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The Climate-Aligned Finance Act (CAFA)

Senator Rosa Galvez, Ph.D., P. Eng., FEC, FCSCE

March 2023

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Context & Rationale

Climate change impacts
The role of finance
Benefits of ambitious action

Climate-Aligned Finance Act (CAFA)

Goals and objectives
Structure of the Bill
Key Actions

PART 1

PART 2

Overview

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The State of the Environment: A Multifactor Problem

Global Problems

Overpopulation
Overconsumption/lack of resources
Contamination of water, air, soil
Planet warming
Species extinction, etc.

Culture,

Religion

Over consumption:

energy, food,

Manufactured products

Public policy

Psychology

Ethics

Evolution

Economy

Technology

Population

Solutions require a change in paradigm: move from a silo and linear analysis to a global understanding in networks of factors and interactions, and adoption of new values of life in society (cooperation, solidarity, sustainability, one planet-one health, circular economy,..).

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Rationale

Climate change is impacting ALL Canadians today

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Extreme Weather

Health

Impacts

Economic

Costs

Unequal Impacts

Insured losses in billions of dollars

Healthcare costs of illnesses related to ground-level ozone

Source: Canadian Climate Institute

Source: Insurance Bureau of Canada, CatIQ

Sudden or abrupt shocks within one segment of the economy can trigger instability or even collapse of the entire system.

A warming and increasingly volatile climate will affect nearly every facet of society—both through physical impacts such as wildfires and floods and through changes resulting from the low-carbon transition— meaning financial systems are exposed to multiple and overlapping vulnerabilities.

long-term transition risks are not fully reflected in market prices, tilting capital flows toward riskier, emissions-intensive assets and away from low-carbon assets.

If market expectations change suddenly in the future due to an acceleration in global policy, a technological breakthrough, or a series of extreme weather events, it could cause a massive repricing event. In this scenario, billions of dollars worth of emission-intensive assets could become stranded—losses that could then cascade throughout the entire financial system.

SL: For transition to next slide: [Climate change presents a threat to our financial system as a whole; it presents a systemic risk.] Governments are looking to the private sector to meet our targets, but corporations have neither the responsibility nor the incentive to ensure that their peers and competitors follow suit. They cannot ensure an orderly and comprehensive transition of the economy on their own, let alone take responsibility for reducing the climate risk posed to the entire financial sector. Only the government can fulfil this function.

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Canadian context: Weak Targets and Weak Efforts

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Rio de Janeiro�Earth Summit�1992

Paris Agreement�2016

Net-Zero 2050

Rio de Janeiro�Earth Summit�1992

Paris Agreement�2016

Net-Zero 2050

Total Emissions, including downstream

Our territorial emission targets have not been in line with the global efforts to limit warming to 1.5°C and hold it well below 2°C.

Canada has consistently failed to achieve its weak targets over the last three decades and is not currently forecasted to meet its 2030 target.

UNFCCC Reported Emissions

When accounting for downstream emissions of exported fuels, Canada’s climate impact is twice what is commonly reported in national inventories.

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It is time to Decarbonize

Science has proven the causes: burning fossil fuels
Engineers have delivered cheap, safest, clean, sustainable technology .
Public opinion is overwhelming: A strong majority of citizens believe the transition to clean energy is more economic opportunity than economic downside.
The global market for clean innovation is expected to be worth $2.5 trillion by 2022.
Climate change impacts will reduce global GDP by an estimated 3% by 2050.
The cost of inaction: meeting 1.5 degrees rises by $5 trillion for each year of inaction.

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So, what are we missing?

*Climate Accountability Policy –> NZ2050 Act

*Sustainable Finance Regulations aligned with targets

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Rationale

Our financial system is fueling the climate crisis

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Fossil fuel investments since 2016

Source: Rainforest Action Network

At the end of 2020, CPPIB and CDPQ had public equity shares in oil and gas totaling $3.68 billion and $5.1 billion respectively

Source: Corporate Mapping Project

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Benefits of Ambitious Action

An ambitious transition costs less than inaction

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Source: Canadian Climate Institute

Well-designed policies can:

Better plan and structure transition
Drive down the costs of reducing emissions
Create the conditions for a just transition
Make the government and financial institutions more transparent and accountable
Generate finance for truly clean technologies
Contribute to broader sustainable development efforts
Carry co-benefits for other social and governance goals

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White Paper�Aligning Canadian Finance with Climate Commitments

Climate-Aligned Finance Requires:

Avoidance of carbon lock-in;
Target-setting and planning in compliance with a global carbon budget consistent with the Paris Agreement and mandatory consideration of all life cycle emissions;
Capital requirements to account for systemic climate risks generated by the activities of financial institutions;
Respect the rights of Indigenous Peoples and other environmental and social goals;
Avoid conflicts of interest and leverage climate expertise, experience and knowledge; and
Recognize climate change as a superseding interest relevant to all directors’ duties.

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Click here to read the White Paper in full

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Expert Consultations

We held four large sessions with experts in sustainable finance from around the world in addition to countless smaller and one-on-one sessions.

In total, we convened and consulted dozens of sustainable finance experts to provide input on CAFA’s development.

The results are synthesized into the document “What We Heard” published in our web page.

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Special Thanks to All Collaborators

The Concordia Sustainability Ecosystem

Prof. Amr Addas, Strategic Advisor for Sustainability

Amy Nguyen, Sustainability Coordinator

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The Trottier Family Foundation

Éric St-Pierre, Executive Director

Flavie Desgagné-Éthier, Climate Program Director

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Goals and Objectives - Alignment Requirements

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CAFA aligns the activities of federal financial institutions and other federally regulated entities with the superseding economic and public interest matter of achieving climate commitments.

It aims to make timely and meaningful progress towards safeguarding the stability of both the financial and climate systems. To do so, it recognizes the systemic risks posed to all sectors of the economy by not aligning financial flows with climate commitments.

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Structure of the Proposed Bill

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Enacting Climate Commitments Act (ECCA) (shell act)

Part 1: Climate-Aligned Finance Act (CAFA) (embedded act)

Definitions and purpose

Part 1

Alignment requirements

Part 2

Reporting requirements

Part 3

Capital adequacy requirements

Part 4

Expertise, conflicts of interest, and duties

Part 6

Financial products action plan

Part 2

Amendments to Existing laws:

Bank of Canada
Export Development Canada
Parent Crown Corporations
Office of the Superintendent of Financial Institutions
Public Sector Pension Investment Board
Business Development Bank of Canada
Canada Infrastructure Bank

Coming into force of CNZEAA S.23

Part 3: Reviews and Reports

Part 4: Canada Pension Plan Investment Board

Part 5: Coming into Force

Part 5

Enforcement and orders

This slide illustrates the structure of the piece of legislation.

Everything is contained within a shell act, which comprises five parts.

The first part, the Climate-Aligned Finance Act itself contains six parts – this is the meat of the legislation which contains provisions for alignment, reporting, guidelines setting, conflicts of interest, and the financial products action plan.

I’ll get into each of these in detail shortly.

The second part makes changes to existing statutes, mostly to align those entities with climate commitments.

The thirds part provides for parliamentary reviews and implementation progress reports, again which I’ll give more details on in a few slides.

The fourth part aligns pensions plans with climate commitments, it is a separate part because it requires approval from provinces.

The fifth part describes how and when each part comes into effect.

Although it only refers to the first part of the act, we generally use ‘CAFA’ to refer to the legislation as whole because the acronym is catchier.

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The Climate-Aligned Finance Act (CAFA)

Specifically, CAFA does the following:

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Establishes a duty for directors, officers and administrators to align entities with climate commitments

Aligns purposes, including market oversight by OSFI, with climate commitments

Obligates entities to develop action plans, targets and progress reports on meeting climate commitments through annual reporting requirements

Ensures climate expertise on certain boards of directors and avoids conflicts of interest

Makes capital adequacy requirements proportional to microprudential and macroprudential climate risks generated by financial institutions

Requires a government action plan to align financial products with climate commitments

Mandates timely public review processes on implementation progress to ensure iterative learning

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1. Superseding Public Interest Matter and Duty to Align with Climate Commitments

CAFA creates a new duty for directors to exercise their powers in a way that enables their organization to be in alignment with climate commitments.

The duty is superseding – directors must give precedence to that duty over their other duties.

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This applies to all entities, including the Bank of Canada and OSFI.

This bill will go much further than the existing state of the law by establishing alignment with climate commitments as a superseding public interest matter affecting all entities covered by the Act.

All entities covered, including the Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI), will be required to carry out their objects and exercise their powers to be in alignment with climate commitments. The bill will require OSFI’s and the entities it regulates to be in alignment with climate commitments by adding a subsection to section 4 of the Office of the Superintendent of Financial Institutions Act. This amendment does not extend the powers and duties of the federal institution but only specifies that they must be deployed in a way that aligns with climate commitments.

Directors, officers and administrators of reporting entities will have a new duty to act in their official capacities to enable the entity to be in alignment with climate commitments.

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2. Align Purposes with Climate Commitments

The Act aligns following entities with climate commitments:

Bank of Canada
Parent Crown corporations (through the Financial Administration Act)
OSFI
Public Sector Pension Investment Board
Business Development Bank of Canada
Canada Infrastructure Bank
Export Development Canada
Canada Pension Plan Investment Board

By adding the following (usually) under the ‘Purpose’ section:

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Climate commitments

The Corporation may only exercise its powers in a way that enables it to be an entity that is in alignment with climate commitments as described in section 4 of the Climate-Aligned Finance Act.

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3. Target-Setting, Planning, and Reporting

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Organizations set their own targets at 5 years intervals starting in 2025 and continuing to 2050.

Plans must include:

Measures to prioritize and encourage immediate and ambitious action
Emissions reductions within the value chain
Innovation to replace emissions-intensive activities
Operational and capital allocation
Consideration of executive compensation
Consideration of strategy to ensure the achievement of targets

Reports must:

Use the best available scientific evidence
Demonstrate how they align with climate commitments
Provide details on emissions, targets, plans, and progress

The bill requires target-setting, planning, and reporting on climate commitment alignment for all reporting entities, unless they can demonstrate that they have no or negligible emissions.

Climate Commitments Alignment Report

The climate commitments alignment report demonstrates – with reference to the best available scientific evidence – how the reporting entity meets the description of alignment with climate commitments, provides details on the entity’s emissions, targets, plans to reach the targets, progress on achieving the targets and implementing plans.

Specifically, reports must include:

A description of how the entity’s targets and plans represent responsible stewardship of an equitable allocation of the global carbon budget based on the entity’s historic emissions and the different development needs of regions and communities;

Methods, assumptions, and sources of information used to calculate emissions and verify the calculations; and

Information regarding any lobbying activity and positions put forward in partnerships, trade unions or associations on a matter related to the environment or climate.

Reports are annual and must be made publicly and freely accessible on the entity’s website. For reporting entities who must provide financial statements or annual reports, these must include the climate commitments alignment report.

The government can assist in the development and preparation of these reports by providing tools, forms, or guidance to aid reporting entities in fulfilling their obligations. The government will also be expected to define “negligible emissions” for the purposes of exempting entities from the reporting requirements and adapt any tools for small-scale entities.

Targets and Plans

Targets are set for 5 years intervals starting in 2025 and continuing to 2050.

Plans must include measures to prioritize and encourage immediate and ambitious action, emissions reductions within the value chain, and change and innovation to replace emissions-intensive activities. Plans must include operational and capital allocation and consider how executive compensation, governance, and strategy of the entity can ensure the achievement of targets.

Offsets may not be used as a substitute for reducing operating or financed emissions. However, offsets produced through permanent emissions removals may be used in cases where they are strictly necessary to neutralize minimal residual emissions that cannot be abated with existing technology. Plans and targets cannot rely on or presuppose the future invention, discovery or large-scale deployment beyond the remit of the entity’s activities of any emissions removal, capture or storage technology to justify continued or increased fossil fuel activities. The use of either for limited purposes are subjected to additional detail and justification requirements such as third-party assurance verification, direct contribution to making the future development or deployment possible and how it aligns with climate commitments.

Specific requirements will apply to federal financial institutions, which must have absolute emissions targets established at the sectoral and portfolio levels, and for individual investment holdings covering all their financially facilitated emissions. Further, federal financial institutions must engage proactively with the entities they financially facilitate. Their plans must include details on how the federal financial institutions incentivize decommissioning emissions-intensive activities, energy diversification and the development and adoption of change and innovation. They must also escalate climate concerns and eventually exclude entities unable or unwilling to align with climate commitments.

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4. Conflicts of Interest and Climate Expertise

Conflicts of Interest

Board members of reporting entities can’t work for, provide services for, lobby for in the past five years, or actively control stock in an organization that is not in alignment with climate.

Also, board appointees for Crown corporations can’t accept gifts, etc. from non-aligned entities.

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Leveraging Climate Expertise

At least one climate expert on the board of directors for major Crown corporations and pensions boards.

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5. Capital Adequacy Requirements

CAFA requires OSFI to develop new guidelines for capital adequacy to help offset the increased risk of banks’ investments in emissions-intensive activities.

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The act also empowers OSFI to use its existing measures to enforce these new requirements.

A second set of guidelines regarding funding requirements for pension plans, insurance companies and other entities that report to OSFI will be published within 6 months of the first set.

Currently, financial institutions must retain a certain proportion of their assets on hand; this proportion or capital adequacy requirement is regulated by OSFI.

This capital represents the integrity or stability of the financial institution and reflects the stability of the system as a whole.

The bill will require OSFI to develop new guidelines for capital adequacy in respect of climate commitments for financial institutions.

These OSFI guidelines will cover microprudential risks through increased capital risk weights for financial exposures that face acute transition risks, taking into account:

The highest risk weight of 1,250% (1 for 1 rule) for any loan, bond or derivative exposure to new fossil fuel resources or infrastructure;

Increasing risk weights to 150% or more for any loan, bond or derivative exposure to any fossil fuel activity;

Differentiation in transition-risk intensity among oil, gas and coal exposures; and

The existence of short-term climate action plans aligned with climate commitments.

The guidelines would also introduce a new systemic climate risk contribution capital surcharge that recognizes the extent to which financial institutions facilitate greenhouse gas emissions through all forms of financial facilitation. This surcharge will bolster resilience in the face of systemic risks caused by financing emissions-intensive activities in excess of climate commitments. This new capital surcharge uses the institution’s level of financially facilitated emissions as a proxy for the increased probability of default that financing emissions-intensive activities places on the financial system.

The guidelines described above would first apply to entities regulated by the Bank Act and be published within one year of the bill coming into force.

A second set of guidelines for funding requirements and investment policies in respect of climate commitments for pension plans, insurance companies and other entities that report to the Superintendent will be published within 6 months of the first set.

Six months after that, the President of the Treasury Board and the Minister of Finance would have to table in Parliament a report on guidelines for adequate capital, budgets, or funding in respect of climate commitments for Crown corporations and an action plan to make these guidelines binding through amendments to legislation.

Based on Lord Oates’ proposed amendment to the UK Financial Services Act 2021 which is also based on what Basel committee recommended for cryptocurrencies. https://www.finance-watch.org/the-one-for-one-rule-a-way-for-cop26-ambitions-to-manifest-in-policy/

https://shareaction.org/news/one-for-one-is-only-fair-time-for-banks-insurers-to-face-fossil-fuel-risks. See Lord Oates debate here: https://www.parallelparliament.co.uk/mp/lord-oates/bill/2019-21/financialservices

Based on 2021 US Climate Crisis Financial Stability Act and work by the Centre for American Progress initiative Addressing Climate-Related Financial Risk Through Bank Capital Requirements.

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6. Government Action Plan

CAFA requires a government financial products action plan which identifies other ways to support climate action and commitments alignment including:

Collaborate with provinces regarding securities regulation and consumer protection
Changes to taxation, including removal of subsidies
Consultation with various federal institutions and persons with climate expertise
Criteria for identifying financial products whose purposes are aligned with climate commitments
Mechanisms to make sure proceeds aren’t greenwashed
Engaging with provinces regarding securities

The plan must be published within one year of coming into force.

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The bill will require the government to develop an action plan on necessary aspects of financial reform which cannot be legislated directly through the CAFA bill, namely:

Collaborate with provinces regarding securities and aspects of bankruptcy laws in compliance with the constitutional division of powers.

Elaborate on fiscal/tax matters or matters requiring a royal recommendation such as additional enforcement mechanisms

The action plan will require consultation with various federal institutions and persons with climate expertise and must include:

Criteria for identifying financial products whose purposes are aligned with climate commitments, taking into account CAFA and the best available international standards and science and justifying any departure from them;

Mechanisms to prevent the proceeds of financial products whose purposes are aligned with climate commitments from being used for activities that are inconsistent with climate commitments;

A description of legislative amendments to the Income Tax Act, the Income Tax Act Regulations, the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and other federal legislation needed to incentivize financial products that support climate commitments and to disincentivize the use of those that are inconsistent with climate commitments

A report containing the action plan must be completed no later than one year after the bill comes into force and the Minister must then, within 20 sitting days, table the report in both Houses of Parliament along with an analysis of the legislative amendments contained in the action plan and a proposal, including a proposed timetable, for making the legislative amendments recommended in the action plan.

The federal government’s jurisdiction does not reach some important aspects of financial regulation such as securities law which is provincial except when it comes to federally incorporated or regulated entities and federal Crown corporations.

Under s.53 of the Canadian Constitution, bills that appropriate funds (i.e., involve the use of public funds) or that impose or increase taxes (i.e., money bills), must be introduced in the House of Commons and cannot be introduced in the Senate. Since this bill will be initiated in the Senate and we hope to avoid jurisdictional issues, we will not be proposing disincentives that may increase taxes or incentives that decrease them.

Bills or amendments in both Chambers cannot infringe on the financial initiative of the Crown (i.e., executive branch), which has been interpreted as anything that imposes a charge on the public treasury, if it extends the objects or purposes or relaxes the conditions and qualifications specified in the royal recommendation that accompanies a bill or requiring one for non-government bills.

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7. Reviews and One-Time Reports

One-Time Reports

A report by the Minister of Finance regarding the perspectives of Indigenous Peoples on various climate finance subjects.
A report by the Bank of Canada about whether monetary policy aligns with climate commitments.

Both reports tabled within two years of royal assent.

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Reviews

Independent review of the Act and its administration every three years.
Comprehensive Parliamentary review of the Act’s provisions and their operation every three years.
Annual implementation review by OSFI and Minister of Finance for their respective oversight responsibilities.

Drawing inspiration from the US Fossil Free Finance Act s.4, the bill will require regular progress reporting on the alignment of Canada’s financial system with climate commitments ensuring rapid iterative learning by doing.

In a document tabled in Parliament every year, OSFI will report on the implementation progress with respect to regulated entities under its purview and the Minister of Finance will do so for Crown corporations.

Within a year of coming into force, a report will co-developed by the Bank of Canada, OSFI and representatives of Indigenous Peoples, reporting on consultations regarding Indigenous Peoples’ perspectives on the activities of OSFI and the Bank, long-term investments, adaptation and resilience within the financial system and its stewardship for future generations. Another report will be prepared by the Bank of Canada on monetary policy as it relates to climate change, developed in consultation with persons with climate expertise. The reports will be tabled in Parliament.

Every three years after entry into force, an independent review of the provisions enacted by this Act and their administration must be conducted in consultation with persons with climate expertise and result in a report within 9 months of initiation, to be tabled in Parliament.

Every three years, a comprehensive review of the provisions enacted by the Act and their operation is to be undertaken and completed by a committee of the Senate, of the House of Commons or of both Houses of Parliament that is designated or established for that purpose.

Finally, there are Implementation reviews by OSFI and Minister of Finance for their respective oversight responsibilities.

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Thank you!

Rosa.Galvez@sen.parl.gc.ca

RosaGalvez.ca

@SenRosaGalvez

#CAFA

And thanks to my incredible team:

Karine Péloffy

Parliamentary and Legal Affairs Advisor

Nick Zrinyi

Policy Analyst

Stéphane Laviolette

Political Strategic Advisor and Office Manager

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Canadian context: Weak Targets and Weak Efforts

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Rio de Janeiro�Earth Summit�1992

Paris Agreement�2016

Net-Zero 2050

Rio de Janeiro�Earth Summit�1992

Paris Agreement�2016

Net-Zero 2050

Total Emissions, including downstream

Our territorial emission targets have not been in line with the global efforts to limit warming to 1.5°C and hold it well below 2°C.

Canada has consistently failed to achieve its weak targets over the last three decades and is not currently forecasted to meet its 2030 target.

UNFCCC Reported Emissions

When accounting for downstream emissions of exported fuels, Canada’s climate impact is twice what is commonly reported in national inventories.

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Quotes & Endorsements

“Senator Galvez’s proposed bill would help level the playing field and provide the right incentives for the financial sector to facilitate a pathway for those businesses and investors to achieve their net zero commitments.”�– Professor Amr Addas, Strategic Advisor for Sustainability, Concordia University

“There is already plenty of work being done to address the risk of climate change to an individual company or a bank, but what is valuable about the Climate-Aligned Finance Act is that it addresses the systemic risk that these institutions impose on the real economy by financing fossil fuel expansion.”�– Dr. Ellen Quigley, Senior Research Associate (Climate Risk & Sustainable Finance), University of Cambridge

“The Climate-Aligned Finance Act puts into place the clarity and predictability needed to enable Canada's financial sector to compete globally on a level playing field. It puts Canadian financial actors and regulators in a position to make substantial contributions to keeping Canada's emissions to safe levels. And, most importantly, it provides Canadians with the visibility they need to invest their savings with a safe climate future in mind.”�– Celine Bak, President and Founder, Analytica Advisors

“The measures proposed in the proposed Climate-Aligned Finance Act will help make the financial sector and the Canadian economy more resilient to the risks associated with the climate crisis and will allow Canadian savers to contribute to the solutions and accelerate the transition to a low-carbon economy.”�– François Meloche, Head of Corporate Engagement, Æquo

“The Climate-Aligned Finance Act goes a long way towards aligning Canadian sustainable finance with emerging international developments such as the new European Union green taxonomy.”�– Keith Ambachtsheer, Director Emeritus, International Centre for Pension Management

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Key Definitions

Climate Commitments

Includes our current obligations and commitments under the UNFCCC, Paris Agreement, and the Canadian Net-Zero Emissions Accountability Act.

Specifically, it includes:

reduction of emissions on a pathway that respects the global carbon budget and is consistent with limiting global temperature increase to 1.5°C over pre-industrial levels, with no or low overshoot;
elimination of dependence on and lock-in of emissions-intensive activities, including by avoiding new fossil fuel supply infrastructure and exploring for new fossil fuel reserves and instead planning for a fossil fuel–free future;
preservation, enhancement and restoration of natural carbon sinks, including forests and peatland; and
enhancement of the capacity to adapt and reduce vulnerability to actual and expected impacts of climate change, including by increasing the resilience of socio- economic, built and ecological systems.

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Key Definitions

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The Act also defines emissions, emission-intensive activity, fossil fuel activity, global carbon budget, person with climate expertise, climate change impacts, financially facilitate, and others.

Alignment with Climate Commitments

An entity in alignment with climate commitments:

does not cause, exacerbate or prolong vulnerabilities to the effects of climate change, including loss of biodiversity;
refrains from any land disturbance affecting carbon sinks unless the project’s or activity’s end state will result in a positive climate change impact;
produces overall positive or neutral climate change impacts; and
does not undermine legal and other remedies available to redress climate harm or negative climate change impacts.

They also respect the rights of Indigenous Peoples, take vulnerable groups into consideration, make decisions based on the best-available science, does not exacerbate food insecurity or inequality in society, or hinder other social or environmental obligations.

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Who does this apply to?

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Category	Quantity	Examples
Banks	83	RBC, Scotiabank, Bank of Montreal
Trust and loan companies	57	HSBC Mortgage Corporation (Canada), TD Mortgage Corporation
Insurance companies	219	Blue Cross Life Insurance Company of Canada, Green Shield Canada
Pension Plans	~1200	RBC Pooled Registered Pension Plan, Air Canada Pension Plan
Corporations within the meaning of the CBCA	~420,000	Canada Imperial Oil Limited, Canadian Tire Services Limited, Little Victories Coffee Inc.
federal work, undertaking, or business	100,000+	Navigation and shipping, railways, interprovincial ferries, airlines, etc.

Corporations under the CBCA
Parent Crown corporations
Federal work, undertaking or business

Shipping & railway companies
Interprovincial ferries
Airlines

Banks
Trust & loan companies
Insurance companies
Pensions

Basic Reporting Requirements (Reporting Entities)

Enhanced Reporting Requirements

(Federal Financial Institutions)

Bank of Canada
Several key Crown corps, including EDC, BDC, CHMC.

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OSFI Guideline Provision

9 (1) The Superintendent of Financial Institutions must develop guidelines for capital adequacy for a bank, an authorized foreign bank or a bank holding company and its subsidiaries within the meaning of the Bank Act, and those guidelines must account for exposures and contributions to climate-related risks and include

increased capital-risk weights for financing exposed to acute transition risks, considering

a risk weight of 1,250% for any loan, bond or derivative exposure to new fossil fuel resources or infrastructure,
increasing risk weights to 150% or more for any loan, bond or derivative exposure to any fossil fuel activity,
differentiation in transition-risk intensity among oil, gas and coal exposures, and
the existence of short-term climate action plans aligned with climate commitments;

a systemic climate risk-contribution capital surcharge that

recognizes the extent to which the activities of financial institutions financially facilitate emissions,
bolsters resilience in the face of systemic risks being contributed to through financially facilitating emissions-intensive activities, and
uses an institution’s level of financially facilitated emissions as a proxy for its contribution to the systemic risk it places on the financial system; and

any other microprudential and macroprudential measures aimed at ensuring that financial institutions are in alignment with climate commitments.

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CAFA brings into force section 23 of the Canadian Net-Zero Emissions Accountability Act, requiring annual reporting by the Minister of Finance respecting measures that the administration has taken to manage climate-related risks and opportunities.

The government may also:

develop and provide any tool, form or guidance on which a reporting entity may rely when preparing its climate commitments alignment report, plans or targets
adapt any tool, form or guidance developed under paragraph (a) to a specific sector or type of enterprise, such as small businesses or other small-scale entities
by order, define “negligible emissions”.

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Simultaneous Regulatory Efforts

Canadian Securities Administrators (CSA)

Comply or explain reporting for Scope 1, 2, & 3 emissions.

No scenario disclosure or assurance for emissions reporting.

Expected 2024.

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US Securities and Exchange Commission (SEC)

Mandatory reporting of absolute Scope 1 & 2 emissions and material Scope 3 emissions.

If the company has public targets, they need a clear plan and progress reports.

Expected 2022-2023.

CAFA complements these two regulatory proposals:

Scope 1, 2, & 3 reporting including all assumptions and methods.
CCAR contains targets (1.5˚C) and plans, info on offsets, board disclosures.
CCAR forms a part of annual financial report. Expected 2024 .

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US Infrastructure Act – �IRA-Budget 2024

President Biden's 2024 budget plan aims to invest in America, lower costs for families, protect and strengthen Social Security and Medicare, and reduce the deficit.

Notably, the budget plan seeks to eliminate subsidies to the oil and gas sector: “The Budget saves $31 billion by eliminating special tax treatment for oil and gas company investments, as well as other fossil fuel tax preferences.”

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The budget plan includes major reforms to the individual and corporate tax codes to ensure that the wealthy and big corporations pay their fair share.