House Committee Backs Climate Aligned Finance Act, Urges Tougher Transition Rules for Banks

Sen. Rosa Galvez’ proposed Climate Aligned Finance Act (CAFA) has received a boost from a House of Commons committee studying the impacts of Canada’s financial system on climate change and the environment.

In its lead recommendation, the House Environment and Sustainable Development Committee says the country’s financial system should be “reformed to align with climate commitments”. It adds that CAFA, which Galvez first introduced in the last Parliament and reintroduced in October, would “provide a robust, science-based regulatory framework for conducting transition plans and annual progress reports and address greenwashing concerns around climate action.”

The committee report, based on an exhaustive two-year study, summarizes the impact of climate change on the financial system, and vice versa. It draws on testimony from 61 witnesses and seven written briefs that it received between May and November, 2024 and, somewhat unusually for a Commons report, crosses over an election period during which the committee was disbanded, then reconstituted in the new Parliament.

“It’s great to see this report was supported MPs from both the Liberal Party and the Bloc Québécois across the committee,” Julie Segal, senior manager, climate finance at Environmental Defence Canada, told The Energy Mix. The committee recommendations “very much represent a huge group of sustainable finance and climate experts,” she added, and now it’s up to MPs to “move forward with this.”

In his own committee testimony in 2024, appearing on behalf of Brookfield Asset Management Inc., now-prime minister Mark Carney complained that “Canadian climate disclosure efforts have been patchwork, delivered late and falling short of international standards.”

Canada ‘Lagging’, Carney Said

Carney said the country is “lagging its international peers” on the “fundamental building blocks” of climate disclosure and transition planning: What he called “decision-useful” climate-related disclosure; net-zero transition plans; taxonomies that provide common definitions of transition finance; and scenario planning by financial institutions and stress testing by their prudential authorities.

The 76-page committee report contains five recommendations. In addition to its thumbs-up for CAFA, it advises the federal ministers of finance and of environment and climate change that:

• It’s time for the Office of the Superintendent of Financial Institutions to “reconsider the interpretation of its mandate” and issue “detailed guidance” on climate transition plans for big banks and other major Canadian financial players.

• Federally-regulated pension plans, particularly the Canada Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board, should be required to fully disclose their private investments.

• The federal Competition Bureau should form a working group to strengthen its rules against financial sector greenwashing and “crack down” on its occurrence.

• The government should exclude fossil fuels from the sustainable investment guidelines it undertook to develop in the 2025 budget.

The committee report “confirms what many experts have been saying for years: Canada’s financial system must be aligned with our climate commitments if we are serious about managing risk and protecting long-term economic stability,” Galvez (ISG-Québec) said in a release. “This report makes clear that voluntary measures are no longer sufficient. Canadians deserve credible transition plans, consistent reporting, and strong protections against greenwashing.”

The “incredibly comprehensive study” also concluded that Canada “is not prepared, that Canada’s financial system is not prepared, for climate change,” Segal said. “The committee’s recommendations are spot on, and represent what the testimony put forward, including moving ahead with CAFA and clarifying the mandate of our regulators to include climate change.”

Disclosure Isn’t Action

The report identifies green and transition taxonomies, climate-related financial disclosures, biodiversity and nature-related financial risk disclosures, divestment, and particularly climate transition plans as key building blocks of a sustainable finance system.

“Disclosure doesn’t require you to do anything. It just requires you to be transparent about your current business,” witness Eric Usher, head of the United Nations Environment Programme finance initiative, told the committee. “A transition plan is the expectation of how you plan to transition to a future state. It’s a more explicit business plan for change.”

CEOs from the country’s five biggest banks—the Royal Bank of Canada, TD Bank, CIBC, BMO, and Scotiabank—appeared before the committee by video link, but only after being “summoned” by MPs. “A summons, similar to a subpoena, is generally used to compel attendance when invitations to appear are declined,” The Canadian Press reported at the time.

In the bankers’ testimony, the committee said it heard “that they engage and work with their clients in the energy sector or other high-emitting sectors, to support them during the energy transition.” However, “when asked whether they were committed to funding only those projects in the oil and gas industry that would actually reduce GHG emissions,” the report states, several bank execs “clarified that this was not their approach.”

The committee report documents those remarks alongside calls for stronger regulatory or legislative measures to get the financial sector’s climate impact under control.

“Clearly, it will take regulations and the adoption of a mandatory process because, right now, disclosure by industry stakeholders is insufficient,” said Alice Chipot, CEO of Québec’s non-profit Regroupement pour la responsabilité sociale des entreprises (Coalition for Corporate Social Responsibility).

Associate professor François Delorme, net zero chair at the University of Sherbrooke, said no company can adopt stronger environmental standards on its own and remain competitive in a free market. “The government therefore has to do what it is here to do: secure the common good by legislating,” he said, to make sure all companies face the same rules.

“The market will only move when governments do their job and change the rules and incentives,” Investors for Paris Compliance told the committee. And until that happens, “Canada being recognized as a low-regulation jurisdiction on sustainable finance creates a competitive risk,” Segal warned. “It’s not attractive for international investment to have policy waffling or policy being behind where other jurisdictions are.”

Ecojustice lawyer Karine Peloffy, who co-authored the original CAFA as a member of Galvez’ staff, connected the committee report back to a court action launched last October by four Canadian youth, contending that CPPIB is failing to protect their pensions from climate risk. The case does not seek financial compensation, lawyer Simon Archer told media at the time.

“Instead, we’re asking the court to provide guidance on the appropriate tools [for CPPIB] to use and the appropriate processes to follow to ensure that climate risks and impacts are taken properly into account.”

In an Ecojustice release last week, Peloffy stressed the “well-established duty of financial fiduciaries” to identify and act on financial risk.

“Canada has been lagging in even requiring transparency—never mind alignment—from financial institutions and corporates on climate change,” she said. “This report highlights the need to have the laws of physics spelled out in order to stop exposing pensions, savings, and long-term economic security to catastrophic risk.”