Beyond the obvious benefits for business and employment, well-calibrated green recovery investments in energy efficiency and electrification of mobility would make our homes and workplaces more comfortable and cheaper to run, while getting around would be a lot cheaper and cleaner, saving the average participating household $1,414 per year on home heating and power costs (which will be partially offset by capital costs) and a net $1,917 per year on fuel costs for their vehicles^.

An “Own the Podium” strategy for Canadian companies is a potentially powerful engine–powered by sustainable biofuels, of course–for wealth creation. But for it to work, it must leverage our inherent economic strengths and how they line up with where people spend money.

This is similar to what we already did with the Olympics: identifying where we have the best chance of winning medals and taking account of the value of different medals.

With summer at the doorstep, most of us are not thinking about winter right now, but it is the Winter Olympic Games where we excel, ranking third in the world for all-time medals versus 20th for the Summer Olympics. Given our long winters, tall mountains and frozen bodies of water, it’s no surprise that three of the four areas where Canada leads the world in medals in the modern Olympics are ice hockey, freestyle skiing and curling – all sports that combine the majesty of Canada’s natural environment with the traditional talents of our people. (The fourth sport, in case you were wondering, is lacrosse, which builds on the traditions of our Indigenous peoples.)

What are Canada’s special economic advantages? As Navdeep Bains, Minister of Innovation, Science, and Economic Development, is fond of saying, it’s our abundant nature and people.

And if we look at what people spend money on, the top four annual expenditures for Canadian households are shelter, transport, food and energy, according to analysis by Ralph Torrie, a senior associate with Sustainability Solutions Group and partner at Torrie Smith Associates. We happen to have almost unparallelled assets in each of these areas.

Who knew Canada is the world’s largest commercial landlord*, home to 12 of the top 40 real estate investors in the world? The real estate assets of Canada’s largest real estate investors total $493 billion, with Brookfield Asset Management alone representing $202 billion in more than 30 countries.

We’re also the fifth largest exporter of cars in the world by value, and among the top five producers of important minerals for rapidly expanding battery markets, including nickel, cobalt and graphite (and soon lithium from Alberta’s oilfield brines will be added to that list with companies like E3 Metals leading the way). According to BASF Canada president Marcelo Lu, “Canada is one of the few countries that has all the elements to produce a lithium-ion battery for electric vehicles.” We are also the global hub for mining finance, with the TSX being the world’s number one mining and exploration listing venue.

Canada is the world’s fifth largest agricultural exporter thanks largely to wheat and canola, but we’re rapidly becoming a plant-protein powerhouse. We rank number one in pulse exports (fuelling a growing global appetite for pea protein), and our own Maple Leaf Foods is one of the largest plant-based meat players in the world.

We are the fourth largest oil producer, and we have the largest natural bitumen deposit in the world, which have uniquely high concentrations of asphaltene, a potentially lucrative feedstock for lightweight materials. Instead of extracting oil from the bitumen to burn in tailpipes, we could harvest materials that are more valuable than oil, including carbon fibres, which would be the material of choice in construction and for making electric cars and trains if we can crack the cost nut.

And as a nation that generates more renewable power than any country outside of China, we could be a supplier of choice for the growing green hydrogen market, which could be a trillion-dollar industry by 2030.

What will determine who wins in these goliath markets?

They are all in a state of flux, with the common denominator being rapid decarbonization, since low-carbon processes are now money-savers and will help secure access to large markets, including Europe, which is throwing up trade barriers for countries that don’t meet climate standards.

Electric vehicles (EVs) already save people so much money on fuel that many EVs have a lower total cost of ownership than their polluting cousins. Smart buildings have lower energy bills and happier tennants, which is why property technology is exploding, with many Canadian players, including the members of the Building Energy Innovators Council, leading the way. (Exporting this know-how via our $493-billion real estate investment portfolios offers the chance to earn higher returns for Canadian investors, while vastly reducing greenhouse gas emissions on a global scale). Farmers who have shifted from expensive nitrogen inputs to regenerative farming methods are being rewarded with lower costs and new contracts with major companies like General Mills.

Investment in renewable energy capacity hit US$272.9 billion in 2018, about triple the investment in coal- and gas-fired generation capacity combined, and green energy with storage is now on par with or cheaper than fossil energy in most countries.

The oil and gas sector is also reeling after the COVID-19 crisis drove prices into negative terrain  in April for the first time in history. Last week, Mark Little, the CEO of Suncor, warned that EVs could disrupt future oil demand as much as the coronavirus has. He also noted that “now is the time to take a big step forward” to tap into low-carbon growth opportunities, including renewable jet fuels, hydrogen and carbon fibres, which have the potential to quadruple oil sands revenues. Little followed up these words a couple of days later with a $15 million initial investment in LanzaJet, a new U.S.-based company that aims to commercialize the production of sustainable jet fuel to help the aviation sector meet its climate targets.

If we want to Own the Podium in the fast-growing markets for smart buildings, EVs (and their batteries), sustainably produced food, green energy and advanced materials, there are three things the federal government can do:

1. Use a jobs-rich $106 billion green recovery to buy or move forward good policy in cities and provinces to create domestic markets to scale up production for these high-growth, low-carbon markets. That amount is a big carrot, and with the bulk of the money targeted to flow in the next two years, there would be powerful incentive for provinces and municipalities to fulfill the conditions in order to ensure access to these funds. As the centrepiece of the economic recovery in the short-term, we can attach strings to funds for an ambitious green renovation wave to upgrade our homes and workplaces to ensure provinces and municipalities commit to upgrading building codes by 2022 for net-zero buildings (including embodied carbon) and to remove barriers for affordable housing by implementing the Declaration for Resilience in Canadian Cities. We can do the same for the power sector by tying stimulus funds for the power system to ensuring fair grid access for renewables. At the federal level, it is time to send a signal to markets that Canada wants to be a serious player as a manufacturer of the next generation of zero-emissions vehicles (ZEVs), by introducing a 100% ZEV mandate to be phased in by 2030, leveraging the purchasing power of Canada’s $85 billion annual market for new vehicle sales. We can also support farmers to enrich their soil and improve their bottom lines by paying them for verified carbon credits.
2. Dedicate $5 billion in research and development and piloting over the next five years to fund technological breakthroughs in bitumen-based carbon fibres, green hydrogen, renewable jet fuels and batteries. This would take a page from former Alberta Premier Peter Lougheed, who invested $1.4 billion almost 50 years ago to figure out how to affordably extract oil from bitumen, which unlocked an economic bonanza from Alberta’s oil sands.
3. Attract major investment from around the world by topping up the current federal Strategic Investment Fund’s $1.6 billion budget over five years to $40 billion, and refreshing its mandate to tackle low-carbon, high-growth markets where Canada can play to win. (It should be noted that for almost any large project in Canada to go forward, these investments will need to include meaningful partnership with Indigenous communities.)

We could easily pay for all this by issuing green bonds backed by our AAA credit rating. Or by closing just a few of the 171 tax loopholes that deliver debatable public benefit at a large perpetual cost. Or by cracking down on large corporation tax avoidance, which runs over $10 billion per year.

If we act to Own the Podium in these tangible markets it would also be a shot in the arm for Canada’s financial services and technology sectors, Toronto Finance International estimates there’s potential to grow annual revenues in low-carbon banking, insurance and investment by $110 billion in the next five years.

And let’s not forget Shopify. Our natural assets and strengths in the tangible economy can produce spin-off benefits and innovations for the services economy. If we didn’t have snowy mountains, there wouldn’t be much of a market for snowboard, and maybe no Shopify, which was born as an online snowboard shop and now powers more than a million e-commerce storefronts from all over the world.

The games are on.

If we want to be at the podium as suppliers rather than buyers in these rich, growing markets, now is the time to be bold.

Toby Heaps is the editor-in-chief and co-founder of Corporate Knights. 

A version of this article first appeared in the Toronto Star.

^Based on analysis by Ralph Torrie, which found that deep retrofits of 80% of the housing stock will save each household $1,414 per year on home heating and power costs. Fuel savings for personal vehicles are based on the average household having 1.8 vehicles each, with annual fuel savings of $900 per car and $1230 per SUV, based on a $ /Litre and 12 cents per kwh.

*Source: IPE list of top real estate investors, with three additions: Brookfield Asset Management’s $202 billion, Sun Life SFC’s $42 billion and GWL Realty’s $28 billion in real estate assets.

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From wildfires in B.C.’s interior and Alberta to headline-grabbing flooding in Ottawa-Gatineau, Muskoka and New Brunswick in 2019 alone, properties across the country are feeling the heat of the shifting climate. On Canada’s famously vast ocean coastlines, storm surges and sea levels are impacting communities through both shoreline erosion and direct property damage.

As weather becomes more erratic, property owners may bear the most risk but every stakeholder in the housing supply chain—from realtors to insurers to municipalities—will feel the impact. They also have the capacity to reduce that risk.

Whether you’ve invested in commercial real estate or are considering the purchase of a property for personal use, a growing number of investors are considering climate risks before they buy.

Location Stigma

Following catastrophic weather events, location stigma has meant that property values may plummet and dampen value in local markets. In 2014, one year after the Bow River flood in 2013, Calgary’s housing market was still working to recover. Some of the affected houses had price drops from 10% to 25% with an average loss of $208,870 in assessed value for each home damaged.

A recent Harvard University report coined the term “climate gentrification” to describe how wealthier investors in coastal, flood and wildfire zones are fleeing and pushing prices up in climate resilient neighbourhoods that were once less desirable. The climate crisis also means those with fewer means are stuck with stranded assets and homes in flood and wildfire zones.

The Urban Land Institute examined real estate asset exposure to climate risk and concluded that markets such as New York and San Francisco (like Toronto and Vancouver) face intense climate risk because of the high concentration of high-value assets. When these locations are hit with catastrophic events such as flooding, the marketplace experiences a sizeable value loss, significant disruption to economic productivity and large-scale insurance payouts.

Insurability will be the first indicator of a marketplace disruption—insured and uninsured losses are already impacting the personal wealth of Canadian families and market players. According to Catastrophe Indices and Quantification Inc., insured damage for severe weather events across the country reached $1.9 billion last year.

Beyond increased insurance costs, property value impacts from climate risk can also mean a loss in value, loss of use and rent, increased costs for maintenance and repair, increases in property taxes related to municipal resilience and recovery investments as well as increased costs for higher risk mortgages. Overall, real estate with a higher climate risk will have a higher TMI (Taxes, Maintenance and Insurance) cost than a low risk property.

One of the big problems for the real estate market is that climate risk isn’t currently integrated into asset valuation. As a result, two homes might appear to have similar value, however, the risk of value loss and loss of use together isn’t often factored in.

It’s time for a real estate climate risk index

What’s the solution? Calgary, Alberta happens to offer an example of emergent best practice in disclosure. Approximately 20% of Calgary’s housing market has been affected by fluvial flood risk (river rise), so the local real estate board and the municipality collaborated to create a listing and selling resource that includes flood mapping along with walkability and transit scores. This kind of disclosure de-risks the seller and realtor from misrepresentation and offers a pricing of risk at the time of purchase.

In addition to flood maps, another important step forward is the creation of a Real Estate Climate Risk Index (REC Index), a disclosure and resilience tool for protecting home ownership in North America. The REC Index could offer a Walk-Score style rating for the cost of living or the total cost of ownership including the (de)valuation associated with climate risk and resilience at the property level and regionally.

California has legislated hazard disclosure, North Carolina has released flood mapping publicly, but as of yet, the real estate and insurance industry have not taken an index like this on.

A REC Index would be a smart approach to an emergent market risk, and investors and politicians would benefit from getting behind the idea if they want to get ahead of the coming financial storms triggered by the climate crisis.

While building infrastructure improvements can buffer against climate risks, retrofits can reduce risk exposure and create investor value. This has been true in Calgary where the real estate community and the municipality worked in tandem to protect the property value of homes and buildings through disclosure and resilience measures.

Municipalities that invest efficiently in protecting property will have a more productive economy (with less down time post extreme weather events) and a more resilient future. As well, the Intergovernmental Panel on Climate Change (IPCC)’s latest report, published last month, concluded that land use planning will need to adapt to changing climate risk, including “management of urban expansion, as well as urban green infrastructure that can reduce climate risks in cities.” IPCC’s work offers lessons for local governments and real estate investors to consider how buildings will perform in the hotter, wetter, wilder future.

Properties in municipalities that make effective infrastructure investments in resilience will be, as the Harvard researchers pointed out, in greater demand by future investors.

On the other hand, some sites will be so devalued that individual and institutional property owners will experience significant losses as will lenders and insurers. This spring’s flooding in Quebec is a prime example. Affected residents were displaced, the government offered a “once only” flood assistance program, and it created incentives for home owners in high risk locations to relocate. In some cases, these residents were offered a post-flood property value for expropriation.

Quebec has also halted development projects that are deemed to be in at-risk locations. While home owners in flood zones may not be pleased about caps on payouts, these aggressive—and progressive—moves by Quebec foreshadow the kind of government response likely to come from other provinces as they face more catastrophic weather events in the decades to come.

Today’s savvy real estate investors should also consider the benefits of disclosure in both portfolio analysis and personal investing. According to Tim Nash, financial planner and founder of Good Investing, “Investors should look for REITs (real estate investment trusts or companies that own and often operate income-producing real estate) that are leading in disclosure.” Adds Nash, “Shareholders should ask REIT managers for climate risk information.”

Imagine two REIT’s with similar dividend performance, one with relatively low risk holdings, and one with relatively high risk. The potential for differentiation in price performance and future valuation is significant.

Healthy and stable real estate valuation will have to include climate risk disclosure. Discovering the climate risk of a property isn’t straightforward in most markets, but “buy high” might be a qualifier for successful real estate investment today and in the future.

For some locations, abandoning Atlantis may be the smartest financial choice.

Chris Chopik is a sought after expert in real estate, sustainability and the impact of climate change has on the way we live around the world.

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