PHOTO: McCarthy Tétrault
On February 9, 2022, McCarthy Tétrault hosted Corporate/Climate/Change, as part of our MT Business Transformation Series (the “Panel”). Awi Sinha, Partner and Co-Lead of the firm’s Public Sector group, moderated the Panel. He was joined by a panel of leaders on the cutting edge of net‑zero commitments, the green energy revolution, and the hard choices ahead:
- Monica Gattinger, PhD, Chair, Positive Energy, University of Ottawa
- Susannah Pierce, President & Country Chair and GM, Renewables and Energy Solutions, Shell Canada
- Claire Seaborn, Chief of Staff to the Minister of Natural Resources, Government of Canada
The Panel provided insights on the importance of collaboration between business, government, and society to ensure that policy maximizes Canada’s economic, environmental, and social potential. The Panel also discussed ways to increase an organization’s preparedness for the transition to a low carbon economy.
This blog post highlights some of the key questions and takeaways from this discussion.
Business Transformation in Light of Climate Change
- How does the corporate culture transformation happen in the energy sector?
One panelist recognized the need to make commitments under the Paris Agreement to limit global warming by limiting temperature increases to 1.5 degrees Celsius. Keeping in mind that we need to produce low-carbon energy, while respecting diversity, inclusion, and nature itself, Shell (“Shell”) introduced its Powering Progress strategy. Powering Progress has four main objectives: (1) generating shareholder return, (2) achieving net zero by 2050, (3) powering lives and livelihoods by supporting inclusive society, and (4) respecting nature. Shell’s net‑zero strategy is based on three scopes; Scopes 1 and 2 are based on Shell’s emissions when securing energy, and Scope 3 focuses on working with customers to lower their emissions. Together, Powering Progress drives Shell’s investment decisions as it engages its relationship with stakeholders and the environment.
The panelist shared that it is essential to move in tandem with its customers while also leveraging government regulations and transitioning at an appropriate pace. If the company moves too slow, it may miss its climate targets, the opportunity to gain market share, or to invest in new technology which is crucial to facilitate the necessary change.
- Corporations are intending to make a shift in their social policy values. How are some corporations adopting the polices discussed above in light of climate change?
The panelists emphasized that there is a greater need for collaboration between business, government, and society than ever before. The University of Ottawa’s Positive Energy program brings together leaders from business, government, and society to discuss issues around energy and climate. There is a much stronger alignment around emission reduction and net zero and a strong movement to focus discussion on moving from the what to the how of net zero. At times, companies raise questions about how things should be done and the public or policymakers misinterpret this as companies resisting change or not being committed to emissions reductions. However, the panelists agreed that this is problematic. This transition is unprecedented, therefore, we need to reframe our thinking. This business transformation is about reducing emissions but it is also fundamentally about corporate strategy and corporate culture. To make the transition to a low carbon economy, corporations need to rethink the value proposition of their company.
Government Policy in Light of Climate Change
- The mandate letters for the most recent federal cabinet have highlighted the importance of climate action. How does this play out in terms of practicality for not only government regulations but also government conduct?
One panelist recognized that climate change appears complex, but is very simple. There are two aspects: reducing emissions and adapting to climate change impacts. Instead of having separate conversations about the two, we need to address them together, as two sides of the same coin. In 2021, Prime Minister Trudeau issued mandate letters to his cabinet sending a clear signal to his Ministers to think about both reducing emissions and becoming more resilient to the impacts of climate change.
- In light of collaboration, what is the balance that we need to achieve a sustainable breed economy, without working across purposes? What is the recipe for our collaboration?
One panelist shared that there are three ingredients in the recipe for collaboration. First, there are government regulations that incentivize climate action. For example, the Canadian Environmental Protection Act aims to protect the environment through the adoption of zero-emission vehicles. There is also the federal government’s victory at the Supreme Court of Canada concerning its national carbon pricing system. All such regulations together can spur innovation, create jobs and opportunities.
Second, public funds and other incentives can complement regulatory efforts. For example, the tax incentives for carbon capture, the Net Zero Accelerator initiative, the Zero Emission Transit Fund, to name some initiatives, total up to approximately 100 billion dollars in federal incentives for the private sector.
Third, the private sector is the driving market force outside of the federal government programs. To achieve Canada’s overall target to reduce emissions, it is important to strike a balance between these three ingredients produce an optimal environment for collaboration.
- Are private sector initiatives not dependent on government policy?
The panelists shared that the government plays a significant role influencing private sector investment decisions. Government policies around carbon tax or the clean fuels standard help the private sector forecast their future investments to lower carbon fuels and capture emissions. The private sector has made independent commitments towards net‑zero, however, government policies are still integral to business decisions on this frontier as they can help accelerate change and investments in technologies or projects that otherwise wouldn’t pass investment criteria.
Government reports are also vital to understanding Canada’s overall carbon footprint. The challenges faced by the federal government as Canada marches towards net‑zero commitment are similar to the challenges faced by Canada’s private sector. It is important to understand such challenges in order to, for example, keep investing in clean fuels.
The panelists emphasized the need to take unprecedented action. This need has spurred unique partnerships between various corporations, academic institutions, and the government that have not been seen before.
Global Standard in Light of Climate Change
- How much of an impact are we going to have if other countries are not holding up their climate change policies to the same extent as Canada?
The panelists shared the importance of considering the impact of domestic policy on global competitiveness. As Canada is a trade-exposed economy, it is imperative that its domestic policies and investments reduce emissions relative to the other countries. Canada needs to drive competitive returns on its investments while it goes through the process of decarbonization.
The newest technology in cleantech/greentech enables us to be more transparent with our customers. For example, consumer demand for green premiums will increase in the future, therefore it is essential for individual businesses to consider the potential for green premiums to meet that demand.
- How do you see Canada reframing its linear economy to a circular one, especially with our current energy system structure?
The panelists noted that this business transformation will ultimately be a monumental shift in a short period of time. It is simple-yet-complex process, with many moving pieces. One panelist acknowledged that Canada’s effort in bringing carbon tax across the country was a significant achievement, but that it was also more than 15 years in the making. Progress is therefore clearly possible but will not come without challenges.
The panel also recognized that with Canada being an open, trade dependent economy, this is a huge opportunity for to become a global leader in climate action. To achieve this aspirational outcome, we need a strong public desire and participation to take action.
- Will panels such as this one become obsolete soon? Will climate responsibility become an ingrained, organic organizing principle for corporate enterprise? When does corporate culture in this regard really change?
The panelists recognized that Canada is one of the highest per-capita emitters in the world. Due to Canada’s robust regulatory processes with long lead times and consultation requirements, it can be challenging to explain emission reduction to Canadians and businesses. One panelist noted the large lag time in reporting as one example, as Canada’s most recent report on greenhouse gas emissions uses 2019 emissions results – a two-year delay. As carbon pricing was not enforced until 2019, the public will not see emissions reductions until the next few reports. However, a clear reduction in emissions is underway and this will be evident in data from now through 2030. The panelists emphasized the need to continue to take action now in order to see positive outcomes in the future.
- What role will capital markets and investors play in pushing climate-related policy forward in the next few years?
The panelists agreed that it is imperative to acquire financing for various future projects. Capital markets and investors are a significant part of building the momentum to emission reduction.
One panelist also noted the importance of energy affordability and equity to ongoing public support for climate policy. The panelists emphasized the importance of adaptation in order to generate reliable and affordable energy. Canadians are being challenged by climate changes daily, such as the floods and forest fires that have recently occurred in British Columbia. Therefore, it is critical to consider equity and affordability when developing policy.
Where we Go Next
- In the balance between carbon offsets and reduction, should we be focusing on one more than the other?
The panelists agreed that there are multiple pathways to net‑zero, and that we need to use all the tools available. We also need the confidence of the public and investors alike. Canadians do not have a lot of confidence in the government or industries in terms of their having a genuine commitment to climate action. As a result, many pose the question – why should we have confidence that leaders will achieve their current climate commitments now? Consequently, this is an opportunity for business and government to stand together to provide the public with assurance.
One panelist noted that the federal government passed the Canadian Net-Zero Emissions Accountability Act last year, marking the first time that Canada has had a federal law defining net‑zero. Therefore, when it comes to the question of carbon offsets vs emissions, it doesn’t matter so long as we achieve net‑zero. Under this act, the federal government is required to create an emissions-reduction plan, which should generate both certainty and optimism.
Other panelist stated that there are an increasing number of participants in the private sector, such as Shell, who have made net‑zero commitments in their reporting to shareholders to enhance transparency. Further, the panelists noted that climate risk is also investment risk, which varies across sectors. This has been a significant driver for action both in terms of reductions and offsets in the private sector.
- What is the one thing that businesses who see climate change as an important part of their corporate culture can do to make sure that they integrate themselves in this area?
One panelist shared that the starting point should be to focus on where your organization’s emissions are principally created and what drives those emissions. Once that footprint is understood, an organization can begin to change its systems and behaviours to reduce those emissions.
The Panel agreed that we can all think about our own footprints as individuals and how we can make changes in our own lives to reduce emissions. The Panel noted that younger generations have novel ideas, and that it is important to look towards the grassroots in our communities and organizations to think about approaches to climate action.
One panelist highlighted a recent featured article in a national paper that focused on how business leaders are operating with the climate at the centre of the government policy and corporate strategy. In particular, the feature finds that we need a scale-up in clean technology in order to drive down emissions. There are many opportunities for businesses today to begin incorporating clean technology to reduce their emissions.
We are here to help
McCarthy Tétrault has a multidisciplinary ESG and Sustainability team that is equipped to provide clients with a full suite of advice and support to assist them in integrating ESG thinking into their organizational DNA. With a robust understanding of business, industry, and market drivers, we are well-suited to provide contextualized guidance.