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We must accelerate innovation, transparency and market access to win capital back

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Monday, June 17, 2019 – Page B4

Tiff Macklem is the dean of the University of Toronto's Rotman School of Management and a director of Scotiabank.

Andy Chisholm is a director of Royal Bank of Canada and former senior global strategy officer, Goldman Sachs.

Barbara Zvan is chief risk and strategy officer of the Ontario Teachers' Pension Plan and a director of Cadillac Fairview.

They are all members of the Expert Panel on Sustainable Finance.

Last week, as members of the Expert Panel on Sustainable Finance, we released recommendations on mobilizing the financial sector to secure Canada's economic prosperity through the global transition to cleaner growth. The overarching message is that Canada could be a decision-maker rather than a decision-taker in a world where sound environmental stewardship is intersecting with market access and becoming critical to competitiveness.

Nowhere is this more important to Canada than in our oil and gas sector.

Canada's economic strengths are unique and we require solutions that are geared to our national context. Our country is the fourth-largest exporter of oil and the fifth-largest exporter of natural gas with among the largest proven reserves in the world.

Canada's abundant resources have the potential to meet the world's demand for oil and gas through a low-carbon transition by setting the global standard for responsible, climate-smart resources.

Simply put, we could be the world's most credible, low-emissions producer. But to get there, we must accelerate along three mutually reinforcing dimensions: innovation, transparency and market access.

Companies around the world are investing heavily to develop the technologies and skills to supply the world with low-cost, cleaner energy and natural resources. Global investors are under significant pressure to lower the carbon intensity of their portfolios and to bet on energy innovations and resources with the best return and the least risk.

Right now Canada is at a distinct disadvantage. Regulatory uncertainty, high compliance costs and long lead times have made investors increasingly wary of our resource sector. Global perceptions of our environmental record and the carbon-intensity of oil-sands extraction have eroded our global brand. Major institutional investors and foreign energy players are increasingly leaving or avoiding Canada.

To win capital back, Canada must do better and prove we are doing better.

The good news is this is entirely within our grasp.

INNOVATION Our oil and gas sector has already made significant strides in advancing energy and cost reductions through technological and operational improvements. We recommend Canadian industry, government and finance double down on innovation and commit to a joint vision for our sector's low-carbon competitiveness, underpinned by a detailed innovation road map and a capital plan that outlines the investments to realize our ambition. This would make the scale and horizon of the market opportunity clear for all market participants.

To further accelerate innovation, we also recommend the federal government fund an oil and gas clean innovation cluster that would pool capital and expertise. This would grow the next generation of innovative ventures and stimulate the development and commercialization of promising decarbonization and energy-saving solutions.

To accelerate investment at scale, we recommend that Canadian capital market expertise engage with international partners to create a standard and a market for "transition-linked" investment products. These products are like green bonds and loans, but are for high-emitting sectors that are financing projects to reduce emissions. As of now, these emission-smart products are not compatible with international green standards, even though the reduction in emissions can be as large as or larger than for "green" investments. Transitionlinked products have the potential to bridge the gap between climate-conscious investors and resource companies, broadening the investor base and providing capital to invest in proven emissions-reducing technologies.

TRANSPARENCY It will take more than promises and words to attract global capital back to our resource sector; we will need data and evidence.

Increasingly, global investors are demanding better information about the physical, liability and transition risks that firms are facing in the context of climate change and what the firms are doing to mitigate those risks. The Task Force on Climate-Related Financial Disclosures (TCFD), established by the Financial Stability Board and led by Michael Bloomberg, has developed a framework for such disclosures that is rapidly emerging as the global standard. Some 785 firms worldwide have already committed to implementing TCFD.

If we want to attract global capital back to Canadian resources, it will take an industrywide commitment to report more comparable and complete data on climate-related financial risks, consistent with TCDF.

While concerns about being early-movers on disclosure are understandable, the fact is providing this type of information is exactly the leadership that investors are seeking from our industry.

MARKET ACCESS It is equally critical that we improve Canada's ability to get cleaner and more responsibly produced oil and gas to market.

Canadian producers can only invest in clean innovation if they are able to sell their products.

Though counter-intuitive to some, solving Canada's marketaccess stalemate is fundamental to Canada's ability to contribute to lowering emissions in the world's global energy supply by displacing higher emissions and less transparent sources.

The future of our oil and gas sector remains one of the hardest and most important discussions we are having right now as a country. Our hope in releasing these recommendations is to open a different conversation - one that brings together our economic and environmental aspirations because ultimately they are indivisible.

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