Thread by @ottawacarl

THREAD: Here’s why I think the @bankofcanada report today listing climate change as a vulnerability in the Canadian financial system is so important. I believe it could come to represent a pivotal moment in the low-carbon economy shift in Canada. Please read on and retweet:

So much of our climate change debate is fought in the political realm: what kind of policies, like carbon taxes or coal regulations, should governments adopt? What kind of investments should they make in clean tech? But as this debate rages on, the financial system forges ahead.

In Canada that system is intertwined with fossil fuels. The TSX / venture exchange is brimming with them. Capital markets hold $100s of billions in the sector. Many retirement savings, pension funds are tied up with the industry as @IISD_news has noted. The banks are key lenders.

The Bank of Canada is an authoritative voice in this system, because it sets the policy interest rate and influences money supply. It chooses its words carefully, because it knows reporters and analysts scrutinize everything in their statements, trying to read between the lines.

So its plain acknowledgment today that climate risks “can be managed most effectively when investors and authorities know what exposures firms face” is huge. It shows the central bank is thinking about climate risk disclosure as a key factor in decarbonizing our economy.

Why does that matter? Because as the central bank itself says, “this practice is not universal.” Some economists + securities regulators have talked about this for years: few businesses in Canada actually reveal in public how climate change will impact their assets + operations.

In fact @CSA_News which represents securities regulators in each province / territory investigated this issue for a year. It found almost half the firms it looked into were only disclosing "boilerplate" data or nothing at all. That means investors aren’t getting the full picture.

We know these risks are real: science says climate change is leading to more severe + frequent weather events like floods, fires, drought, heat waves etc. These threats disrupt communities and may lead, as the central bank said, to stranded assets in carbon-intensive sectors.

No matter what policies the politicians in power are proposing, as the Bank of Canada said today: the shift to a low-carbon economy appears to be “underway” as investors and consumers shift to lower-carbon sources. Assets will be increasingly scrutinized for carbon-related risks.

And here’s where the rubber hits the road: if those assets are rapidly repriced, the central bank warned, it “might cause fire sales and interact with other vulnerabilities—like excessive leverage—destabilizing the financial system.”

Again, the Bank of Canada’s decision to say all this was probably not one that was taken lightly. It knows that heading down this path will have consequences. It might have been easier for them not to say anything. But they have, and they have committed to keep talking about it.

A final point: some folks in my mentions have wondered why the central bank is wading into this. “They should stick to banking," someone said.

That’s precisely the point: they *are* talking about banking. That’s why this is so significant. /END

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