It was the signature piece from the Star Wars series and a gateway into a world of lightsabers, space, a worrywart robot named C-3PO and the mysterious force, described by Obi-Wan Kenobi as “an energy field created by all living things.” It served as a sort of connective tissue for all living things and could be tapped into for dark or light purposes.

I couldn’t help but notice the parallels at this year’s annual UN Climate Change Conference, COP28, when the CEO of ExxonMobil, Darren Woods, descended upon the discussions for the first time since they started holding them in 1995. Woods had a message to share: UN climate talks “put way too much emphasis on getting rid of fossil fuels, oil and gas and not . . . on dealing with the emissions associated with them.” This was hard to square with what UN Secretary-General António Guterres was saying, namely that ending fossil fuel use is the only way to save a burning planet.

In the end, world leaders agreed to a roadmap that zeroed in on fossil fuels and the necessity of “transitioning away” from them “in our energy systems in a just, orderly and equitable manner.” This was historic and insufficient, as the chair of the Fossil Fuel Non-Proliferation Treaty, Tzeporah Berman, put it. It was historic because for the first time in 28 UN climate summits, the enemy of a safe climate was specifically called out. And it was insufficient because there was no commitment to an outright phaseout of fossil fuels, like the world successfully did in the 1980s with chlorofluorocarbons (CFCs) to stop the destruction of the ozone layer. It was also insufficient because the renewable projects required to transform our energy system are still largely underfunded.

Canada’s former central bank governor, Mark Carney, noted that this transition will require US$200 trillion of funds between now and 2050. That works out to about US$7 trillion a year, or triple what we are currently doing. This is not an impossible lift for a global economy that generates US$100 trillion a year of gross domestic product.

Everyone from conservatives to liberals – whatever those terms mean these days – should be able to agree that directing less than a 10th of our income to save the only home we have is not a bad deal.

But we are going to need a healthy dose of Luke Skywalkers to take on the desperate imperial fossil fuel forces, who still harbour astounding mind-bending abilities.

Anything is possible in politics, which can be a good thing in a time that requires change. It can also get wild, fast. A former guerrilla fighter, Gustavo Petro, is now running Colombia, whose economy is marinated in fossil fuel wealth, and has pledged to ditch fossil fuels and focus on stewarding Colombia’s “biological wealth.” In Argentina, a fellow G20 country, a former tantric sex guru, Javier Milei, is now head of state, and he is calling climate change a “socialist lie.”

See what I mean by wild? This is why we need business leaders not just to follow but to boldly guide the way forward to a new clean energy economy. The small-minded excuses around fiduciary constraints and short-term shareholders are, as Elon Musk has shown, a bunch of hooey.

We need more business leaders going all in to put climate solutions at the heart of their expansion plans. We need them to provide some guardrails for volatile political leaders, and we need them to speak up, and speak up loudly, for a more sustainable future, as Ralph Nader suggests.

In 2022, according to BloombergNEF, clean energy investments surged to US$1.1 trillion, growing at a three-year annualized clip of 29%. At this rate, by the end of this decade, we will exceed the US$7 trillion we need to be deploying.

But I don’t think the forces of darkness are going down without a fight, and they still have a few tricks up their sleeves. So here is a call to all business leaders on the right side of history in this struggle: may the force be with you.

Toby Heaps is co-founder and publisher of Corporate Knights.

The post We need more corporate Skywalkers to take on the dark side of fossil fuels appeared first on Corporate Knights.

While this move will not be popular among environmentalists, I expect it will please some investors, who would like to wring as much money as possible from these fossil fuel assets before they become stranded. 

Kruger’s walk-back away from clean energy comes after the CEOs of Shell and BP made similar moves. The former Imperial Oil CEO came out of retirement in May only to steer the company “back to being a good old-fashioned oil company,” as Western Standard noted. Suncor had already divested from solar and wind assets last year, reportedly to focus on hydrogen and renewable fuels. Now Kruger has made it clear that the company is returning to its oil sands roots. 

Why the change in tune? The fickle price of oil.  

A few years ago, when Western Canadian Select was trading at US$12 per barrel, oil companies were professing their commitment to clean energy; now it’s at US$56, down from a high of more than US$100 last June.  

It’s hard to find anyone willing to bet serious money that high oil prices will persist as a decadal trend – there are too many forces of disruption dampening long-term structural demand for oil. Given the situation, an oil company has two choices: it can focus on fundamentals, juice profits to the max and give the money to shareholders as the company disappears into the sunset, or it can leverage its various forms of capital to plow these proceeds from old energy into the new energy that will dominate the near future, reinventing itself to own and thrive in the low– carbon future. 

Not that long ago, this is exactly what Mark Little (the CEO of Suncor at the time), was calling for, noting in an article he co-wrote for Corporate Knights that making advanced materials (including lightweight carbon fibres) from the rich feedstock that is bitumen could “quadruple the revenue from Alberta’s current bitumen output.” 

With Big Oil incumbents bailing on clean energy, it will be up to other sectors and entrepreneurs to accelerate the energy transition and reap the rewards of leading the low– carbon economy, one that’s already rivalling – and will soon dwarf – fossil fuels.  

Let’s cheer them on and let’s stop wasting time by giving Big Oil a seat at the tables where we make important decisions about our future, starting with the COP28 climate summit in Dubai in November. More than 600 oil and gas lobbyists registered for last fall’s summit. 

It’s bad enough that this year’s summit is being chaired by an oil company executive. Let’s at least keep the rest of the dinosaurs out.  

The post Suncor is turning its back on a clean energy future; let’s turn our backs on them appeared first on Corporate Knights.

For the past two decades, we have helped to fan what was once considered the quaint idea of stakeholder capitalism (where companies serve us instead of the other way around) into a full-blown social movement. Today, this sustainable brand of business is the main competitive advantage for many of the world’s leading corporations – as evidenced by the 18-year track record of financial out-performance by Canada’s Best 50 Corporate Citizens and our Global 100 Most Sustainable Corporations Index.

Our formula has been a well-measured recipe of management guru Peter Drucker (“What gets measured gets managed”), two of my forefathers (“Carrots motivate people to act” and “Always respect justice but question authority”) and my late social worker mother (“If you believe in people, anything is possible”).

We have shared (and sometimes force-fed) this recipe with many of the world’s most powerful companies and governments, who listen because they know that our research and reporting cannot be dismissed. After 17 years of pushing the idea of stakeholder capitalism on the Davos crowd from the sidelines, the World Economic Forum adopted our mantra as its credo in 2021.

We also popularized – and in some cases catalyzed – many big ideas that are now central features of our economy: from pricing pollution and putting the money back in people’s pockets, to board diversity requirements, mandatory sustainability reporting and carbon budgets for large funds and companies. We planted the seed to make Toronto a global hub for sustainable finance with 100,000 new jobs and helped spawn the Financial Centres for Sustainability network, launched by the G7 in 2017, as well as Canada’s $8-billion net-zero accelerator to speedup green businesses and jobs.

We took the fight to investors in 2022, offering them a special view into who will own the low-carbon economy of tomorrow, with a unique database showing which companies are plowing the most into green capital expenditures. Earlier this year, we struck a transformational partnership with one of Canada’s largest asset managers (Mackenzie Investments) to share the financial gains of Global 100 companies with the masses in one simple solution that anyone with $20 can invest in.

But on my daily runs with my friend Karim (and now my late mother’s wolf-shepherd Molly), I heard myself increasingly sounding like the “critic” in Teddy Roosevelt’s“The Man in the Arena” speech. I was on the sidelines pointing out “where the doer of deeds could have done them better.” I didn’t like the sound of it and decided I would jump in the political arena with bold ideas – in a few years’ time, when my boys were older.

But then the salt started to sting. I am talking about the excessive salt that the City of Toronto lathers all over the streets in the winter that was burning Molly’s paws, not to mention the billions it costs Torontonians to prematurely replace our corroding cars, shoes and the Gardiner Expressway. When I found out that many other cities, like my home-town Calgary, had long ago found less toxic and more affordable, effective solutions to keep the roads safe, I got a little mad.

When the premier of Ontario threatened to lock Molly and me out of our daily running routine by privatizing one of our most wonderful public spaces, Ontario Place, into a mega spa for millionaires, I set a new course. We could not sit on the sidelines for this once-in-a-generation by-election for the mayor of Toronto. We had to get in the arena together – bringing all my entrepreneurial energy and Molly’s love for, well, everyone.

It may sound strange to run for the highest office of North America’s fourth-largest city alongside a dog (to be clear, I am the human candidate on the ballot and Molly would be Toronto’s first honorary dog mayor, following in the footsteps of Niagara Falls, Ontario, and cities in California, Minnesota and Kentucky),but I believe we make more compassionate decisions with animals around.

Win or lose, I hope Molly and I inspire other unusual suspects to take a chance at stepping into the arena. In the words of Teddy Roosevelt, we will strive to spend our-selves in a worthy cause; and at the worst, if we fail, at least we will fail while daring greatly, so that our place shall never be with those cold and timid souls who know neither victory nor defeat

The post Why I decided to stop being a critic on the sidelines and run for office appeared first on Corporate Knights.

It’s not the purported $40 trillion of assets invested in environmental, social and governance strategies or that leading Republican candidates for the U.S. presidential nomination are railing against ESG as a left-wing Trojan horse, or even that the world’s richest man has taken to his favourite medium to tweet that ESG “is an outrageous scam.”

The most tell-tale sign that ESG has hit the big time is that ESG “data requirements and reporting standards” are keeping executives “up at night.”

Those are the words written last year by Stefan Hoops on his LinkedIn profile. Hoops was recently named CEO of DWS, Deutsche Bank’s majority-owned asset manager, which has just under $1 trillion in assets under management. Hoops knows what he’s talking about, as his predecessor was the first major CEO to be fired for greenwashing after DWS’s Frankfurt offices were raided by 50 German police and financial regulators this June in relation to an investigation into DWS’s potentially misleading claims about the ESG-friendliness of their investments.

Although ESG was a term cooked up by two friends of mine in 2004 (former tabloid journalist Paul Clements-Hunt and Australian punk rocker James Gifford), I have no idea what it means.

But there is something larger going on here. It is that we have reached an inflection point where a critical mass of people are now serious about having their investments respect their values. Most people value taking care of people and the planet that makes life possible.

Somehow, we slapped this technical ESG label and narrative on what is really just a base human sentiment for protecting life.

There was a reason for this. Back in the 2000s, when integrating extra-financial values into investments was a fringe activity, the thinking was that we needed to overcome the perception that investing for good would be bad for returns. By refocusing on ESG as a means for managing social and environmental issues to reduce risk and enhance returns, the financial-sacrifice bugaboo could be shed.

We have reached an inflection point where a critical mass of people are now serious about having their investments respect their values.

For a while, this was a beautiful thing for the burgeoning mostly well-intentioned ESG research shops that were already creating mountains of analytics out of molehills of data of highly variable quality and comparability, that mostly supported the “garbage in, garbage out” thesis. ESG risk scores enabled another layer of abstraction, further blurring accountability feedback loops.

None of this was much a problem for the trillion-dollar asset management industry. As long as they had some kind of score in the Excel sheet, they were good to go. This created some headscratchers. For example, S&P scored Exxon higher than Tesla. Sure, Exxon ticks more boxes on good governance along with detailed disclosure of operational metrics in comparison to the free-wheeling Tesla, but that is losing the plot of the real impact these companies have on people and the planet through their products, which should receive the lion’s share of weight in any reasonable analysis.

Fortunately, watchdogs and investors have started to cry foul when they realized there was no coherent answer to the question: how is my portfolio making the world a better place? This has attracted the regulators, and there are now detailed standards in place in Europe (and soon in North America) requiring that the fund industry clearly justify how their ESG products are avoiding harm and enhancing positive impact, which will necessarily trickle down to the company level.

This is heading toward a happy ending, but we are not there yet.

The first step is to be honest about our purpose. It’s not to manage risk or returns, but to help preserve our environment and keep our society thriving. This is not as heroic as it sounds.

For two decades, Corporate Knights sustainability ratings have placed zero emphasis on risk or return and 100% emphasis on companies’ impact on people and planet, and through the principle of obliquity, our flagship Global 100 Most Sustainable Companies Index has also financially outperformed all of the other global ESG indices. And the stock market performance of the Best 50 Corporate Citizens has outperformed its peers, earning 499% gross return since it was first launched in June 2002, versus 366% for S&P/TSX Composite.

This sounds like we are tooting our own horn, but sometimes that’s OK if it’s a tune whose time has come.

The post Editor’s note: CEOs are finally getting fired for fudging on ESG appeared first on Corporate Knights.

Fancy made three main points:

1. Wall Street is hawking funds labelled as green or sustainable that in many cases are anything but.

2. The much-pedalled idea that sustainable investing is good for the bottom line is a myth.

3. Sustainable investing acts as a deadly distraction delaying what really needs to be done to avoid climate disaster: government stepping in to fix the rules.

As is often the case with whistleblowers, his claims were challenged by conventional wisdom, with the head of sustainability research at Morningstar chastising Fancy for providing “only the sketchiest of evidence to support a rather outlandish position.”

I found myself admiring Fancy’s courage. When his article was first published in USA Today, he was still listed on BlackRock’s website as their chief sustainable investment officer, even though he left the firm two years ago. He has now been removed from the site and, one can guess, the BlackRock Christmas card list.

But the admiration quickly gave way to a deep concern. Not because Fancy is wrong about greenwash being rife in the sustainable investment industry. Although he didn’t mention it, BlackRock’s gold-standard sustainability product (iShares MSCI Global Impact ETF) is literally invested in Spam, a factory-farmed salty heart attack in a can. Try squaring that with the fund’s mandate, which is to invest in “companies that derive a majority of their revenue from products and services that address at least one of the world’s major social and environmental challenges.” Potshots aside, many of the investments in the iShares MSCI Global Impact fund (as well as many of the funds in this year’s Responsible Investing Guide) do offer meaningfully increased exposure to companies like Tesla and Ørsted that are clearly delivering sustainable solutions.

That brings us to the next point. I am little bemused by anyone who makes sweeping statements about the impact of sustainable investing on the bottom line. It’s almost like lumping the four seasons together and saying they are all hot or cold. Many carbon-intensive industries are on a long-term sunset trajectory as they’re being priced out by cleaner options, which is why the Canada Pension Plan’s oil and gas stock holdings have plunged from a quarter of its portfolio 10 years ago to just 2% today. There are half a trillion reasons why a chief investment officer at BlackRock should know this; that’s the dollar amount of returns they sacrificed as a result of not decarbonizing their equity portfolio a decade ago, according to Corporate Knights analysis.

(As a side note, I shared this finding with BlackRock’s CEO Larry Fink when we bumped into each other last year in a Swiss mountain village. I followed that up by leaving an urgent two-word message from the “North American office” at his Hard Rock Hotel in Davos: “Short Exxon.”)

And while the market is frothy at the moment with clean economy pure-plays, the compound annual growth rates for major low-carbon markets (green energy, electrification of transport, plant protein, energy efficiency) are jumping off the charts.

It shouldn’t take a rocket scientist to figure out that you will do better in the long-term the more you dial up your exposure to rising industries (low-carbon solutions) and dial down exposure to those in secular decline (high-carbon problems).

Fancy is right that “systemic challenges require systemic solutions and you need government action to do that.” I also shared his outrage when Larry Fink recently suggested that we can rely on the current incrementalist market approach to deal with the climate crisis, saying “I prefer capitalism to self-regulate.”

But the idea that shelving sustainable investing will make way for the government to fix our problems is woefully misguided. Governments do not solve problems in a vacuum. They solve problems when they feel pressure to do so and when they believe the solutions fall within the Overton window (the range of policies that are politically acceptable to the mainstream population at a given time).

Regardless of the imperfections of portfolio construction, when millions of people vote with trillions of their own dollars to invest in a more sustainable world, it shifts the Overton window of what politicians think is legitimate policy.

We have seen this movie before. After the movement to divest from apartheid South Africa spread from college campuses to blue chip corporations, it provided a window for then-Canadian Prime Minister Brian Mulroney to help galvanize the international community to turn up the pressure. That pressure was ultimately credited by Nelson Mandela for helping to bring about the end of apartheid.

Now we are seeing the same thing happen with the climate, where the fossil fuel divestment movement has spread from universities to the inner sanctum of the Bank of England and the G20.

When you vote with your dollars and your ballots you are more – not less – likely to get better returns.

Toby Heaps is the CEO and co-founder of Corporate Knights Inc. and publisher of Corporate Knights Magazine.

This story appears in the upcoming Spring Issue of Corporate Knights.

The post Editor’s Note: We can’t let greenwash make us lose sight of the prize appeared first on Corporate Knights.

A combination of pasta, hot dogs, oranges and green peppers got him through the month.

Some 30 years later, riding Tesla’s soaring stock, Musk passed Jeff Bezos to become the richest man on the planet, with a net worth of US$189.7 billion as of January 8, 2021.

In carrying out his mission to accelerate the world’s transition to sustainable energy, Musk has become a prophet for clean capitalism, with Tesla now ranked as the most sustainable and valuable car company in the world.

Musk is not alone. The Prince of Wales, the pope, and critically, a protest movement catalyzed by Greta Thunberg have all turned up the heat for businesses to get real about cooling the planet.

Prince Charles has long championed the environment and the central role industry and finance must play in its protection, but he’s dialled up the urgency significantly in the past year. In the fall, he said climate change poses such a severe threat that the world’s only option is to adopt a military-style response reminiscent of the U.S. Marshall Plan that helped rebuild post-war Europe 70 years ago.

In January, the prince looked back more than 800 years to the Magna Carta (which inspired a belief in the fundamental rights of people) to issue a companion document – the Terra Carta, or Earth Charter – that aims to enshrine the rights and value of nature in capitalism, inviting the world’s CEOs to make a sustainable future the growth story of our time.

Pope Francis once described unbridled capitalism as the “dung of the devil.” In a sign of the times, he recently gave his blessing to the Council for Inclusive Capitalism, a partnership between the Vatican and the leaders of some of the world’s largest businesses, including the chiefs of BP and Bank of America.

This seemingly unholy alliance seeks to make capitalism a more holy instrument for answering the cry of the earth and the cry of the poor.

There are now more than 300 companies, representing more than US$3.6 trillion in market cap, that have committed to a net-zero-emission target in line with a 1.5°C future.

Some worry these are empty words that give the impression that sufficient action is being taken – a sort of delay tactic. Thunberg, the teenaged activist who kicked off a citizens’ climate movement, says, “We must forget about net-zero – we need real zero.”

She spells out what that means:

“Immediately halt all investments in fossil fuel exploration and extraction. Immediately end all fossil fuel subsidies. And immediately and completely divest from fossil fuels. We don’t want these things done by 2050, 2030 or even [next year]. We want this done now.”

She’s right, but defunding carbon bombs will not be enough; not even close. The real action is going all in on funding climate solutions. What gets funded gets done. How we invest our trillions starting right now will determine our future.

To paraphrase Indian philosopher Jiddu Krishnamurti, the climate-solution revolution is today, not tomorrow. The litmus test for companies and countries (and anyone, really) is what percentage of your current budget is allocated with an intention to create a carbon-free sustainable world. If it’s less than 100%, you’ve got work to do.

The recently released Corporate Knights Global 100 Most Sustainable Corporations in the World is a list of companies that are, in the words of Prince Charles, who spoke at this year’s launch, “leading the way by putting sustainability at the heart of their products, services, business models and investments, helping to move the world onto a more sustainable trajectory.”

This year’s Global 100 companies rose to the top of a pool of 8,080 global firms that earn more than $1 billion a year, based on rigorous assessment of 24 indicators, including percentage of taxes paid and percentage of revenue and new investments aligned with a sustainable economy. Several new performance indicators reflect social concerns highlighted by both the pandemic and the Black Lives Matter movement, including providing paid sick leave and executive and board racial diversity.

On average, one-third of new investments on the part of Global 100 companies are clean, in contrast to less than one-quarter for their peers, while the percentage of Global 100 companies that offer at least 10 days of paid sick leave (86%) is more than double that of their peer benchmark, the MSCI All Country World Index (41%).

Global 100 companies also earned on average 41% of their revenues from products or services aligned with the UN Sustainable Development Goals, compared to just 8% for their peers.

But none of this would have legs if the good guys weren’t also faring well financially. On this score, the Global 100, which is calculated as an index, handily outperformed its MSCI ACWI peers by 10% over the last year, and 43% since the Global 100 index was launched in 2005.

What is needed now is for the rest of the business world, most importantly the big-money investors who have been sitting on the sidelines, to also lean into this more civilized form of sustainable capitalism.

Encouragingly, the largest pension fund in Ontario, the $205 billion Ontario Teachers’ Pension Plan, recently committed to achieving net-zero greenhouse gas emissions by 2050. This marks a stark contrast to the Canada Pension Plan, which has no such target and has been singled out for its “troubling incrementalism” by Osgoode Hall pension scholars – while forgoing $6 billion in returns as a result of its fossil fuel investments over the past 10 years, according to Corporate Knights analysis of its equities portfolio.

But now that BlackRock, the largest investor in the world, with a whopping $8.7 trillion under management, has jumped on the net-zero-emissions bandwagon, it is only a matter of time before it becomes the standard, placing a 100% sustainable and zero-carbon economy within our grasp.

The good news for our species is that the forces of pride and profit have shifted in favour of those on the right side of climate history, with shame and economic shambles awaiting those who cling to the wrong side.

Just four of the 13 Canadian companies on the Global 100 have committed to align their businesses with net-zero science-based targets, compared to more than half of Global 100 companies in general, though there is still time for them to get on board in the lead-up to global climate talks this fall in Glasgow.

With the sun shining on climate solutions, companies are free at last to shed their carbon cloaks.

A version of this article appears in the Winter Issue of Corporate Knights as well as the Toronto Star.

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

The post Editor’s Note: Time to go all in on the zero carbon economy appeared first on Corporate Knights.

Just maybe, however, 2020 will go down as the year we started getting things right. Science broke all speed records for developing effective vaccines. The United States elected a president with the greenest agenda ever. Solar emerged as the least expensive energy source in history. And more political and business leaders are recognizing that society’s vulnerability to COVID-19 is rooted in longstanding inequities and harmful behaviours that are finally being addressed.

All these trends, unexpectedly, helped make 2020 a banner year for Corporate Knights – and for anyone who cares about sustainability and social justice. As we continued our reporting and advocacy, we’ve seen several major advances this year:

• Our Building Back Better roundtable series last spring – masterfully moderated by the unflappable Diana Fox Carney – brought together a host of leaders in business, labour, science and government to explore innovative ways to spark a “green recovery.” The ideas put forth by our numerous experts – in energy, manufacturing, agriculture, construction, transportation and so much more – coalesced into an ambitious summary report whose proposals were endorsed by business leaders across all major sectors and are now seeping into policy agendas on both sides of the Atlantic. A short video of the Canada we could have by 2030 if we act boldly in the coming months and years can be viewed here.
• This fall we launched a follow-up roundtable series, Building Back Better Together, in partnership with the Embassy of the Federal Republic of Germany in Canada. This alliance demonstrates the growing international interest in collaborating on climate issues, and we can’t wait to see how this trend grows as the United States rejoins the Paris Climate Agreement. 
• To commemorate the 50th anniversary of Earth Day, we worked with Earth Day Canada and the Earth Day Initiative in the U.S. to produce the first-ever Green 50: Top business moves that helped the planet. Our list celebrated such game-changing events as Toyota’s launch of the first mass-produced hybrid car and Ontario’s decision to ban coal-fired power plants (still the world’s single largest GHG-reduction measure). Our goal parallelled that of Earth Day itself, as described to us by the movement’s founder, Denis Hayes: “To try to create enough pressure on governments and companies around the world to be aggressive in their [climate action] leadership.”
• The lockdown also opened a door for us to launch virtual Corporate Knights roundtables, building up a community of more than 5,000 engaged citizens, business leaders and public policy leaders who invested thousands of hours to explore and define the “angel in the details” of what it will take to build back better as we emerge from the pandemic pause. This year’s roundtables culminated in a fireside chat featuring Margaret Atwood, Sheila Watt-Cloutier, and David Suzuki, who offered a rousing call to action to take a moonshot at being the first to land a net-zero-emissions economy. 

Enough about us. I’d like to thank you for your support of Corporate Knights. Your engagement with our magazine, our events, our website and YouTube channel, and with our partners and advertisers is what enables us to go out every day and fight for sustainability and prosperity for Canada, the world and our children’s children. As the race to a zero-emissions economy speeds up and the climate threat grows, the perspective that government and science and business are all in this together is more timely and relevant than ever. We thank you for your support in 2020 and look forward to a more prosperous 2021 – the year we all begin to Build Back Better.

Happy New Year,

Toby Heaps

Founder and Publisher, Corporate Knights

The post My favourite year appeared first on Corporate Knights.

A decent roadmap

If we look at the speech using a clean economy and caring lens, there were four essential lines. The commitment that “climate action will be a cornerstone of our plan to support and create a million jobs across the country” is a game-changing update to the government’s narrative around climate change. The related promises to support energy-efficient building retrofits and to launch a new fund to attract investments in zero-emission product manufacturing suggest that Canada may be on the way to having a clean industrial strategy.

In stating that “the government will make a significant, long-term, sustained investment to create a Canada-wide early-learning and child-care system,” the feds recognized that the majority of job losses (63 percent) caused by the pandemic-induced economic crisis have affected women, many of whom may not be able to return to the workforce without better child-care options.

The government’s intent to wave off the fiscal hawks and continue to dig deep to help us build back better was made clear when it noted that “this is not the time for austerity.”

The government further signaled it is serious about building back better by saying it would work with the provinces and territories to “make the largest investment in Canadian history in training for workers,” with the first item listed as “supporting Canadians as they build new skills in growing [read ‘green’] sectors.”

What was missing from the throne speech?

On the green recovery side (a package of investments and regulatory reforms to relaunch the economy on the back of green industries), there was a fair bit of detail on the new investment fund meant to support zero-emission vehicles and batteries – which will largely benefit central Canada. But there was scant mention of how to rev up the low-carbon resource sector in the West. This includes (in order of technology readiness): sustainable biofuels, hydrogen, and the potential bonanza of extracting carbon fibres from bitumen.

The immense potential for the farming and forestry sectors to contribute to climate solutions was given just one line, referring to “farmers, foresters, and ranchers as key partners in the fight against climate change, supporting their efforts to reduce emissions and build resilience.”

There was no mention of how to ensure that Canadians reap our fair share of capital gains and intellectual property rights in return for the billions of dollars of public investment about to be directed at the recovery. It would have been nice to see some indication of how the government plans to ensure that our pension funds get the inside track on these growth investment opportunities in Canadian enterprises. There was also a missed opportunity to lay down markers for more democratic ownership models, including provisions to encourage employee-owned businesses and co-ops.

The next economic update and a nation building strategy

Now is the time for the federal government to go “all in” for a caring economy and a green recovery by using its fiscal power and monetary sovereignty to make the investments that will expand, mobilize and redeploy our productive capacity for building the Canada we want and the Canada we need for the 21st century.

On a long-term basis, we are going to invest an additional 0.5 percent of GDP into the caring economy to make affordable and quality child care and elder care a universal reality. And over the next five years, to ensure that Canada plays to its full potential in seizing clean-growth markets, we will invest an additional one percent of GDP per year to build up the clean economy.

How are we going to pay for it? We can issue bonds today that will be directed at investments in affordable child care, long-term care for seniors and a green recovery, and we can afford to do it without raising tax rates. We can do this because these programs stimulate economic activity that will generate future government tax revenue that will be greater than the interest on the bonds.

Here’s how it works: affordable child care creates jobs to deal with the “she-cession” and boosts labour force participation overall, which in turn fuels higher growth and tax revenues. A child care program (building on lessons learned from the Quebec model) would require additional federal investment of $80 billion over the next 10 years. On an annual basis, we estimate this investment would represent 0.35 percent of GDP (assuming 50-50 cost-sharing with provinces and territories). That expenditure in turn would be offset by higher economic growth – by reducing the gender workforce gap, GDP would go up a corresponding 2.4 percent by our estimates (based on an IMF paper extrapolating from the Quebec child care experience). This would represent an increase in federal revenues of $8.3 billion per year (or 0.36 percent of GDP, using the 15 percent federal revenue-to-GDP ratio).

Securing dignified long-term care as an element of universal health care almost certainly requires setting up a national long-term-care insurance program, with a strong community and home care component, according to the National Institute of Aging. Setting this up will likely require significant federal government contributions in the order of an additional 0.25 percent of GDP, assuming a matching contribution by provinces and territories. Together, this would raise Canada’s spending on publicly funded long-term care from 1.3 to 1.8 percent of GDP, in line with our OECD peers, and take some of the load off the 35 percent of Canadians who balance paid work with unpaid caregiving.

The federal contribution would be offset by higher levels of GDP. Corporate Knights estimates that GDP would rise by one percent, by factoring in a 35 percent productivity boost among the Canadians who currently balance paid work with unpaid caregiving, plus the economic boost associated with creating the new long-term care spaces, as estimated by the Conference Board of Canada. Savings in the order of 0.12 percent of GDP would arise from the hospital beds freed up through increased provision of long-term-care spaces and in-home-care support services, which are 80 percent more cost-effective.

Meanwhile, the government could support technological innovations and attract large-scale private investment into clean-growth areas that align with Canada’s strengths by issuing low-cost, long-dated sovereign bonds (issued now to lock in low interest rates). The European Union has a similar system. Corporate Knights economists estimate this would create a new engine of growth based on boosting the growth of clean industries, raising Canada’s 2030 GDP levels between five and 10 percent. At seven percent GDP growth, federal tax revenues would increase by 1.1 percent of GDP, enabling us to manage our sovereign debt loads and sustain a clean and caring economy over the coming decades.

Table:

Sources: Corporate Knights estimate based on Building Back Better Synthesis Report, Canadian Institute for Health Information, Caregiving and Care Receiving by Statistics Canada, Conference Board, Finance Canada, IMF, National Institute on Ageing, RBC Economics, Scotiabank Economics.

Investing in a caring and green recovery will expand, mobilize and redeploy Canada’s productive capacity, enabling us to manage the sovereign debt and sustain a clean and caring economy over the coming decades.

Toby Heaps is the co-founder and CEO of Corporate Knights.

Céline Bak is the president and founder of Analytica Advisors.

Ralph Torrie is the president of Torrie Smith Associates, and a senior associate with the Sustainability Solution Group.

This article was originally published by Policy Options.

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-Hon. Bill Morneau, Minister of Finance, Canada

Over the last few months, policymakers around the world have taken unprecedented action to protect their people from the COVID-19 pandemic. As we move beyond the acute phase of the health crisis phase, countries are now designing recovery plans to deal with the economic fallout.

Many of the world’s leading economic and political authorities, including the International Monetary Fund, the International Energy Agency and our G-20 peers, are leading calls for governments to make jobs-rich green recovery. In Canada, more than 40 major business leaders are advocating for a bold green recovery to help get people back to work and bolster Canada’s chances of playing to win in large and growing low-carbon markets where we have competitive advantages.

As policy-makers design economic recovery plans, they are making decisions that will cast the die of our economy for decades to come. For this once-in-a-generation investment, it’s vital that we look ahead and invest in building an economy that’s ready for tomorrow, instead of spending large amounts of public money on infrastructure and technologies that will soon be outdated.

The Building Back Better plan set out in this report is a synthesis of seven white papers published between April 22 and June 3 . Our plan makes it clear that governments have a unique opportunity today to boost economic growth, create millions of new jobs and position Canadian businesses as suppliers rather than buyers in tomorrow’s economy.

This document, put together with input from more than 100 of Canada’s most inspired minds, outlines a series of investments that the federal government could make to set Canada on a path to a resilient, net-zero economic recovery. The areas for investment for the Building Back Better Canada Plan include the following programs:

• deep retrofits of homes and workplaces
• accelerated electric vehicle (EV) uptake
• support for active mobility (e.g. walking and biking)
• greening of the electricity grid
• decarbonizing of heavy industry
• nature-based climate solutions for our forests and farmland, and
• making Canada a leading supplier of EV components and zero-carbon natural resources.

Combined, the proposals create or maintain more than 6.3 million years of employment and crowd in $681 billion of additional investment in the next decade. They would also deliver $44 billion annually in energy savings to Canadians while reducing greenhouse gas (GHG) emissions by 242 megatonnes (Mt) of CO2e per year by 2030 and setting a course for a zero carbon Canada within a generation. The proposals are different from what the federal government currently has in place in two important respects: they go further on emissions reductions and they go to the heart of our industrial policy, targeting investments in high-growth areas where Canada has strong competitive advantages to compete and win in global markets.

The federal investment of $11 billion per year (0.5% of GDP) for 10 years would trigger total investments of $790 billion, including both public and private, over the 2021-2030 period.

The federal investment could be paid for by issuing sovereign green bonds or closing federal tax loopholes and eliminating current Canadian corporate tax breaks, or some combination thereof.

Stronger use of regulations or higher carbon pricing could potentially reduce the cost of the plan for the federal government, but this would likely result in delays – an important consideration for stimulus spending, as well as for ensuring Canadian businesses don’t miss the low-carbon economy train that is speeding out of the station.

The federal contribution would be front-loaded, with almost 40% of it booked in the first two years and half of those early funds earmarked for deep building retrofits, which deliver broad and immediate job benefits (including for the more gender-diverse design and architecture industry) with strong economic multipliers. A study by the International Monetary Fund on climate policy and recovery found that “environmental measures have been a valuable part of fiscal stimulus packages,” emphasizing that “energy efficiency investments are particularly well-suited to stimulus spending,” because they can be executed quickly. 

Aside from jobs, this burst of investment would help to create economies of scale and bring costs down, especially for building energy retrofits.

Fully $40 billion of the $109 billion federal portion of the recovery package is earmarked to catalyze commercial-scale investments to ensure Canada is a supplier rather than buyer in the booming global markets for zero-emissions vehicles, clean fuels, property technologies and essential materials for the low-carbon economy.

The capital expenditures projected for these proposals are well within the bounds of routine levels of investment in Canada, which exceed $400 billion per year. For example, in the residential sector, Canadians spend $60 billion annually to renovate their homes. Building Back Better Homes and Workplaces would redirect 10% of existing renovation spending in the first year, rising to 60% in the fifth year and declining to 15% of current investments in the 10th year. During the transition to a fossil-free electric power system throughout Canada, the Greening the Grid proposal for investments in solar, wind and storage capacity averages $12.9 billion per year in a sector that routinely absorbs $22 to $23 billion per year in capital expenditures. Combined with other expected investments in this sector, including those needed to finish hydro megaprojects already underway, total investment in the electric power sector is expected to grow by about 20% during the transition to a carbon-free grid.

Our proposal is that the Building Back Better Canada Plan would ensure that, starting now, integrated and mutually supportive zero-carbon investment programs support Canada’s move to net-zero emissions while delivering strong risk-adjusted returns to Canadians through their savings and pensions.

In addition to direct federal investment, it is essential that the federal government set the right policy framework to drive the transition to net-zero and use its spending power to encourage provinces and municipalities to follow suit by attaching green strings as a condition for accessing federal stimulus funds. The need for supportive policy spans across all the proposals included here, from model building codes and zoning for zero-carbon affordable housing, to zero-emissions vehicles mandates, fast and fair power-grid access for storage and renewables, recalibration of agricultural subsidies, circular economy targets, and large-scale green government procurement, including embodied carbon of building materials. Providing a clear policy direction to drive toward a zero-carbon economy is essential to sustaining the momentum and securing investor confidence.

This Building Back Better Plan is a different kind of plan from what happened following the global financial crisis of 2008-9, when just 8% of Canada’s stimulus contributed to sustainability and resiliency, compared to 12% in the U.S., 38% in China and 59% in the European Union, according to HSBC Global Research.

This time we have a government that was elected with a strong mandate for climate action and a clearly stated commitment to transitioning Canada to a low-carbon economy. The government is rightly focused on getting the economy growing and people back to work as quickly as possible, especially women (who lost more than twice as many jobs as men). The best way to do that is with investments that profit from the immediate returns from energy efficiency and significant savings from steeply declining renewable energy costs.

 Ipsos global poll: 61% of Canadians said they agree or tend to agree that “in the economic recovery after COVID-19, it’s important that government actions prioritize climate change” – and that was without being given information about the job-rich nature of a green recovery.

 

Some of the world’s leading economists recently completed an analysis of possible COVID-19 economic recovery packages. They concluded that compared to traditional fiscal stimuli, green projects create more jobs, deliver higher short-term economic returns per dollar spent and deliver higher long-term cost savings. This finding is also supported by McKinsey’s research,  which found that a low-carbon recovery could not only initiate the significant emissions reductions needed to tackle climate change but also create more jobs and economic growth than a high-carbon recovery would.

Applying a climate lens to economic recovery can help us identify some of the best opportunities to get people back to work immediately while building a more resilient Canada for the long-term, ready to capitalize on new global growth trends.

Chart notes: (1) Federal contribution is front-loaded in first two years to maximize stimulus impact, bring costs down and incentivize complimentary policies essential to crowd in private capital and sustain the momentum. (2) Includes direct and indirect jobs as per Statistics Canada and Torrie Smith Associates analysis. Job years correspond to 1 job for 1 year; job multipliers measure only employment created during spend. In practice, economic stimulus/recovery could create jobs that become self-sustaining, resulting in more job years than shown here. (3) Based on gross-value-added (GVA) multiplier at a sector level as per McKinsey & Co. (4) Based on analysis by Torrie Smith Associates available here: https://corporateknights.com/wp-content/uploads/2020/04/CK-Residential-Retrofit-Calculator-200602.xlsx, https://corporateknights.com/wp-content/uploads/2020/04/CK-Commercial-Building-Retrofit-Calculator-200422-1.xlsx, https://corporateknights.com/wp-content/uploads/2020/04/Carbon-Free-Grid-Calculator-200527.xlsx, https://corporateknights.com/wp-content/uploads/2020/05/CK-Transport-Calculator-200611-V9.xlsx (5) Most of the greenhouse gas reductions from these investments would be concentrated downstream in what is known as scope 3 emissions, resulting from displaced emissions by light-weight carbon fibres as one example.

Global green recovery efforts already underway

• On May 27, the European Commission proposed a €750 billion ($1.14 trillion) recovery fund to steer the continent toward carbon neutrality by 2050, with a quarter of the plan earmarked for the EU Green Deal (with energy efficiency retrofits being the top budget item).

• On May 26, France announced an €8 billion ($12 billion) plan to accelerate the transition to electric cars, which will include increasing the monetary amount buyers can receive as a state incentive toward the purchase of an electric car.

• German Chancellor Angela Merkel has indicated that her government aims to implement a stimulus package that “helps the economy’s move toward climate neutrality,” saying “it will be all the more important that if we set up economic stimulus programs, we must always keep a close eye on climate protection.” Germany’s €130 billion stimulus package includes massive investment in EV charging stations, doubling the incentive for EV purchases from €3,000 to €6,000 and the establishment of a €50 billion futures fund for R&D investment. These are in addition to demand-side policies, including €300 for every child in Germany and a time-limited reduction in the VAT from 19 to 16%.

• Denmark has allocated 30 billion kroner ($6 billion) for green building renovations, with a short-term priority to upgrade 72,000 public housing units in 2020/21.

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Two of Uncle David’s axioms replay in my head on a regular basis:

“It’s a losing battle, but then those are the only ones worth fighting.”

“Never underestimate the ability of powerful people to justify their actions.”

When we look at the past 50 years, from the Vietnam War to our upside-down tax system (where those who have the most often pay the least in terms of their effective rates), it’s hard to argue, on the whole, that he was wrong.

But it’s also fair to say we are no longer living in usual times. The COVID crisis is a reminder of the power of civilization to rapidly address existential challenges when we flex our collective muscle.

The pandemic pause has allowed room to reflect on the kind of society we want. Do we want to continue our zombie-like march toward torching the only home we have? Is it really inevitable that we must continue to prop up the mighty with tax giveaways and handouts while we undervalue the vulnerable people and planet that we need the most?

By 2030, Canada could create more than five million quality job-years of employment by greening the power grid, electrifying transport and upgrading our homes and workplaces to be more comfortable, flood resilient and cheaper to run, saving Canadians $39 billion per year at the pumps and on heating and power bills by 2030 (in today’s dollars). We could also help protect the livelihoods of many others, including by supporting farmers to adopt practices and technologies for restoring the soil while paying them fairly for the ecosystem services they provide, paying young people fairly to plant billions of trees, and supporting Indigenous communities as sustainable economy leaders.

By 2030, we could own large parts of the clean-economy podium. We have all the ingredients to create Canadian champions in fast-growing industries of the future, including lightweight bitumen-based carbon fibres, renewable jet fuels, green hydrogen, batteries and electric vehicles (see our green economy vision board on p. 34).

In the wake of the COVID crisis, this is all within reach if we choose to build back better by making these job-rich themes a priority in the federal government’s stimulus and recovery packages.

The people who control the budgets will ask, how can we afford it? An equally valid question is how can we afford not to do it?

A big part of the explanation is traceable to Uncle David’s two axioms. We cannot afford to listen to the voices that say we just need to get back to doing what we were doing.

There is no going back. Now is the time to move forward.

That, at least, is my hope, but what happens will not be up to me.

It will come down to the human condition and how it responds to the current crisis. Will we be guided by fear or hope?

On this question, I am reminded of Uncle David again. Two of his sons played roles in the 1963 movie Lord of the Flies, based on the dystopian William Golding novel that reveals the rot of fear that dominates the human condition.

Lord of the Flies was fiction. In real life, it was a different story. In 1965, six restless boys set sail from the South Pacific island of Tonga, were hit by a storm and ended up shipwrecked on a desert island for 15 months. When they were finally found, rather than the dystopian situation Golding envisioned, the boys were getting along just fine, having set up a commune with a food garden, gym, a badminton court, chicken pens and a permanent communally tended fire.

It will also take a community to overcome the forces of the status quo.

Some have been dismissive of the idea of a just green recovery.

But they may be missing the point. The just part of a green recovery is not an add-on, but an essential condition for creating the big-tent coalition required to dislodge the forces of inertia. As a practical matter, it’s hard to see how the current “shecession” (women are bearing the brunt of the recession) gets addressed without some radical improvements in supports for affordable childcare, greatly improved eldercare and a living wage.

The best chance we have for the forces of hope to prevail is by marrying the green and just fires that burn bright in all our bellies, from which hope springs eternal.

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

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