Senator Rosa Galvez Pushes for Climate-Aligned Finance Legislation in Canada

Senator Rosa Galvez has embarked on a formidable mission: to compel Canadian financial institutions to prioritize the fight against climate change. Over two years ago, the independent senator from Quebec introduced legislation to steer banks and pension funds away from high-emission investments, such as those in the oil and gas sector.

The proposed legislation, known as the Climate-Aligned Finance Act, also aims to enhance regulatory oversight to ensure the credibility of financial institutions' climate plans and to limit the influence of fossil fuel executives on their boards.

Despite its significance, the bill has progressed slowly. The Senate banking committee only began hearing from witnesses late last year, and another round of testimony took place earlier this month.

In a recent interview, Galvez expressed her realistic expectations about the bill's future. "I'm not asking for the moon," she said. "I don't want the bill to be passed just like that, or to be rejected just like that."

The Missing Link in Climate Action

Before her Senate appointment in 2016, Galvez, originally from Peru, was an engineer and professor at Université Laval à Québec for over 25 years. Her work included researching the impact of the oil spill in the Lac-Mégantic rail disaster and consulting on the protection of the Great Lakes and the St. Lawrence River.

As a senator, Galvez turned her focus to the financial sector, which she sees as a crucial driver in the transition to renewable energy. "You come to the conclusion that the part that is missing is the finance sector, which actually should be the first sector in order to start obtaining results," she said.

The legislation seeks to empower the Office of the Superintendent of Financial Institutions, the sector's regulator, with greater authority to oversee financial institutions' climate plans. It would also classify fossil fuel projects and other high-emission sectors as high risk, making it more costly for these industries to secure loans.

Olaf Weber, a sustainable finance professor at York University's Schulich School of Business, supports the high-risk designation. "As a bank, if you have a five-year loan to a fossil fuel company, are the risks higher than in other industries? Probably not. But if you have a longer-term connection, the risks are probably higher," he said, citing declining demand and higher carbon prices.

Support and Opposition

The Climate-Aligned Finance Act has garnered support from environmental groups and some Liberal, NDP, and Bloc Quebecois MPs. However, it faces significant opposition from financial institutions. Canadian banks are among the largest global financiers of oil, gas, and coal. A recent report found that Canada's top banks invested $103.85 billion in fossil fuel projects in 2023 alone.

Darren Hannah, senior vice president of the Canadian Bankers Association (CBA), criticized the bill in his testimony before the Senate banking committee. He argued that the legislation would act as a "de facto ban" on lending to fossil fuel companies by increasing the perceived investment risk. "Such a change would be fundamentally unfair to the thousands of Canadians who work in the energy sector and the energy companies building transition paths to a low-carbon future," he said.

Maggie Cheung, a CBA spokesperson, emphasized that Canadian banks recognize their role in facilitating a low-carbon transition. "This includes working with clients across industries to help them decarbonize and pursue energy transition opportunities," she said.

Lagging Behind

Julie Segal, who specializes in climate finance with Environmental Defence, argues that most Canadian financial institutions have not voluntarily shifted their portfolios away from polluting investments. Despite commitments from Canada's five largest banks to achieve net-zero emissions by 2050, their fossil fuel financing exposure increased between 2020 and 2022, according to a report from InfluenceMap.

Mark Carney, former Bank of Canada governor and UN Special Envoy on Climate Action and Finance, also testified that Canada is lagging behind its international peers in sustainable finance. "Canadian climate disclosure efforts have been patchwork, delivered late, and falling short of international standards," he said.

Looking Ahead

The Climate-Aligned Finance Act is still in the committee stage and faces several hurdles before it can be put to a vote in the Senate and then move to the House of Commons. With an election expected in 2025, the bill could become a campaign issue. For now, Galvez's goal is to spark a debate about the financial sector's role in combating climate change.