SFAC recommendations to the Government of Canada on bridging data gaps to achieve Canada’s climate-related goals (2023)

December 2023

Dear Deputy Prime Minister Freeland and Minister Guilbeault,

Canadian organizations, including companies, banks, investors, and governments, rely on climate-related data to invest in climate change mitigation and adaptation. There are, however, significant gaps in the availability and quality of this data which hinder capital allocation. The Sustainable Finance Action Council (SFAC) was asked to provide input on bridging those gaps and facilitating the mobilization of private capital, to ensure climate resilience and achieve Canada’s 2030 and 2050 net-zero emissions targets.

Climate-related data is essential for all organizations to accurately measure greenhouse gas emissions, develop plans to reach net-zero, and invest in the energy transition. This data gives us insights to understand our climate-related risks and to stabilize the economy through adaptation measures. In general, improving the accuracy, timelines, and availability of climate-related data fosters a positive investment environment by building a knowledge base and reducing the uncertainty around capital planning.

Over the past several months, SFAC members have provided input into their climate-related data needs and have consulted with government, industry associations and other interested stakeholders. This letter identifies six recommendations to bridge some of the most important data gaps, which will ultimately facilitate increased investment in climate change mitigation and adaptation. SFAC members recognize the complexity of these recommendations and encourage collaboration between SFAC and the Government of Canada on implementation.

SFAC members, as well as other companies and financial institutions across Canada, are making investments into the collection and analysis of data. We recognize our role to collect data from our investees and customers and how this will contribute to our climate goals. We use data published by the federal government, and this letter lays out which next steps in this data journey would be most impactful to us and, we believe, Canadian organizations of all kinds.

A. The Government of Canada should capture readily available opportunities to improve the availability and accuracy of Scope 1 and 2 emissions data

To meet Canada’s net-zero targets, every economic entity in the country will need to decrease its operational, or Scope 1 and 2, emissions. Scope 1 and 2 emissions for most entities come from electricity and fuel, such as the electricity used to power facilities or the fuel burnt in vehicles. As a result, utility and fuel providers hold accurate and impactful data regarding businesses’ main source of operational emissions.

To improve accuracy of Scope 1 and 2 data, the Government of Canada should strive to ensure that all operational emissions data is provided directly to companies. This would involve utility and fuel providers sharing their activity data with customers (e.g. energy purchased, time of use) and the relevant emission factor (e.g. emissions-intensity of their local electricity grid). While many utility providers already track and share activity data, requiring all utility and fuel providers to supply customers with this data would significantly improve emissions data availability and accuracy. It would also reduce the transaction costs of reporting emissions for small- and medium-sized enterprises. In Europe, electricity providers are mandated to share information about their energy mix and inform consumers of the environmental impact.^{Footnote 1}

The Government of Canada has several tools available for engagement with utilities and fuel providers to achieve this goal. In the near term, the Government can implement this recommendation through its own procurement by requesting data from its energy suppliers and publishing it externally. In the future, to allow for broad-base dissemination of data throughout Canada, collaboration with provincial and territorial governments would be critical.

B. The Government of Canada should develop a publicly accessible and centralized Scope 3 emission factors database

Beyond Scope 1 and 2 emissions, companies and capital providers need access to Scope 3 data to plan net-zero investments. At present, many Scope 3 inventories in Canada are based on proxies and averages rather than actual emissions. Having a common, public set of resources would help to improve reliability, transparency, and comparability of Scope 3 data across Canada. The Government, in particular through Environment and Climate Change Canada (ECCC), is well positioned to fill this critical data gap through its expertise in developing the National Inventory Report (NIR).^{Footnote 2}

The Government of Canada should provide a dedicated and publicly accessible Scope 3 database, which can serve as a resource for companies performing Scope 3 calculations. This Scope 3 database should include activity-based emission factors from production, usage and treatment of specific products and materials, with a focus on high-emitting activities and sectors in Canada.^{Footnote 3} This approach follows best practices in the United States, the United Kingdom and Australia.^{Footnote 4} The database should be consistent with the data available in the NIR, as this is a resource Canadian businesses leverage for emission factors.

SFAC recognizes the potentially wide breadth of such a database, and therefore recommend first focusing on collating the Scope 3 data which already exists. The Government can collate existing emission factor data from its own tools (such as its fuel life cycle model), international databases, and leading research.^{Footnote 5} In the long-term, the Government can identify and fill-in gaps in emission factors for the Canadian context. Consultation with Canadian experts, financial institutions, industry groups, and businesses will be important in the development of the requirements for this database in order to ensure usability.

The Scope 3 dataset should be accompanied by enhanced Scope 3 guidance provided in the Net-Zero Challenge, building on internationally recognized standards (such as the GHG Protocol or Partnership for Carbon Accounting Financials).^{Footnote 6} Given the complexity of Scope 3 organizational boundaries, additional clarification is also necessary for organizational boundaries in non-standard ownership settings, such as joint-ventures. The guidance can recommend material Scope 3 categories for each sector.

C. The Government of Canada needs to accelerate the development of publicly available transition pathways

Transition pathways predict how different sectors and their associated emissions will progress given a set of decarbonization policies and assumptions. They are essential for analysis and decision-making by all kinds of economic entities engaged in transition planning or target-setting.

Pathways developed by international organizations often group Canada with other countries, or do not include subnational or sector-specific pathways for Canada.^{Footnote 7} SFAC recognizes the efforts of the Government of Canada to increase the number of Canada-specific pathways available for decision-makers. For example, the Emissions Reduction Plan provided a comprehensive list of net-zero policies and accompanying emission pathways per sector up to 2030.^{Footnote 8} The Canada Energy Regulator provided two net-zero pathways for Canada’s energy sector by 2050.^{Footnote 9} Additional Canada-specific pathways are necessary.

SFAC encourages the continued development of province and sector-specific pathways for Canada, looking beyond 2030. When possible, pathways for Canada should include multiple transition pathways (e.g. business as usual, delayed transition, etc.) and leverage external best practices, such as International Energy Agency and Science-based Targets Initiative. Pathway development should also consider the recommendations from the Net-Zero Advisory Body.

The Government of Canada should engage with relevant organizations to research and publish pathways, such as regulators, crown corporations, provincial governments, financial institutions, industry associations, and research organizations. SFAC suggests that these organizations publish pathways’ assumptions and results externally to increase collaboration and improve the quality of the underlying models.

D. The Government of Canada should publish existing datasets for the Real Estate and Agriculture & Forestry sectors to help allocation of capital to these high priority sectors

Most of Canada’s largest financial institutions have publicly announced a target to achieve net-zero emissions by 2050. However, financial institutions have significant data gaps in decarbonizing their portfolios, particularly in the real estate and agriculture & forestry sectors. For example, banks have potentially millions of clients in these sectors across their loan portfolios, making it challenging to collect emissions data. Likewise, asset managers and pension funds face challenges collecting data from their portfolio companies for these sectors. When data cannot be collected, financial institutions rely on proxies or provincial/national averages provided by the Government of Canada.^{Footnote 10} While these resources are a useful starting point, data with a higher geographic granularity (i.e., localized) and asset-level characteristics are necessary to identify decarbonization opportunities.

SFAC members believe that much of the emissions data necessary (or input data to build better proxies) is already collected by the different levels of government. For example, for real estate, data such as housing type, year built, and square footage may already be collected by government registries or the taxation process.

SFAC recommends that the Government of Canada collaborate with financial institutions to perform an inventory of the federal government’s internal real estate and agriculture & forestry data and assess which datasets should be published. This data can range from actual emissions data for buildings or farms, to farm production metrics (such as types and quantity of crops per growing area), or primary heating resource or retrofit initiatives in a region. In the future, this inventory can also include data held outside of the federal government, such as by the municipal, provincial and territorial governments.

Additionally, transition pathways are also necessary for these sectors. SFAC suggests that data for Canada from the Carbon Risk Real Estate Monitor be extended to include provincial pathways, similar to state-specific pathways for the United States. Agricultural pathways should also include projected emissions for farming of different livestock and crops, similar to the pathways in the Dutch Climate Agreement.^{Footnote 11}

E. The Government of Canada should develop scenario-based hazard maps for wildfires, convective storms, and droughts, similar to the development of flood maps under the National Adaptation Strategy

With widespread impacts of climate change being felt across Canada, businesses are focusing on adapting to the physical risks from climate change. According to the National Adaptation Strategy, data for risk mapping will be an important piece of adaptation planning.^{Footnote 12}

The Government of Canada publishes extensive physical exposure data that businesses leverage for risk identification and exposure mapping, particularly for perils related to temperature and precipitation.^{Footnote 13} For example, ECCC’s Canadian Centre for Climate Services manages ClimateData.ca, a public resource with scenario-based projections for maximum temperatures, cooling degree days, extreme precipitation, and other indicators.^{Footnote 14}

SFAC recommends that the Government prioritizes the creation of forward-looking Canada-wide hazard maps under different Intergovernmental Panel on Climate Change scenarios for the following perils: a) wildfires, b) floods (fluvial, pluvial, and storm surge), c) severe convective storms (including thunderstorms, tornadoes, hail, ice jam flooding, etc.), and d) droughts.

Data gaps exist for these perils, and they cannot be directly estimated leveraging the temperature and precipitation data already provided by the Canadian Centre for Climate Services. Moreover, banks and insurers are expected to assess their impacts from these perils (floods, wildfires and storms) under the Office of the Superintendent of Financial Institutions (OSFI) regulatory reporting requirements (e.g. Climate Risk Returns, Guideline B-15). SFAC recommends that the Government of Canada collaborates with OSFI to leverage existing efforts and ensure that hazard maps are in line with regulatory requirements.^{Footnote 15}

The Government of Canada is well placed to lead on the creation of these hazard maps, and has already committed to do so for flooding within the National Adaptation Strategy. While there are some private sector entities which develop proprietary hazard maps, it is important that these tools are open-access so companies of all sizes and resources can use them. SFAC suggests that the Government of Canada publish the specialized datasets used to create the maps with open licenses (such as geodetic conversion or land cover maps) to enable organizations to perform their own in-house analysis.

In the longer term, SFAC encourages the Government to bolster these hazard maps to include impacts from these perils on human health. This would enable insurers, government bodies, and other healthcare system stakeholders to assess the mortality and morbidity impacts from climate change.

F. The Government of Canada should publish analyses of the financial impacts of climate change to help businesses build the business case for adaptation action

Businesses need to quantify the financial impacts of climate risks to be able to build the business case for adaptation investments.^{Footnote 16} However, businesses face significant methodological challenges translating physical risks to financial terms.^{Footnote 17} The tools and assumptions used for this analysis (such as data sources, sampling techniques, and scenarios) are new and are expected to improve iteratively over time.

To bridge this methodological gap, businesses leverage government organizations’ financial valuations analysis as methodological guides. Several organizations, such as the Federation of Canadian Municipalities (FCM) and provinces of Ontario and Quebec, have published financial valuations of climate change. For example, the FCM partnered with the Insurance Bureau of Canada to evaluate financial impacts for the three levels of government.^{Footnote 18} This analysis, and the detailed reports accompanying it, serve as methodological guides for organizations across Canada when conducting their own climate risk assessments.^{Footnote 19}

SFAC encourages governments of all levels (municipal, provincial, territorial, and federal) to continue conducting and publishing financial valuations of climate change and updating their methodologies on a regular basis. The methodologies should reflect evolving best practices and scientific guidance. Over the next several years, we expect this to be of growing importance for capital allocation, especially considering the need for adapting to a changing climate.^{Footnote 20}

Conclusion

SFAC has welcomed the opportunity to provide recommendations on data priorities to achieve Canada’s climate goals. It is our view that data gaps are inhibiting the transformational impact of sustainable finance and we believe that improved data quality and availability would enable us, and capital providers across Canada, to accelerate investment to reach 2030 targets and build resilience to physical risks.

SFAC members recognize that the application of these recommendations will require significant resources and collaboration between different stakeholders across the economy. We stand ready to support the Government of Canada in the implementation of these recommendations and future climate-related data initiatives.

Best,
Kathy Bardswick
Chair, Sustainable Finance Action Council