthcare, affordability for everyday citizens, and the clean economy transition. It proposes $43 billion in net new spending over the course of six years, slightly raising the country’s debt-to-GDP ratio for the next two. Current federal debt is at $1.18 trillion.
The 2023 budget provisions for a clean economy cover the following areas:
A combination of financing, tax credits, pollution pricing and regulatory frameworks, and targeted funds aims to tackle these areas. In particular, it will provide:
o The Clean Electricity Tax Credit ($6.3 billion over four years)
o The Clean Hydrogen Investment Tax Credit ($5.6 billion over five years)
o The Clean Technology Manufacturing Tax Credit (about $4.5 billion over five year)
o An expansion of the Carbon Capture, Utilization, and Storage Investment Tax Credit (expect to cost $520 million over five years)
Over USD$100 trillion of private capital is expected to be invested towards building clean economies between now and 2050, according to the Canadian government. “Canada is currently competing with the United States, the European Union and countries around the world for our share of this investment,” it said.
Moreover, with the Inflation Reduction Act, the “sheer scale of US incentives will undermine Canada’s ability to attract the investments needed to establish Canada as a leader in the growing and highly competitive global clean economy. If Canada does not keep pace, we will be left behind,” the government continued.
That said, given how the economies of the two countries are inextricably linked, Canada also stands to benefit from the legislation, especially its energy and mining sectors. For example, US investment in clean manufacturing technology will require a steady supply chain of critical minerals, which Canada possesses.
Critical to the transition to a clean economy is regulatory oversight over funds and investments claiming to be “green,” reducing greenhouse gas emissions, and allowing investors to compare the sustainability risk profile of companies. To start, Canada has mandated that all Crown corporations disclose their climate data in line with the Task Force on Climate-Related Financial Disclosures (TCFD) framework starting in 2024. Moreover, the US Securities and Exchange Commission (SEC) is on the brink of releasing a rule similarly mandating US public companies to disclose their climate data in-line with TCFD recommendations. Given the global buy-in, both in North America and Europe, of regulated climate disclosures, ESG reporting will continue to grow as an integral oversight tool of a greener economy – in public and private markets alike.
In order to implement some of the budget’s key provisions, the Budget Implementation Act (Bill-C47) is currently being debated in Parliament. Its provisions include enhanced corporate governance oversight and DEI disclosures for Federally Regulated Financial Institutions (FRFI). In addition to targeting financial crimes, the proposal would also require some measure of public disclosure on the representation of women and minorities among senior management positions.
While these provisions target FRFIs, ESGTree advises that other financial players, including private equity and venture capital firms, stay ahead of the regulatory curve by embedding ESG principles into their operations as well as into all stages of the investment lifecycle. Moreover, given the budget’s strong focus on reducing greenhouse gas emissions and moving towards a more sustainable economy, financial institutions would do well to consider not only their emissions but those resulting from the supply chain, prioritizing those suppliers with strong ESG credentials. One reporting tool is The Partnership for Carbon Accounting Financials (PCAF), a global partnership of financial institutions that aims to standardize the data collection, assessment and reporting of greenhouse gas emissions associated with their loans and investments i.e., their financed emissions. The PCAF standard is ideal to implement because it comes from within the industry itself.
Canada’s budget illustrates that, in addition to the importance of centering sustainable economic policies, the green transition will be a highly competitive process, opening avenues of significant investment. In this new environment, the organizations that thrive will treat ESG as a critical pillar of value creation.
ESGTree’s platform not only collects and analyzes ESG data in the cloud, but also automates ESG frameworks like PCAF, generating reports, recommendations, and portfolio benchmarking against a dataset of 10,000+ companies. Moreover, tools like our Carbon Calculator allow companies to both calculate and monitor their greenhouse gas emissions with information readily available on hand, cutting out the need for consultants.
ESGTree helps private capital investors stay ahead of regulation and easily collect, analyze and report their ESG data by harnessing the power of the cloud.
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