June 29, 2021
Dear members of the National Infrastructure Assessment team,
RE: National Infrastructure Assessment – Consultation Response
We appreciate the opportunity to provide feedback on the three priorities identified in Infrastructure Canada’s Engagement Paper on the National Infrastructure Assessment (the “Assessment“). We consider this engagement to be timely and critical to the effectiveness of Canada’s response to climate change.
The views represented in this submission are informed by the role we play to counsel and otherwise support our clients on their responses to climate change risks and opportunities. Our clients include institutional investors and asset owners, which have a significant exposure to, among other things, the physical risks that are associated with the impact of climate change on infrastructure assets.
We believe the focus of our work, which centers on the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD“), and our work with Canadian infrastructure clients generally, enables us to submit an informed response. A link to additional information regarding Manifest Climate can be found at the end of this consultation response.
1. Assess Canada’s infrastructure needs and establish a long-term vision
Recommendation 1: Adopt a broad definition of infrastructure to support (a) the transition to net-zero emissions and (b) resilience to physical risks and opportunities presented by climate change
We note the Assessment’s reference to the promotion of retrofits, net-zero new builds, zero-carbon building materials, industrial decarbonization, reducing emissions in manufacturing, and efficiencies in waste management, and the improvement and deployment of affordable, clean, safe, and efficient transportation options.
We support the scope of the Assessment’s ambition, and believe that developing an expanded definition of infrastructure in Canada is key to unlocking the capital needed for climate resilient infrastructure capital and accelerating the transition to net zero.
The development of climate-resilient infrastructure in Canada will require both the replacement of existing infrastructure that cannot be adapted to respond to the physical risks of climate change, and the introduction (or rapid expansion) of new services and supplies that are required to support the transition to a net zero economy. This will require the allocation and use of significant capital both in conventional infrastructure (such as buildings and transit) and new technologies (such as the deployment of new infrastructure to support clean energy grids 1).
In this context, we recommend that the Government adopts a broad definition of infrastructure, which allows for, and promotes investment into, all infrastructure projects that are necessary to effect change. Broad categories can filter into more specific focus areas: for example:
- Buildings and construction, to cover low-carbon construction materials, greening construction supply chains and building retrofits;
- Energy, which, in addition to supporting renewable energy, should promote the construction of critical transmission, distribution and building-specific infrastructure that allows for a more resilient and flexible grid;
- Transport, which, in addition to ongoing and future mass-transit projects, should consider the widespread need for, and adoption of, zero-emission vehicles (e.g., charging infrastructure and alternative fuelling stations); and
- Digital Connectivity, to scale-up and expand the digital infrastructure that is necessary to effect change in each of the foregoing sectors (e.g., decarbonizing the energy sector requires robust digital infrastructure to support flexibility and communication across different energy systems).
The breadth of this type of definition may extend beyond the historic scope of infrastructure spending, but we consider such expansion to be necessary to effect the changes necessary to build a net zero economy that is both economically robust and climate-resilient. We acknowledge there will be capacity and resource limits, which may compel the Government to assign priorities for each category. These should be calibrated to factor in (for example) the ability to leverage private sector investment, the scope of potential emissions reductions, and the climate resiliency of each project (see further Recommendation 3, below).
Recommendation 2: Understand physical risks and how our future climate impacts decisions necessary to support climate-resilient infrastructure, to complement actions supporting the net-zero transition
The physical risks of climate change are already impacting, and will in the future increasingly impact, investment decisions regarding both existing and new infrastructure. Infrastructure policies and the decisions that derive from them must, therefore, factor in and plan for our future climate.
The need to plan for, and make projections that are consistent with, our future climate, will require both (a) coordination by and among infrastructure owners and funders (as to which see Recommendation 4, below), and (b) proactive engagement by Government to ensure that its infrastructure vision is consistent with science-based climate scenarios.
This may require the reassessment of the continued use of existing infrastructure that is constructed without regard to, knowledge of, or ability to adapt for, physical risks associated with climate change. Alternatively, or in parallel, it might require the acceleration of capital toward new infrastructure that is designed to be both climate resilient and to improve the resiliency of existing assets.
It is commonly accepted that the Government plays a key role in shaping and mapping transition risk across the economy. It is equally important for the Government to play a central role in promoting the understanding of, and developing effective responses to, physical risks (and corresponding opportunities) presented by climate change.
Recommendation 3: Use metrics and targets to develop a roadmap to effect change
To complement the adoption of a broad definition of infrastructure (see Recommendation 1, above), which adequately factors in physical risks and opportunities (see Recommendation 2, above), we recommend the Government develops long-term and interim targets to help the public and private sector sequence the funding and resources required to effect change.
Such long-term and interim planning will play a critical role in helping leverage private sector capital and public support for the Government’s vision. That roadmap should be made accessible by way of a roadmap that accurately reflects priorities developed by the Government to account for expected limits to capacity and resources in the infrastructure sector (a concept introduced in Recommendation 1). We recommend that any phasing in the Government’s roadmap due to expected capacity or resource constraints must not be allowed to erode the science-based foundations of the Government’s vision.
We acknowledge that the Assessment is driven (in part) by the need to decarbonize the Canadian economy (which we support), but we encourage that any roadmap extends beyond emissions, with the adoption of metrics and targets that address both carbon (e.g. the development of net-zero carbon ready buildings) and climate resiliency in infrastructure projects and assets.
2. Improve coordination among infrastructure owners and funders
Recommendation 4: Require those involved in infrastructure projects to adopt common taxonomies, methodologies and reporting frameworks to promote consistent and comparable decision-making
The exposure of Canadian infrastructure to physical risks, and the opportunities afforded by climate-resilient development projects, means it is key for the Government, owners, funders, and other stakeholders to make effective and informed investment decisions across different asset classes.
Facilitating consistent and comparable investment decisions across different asset classes, risks and opportunities requires the development of standardized taxonomies, methodologies and frameworks.
The development of climate risk taxonomies and methodologies, which are appropriately tailored to Canadian infrastructure, will require effort and will be an ongoing process. The benefits of doing so, however, are clear; defining specific climate risks or risk categories in taxonomies and methodologies, and detailing how such taxonomies and methodologies apply to different asset classes will provide a common language and foundation for climate-related risk identification and assessment. 2
Although the standardization of taxonomies and methodologies for infrastructure may take time, the Government should take action now with respect to the mandatory adoption of TCFD recommendations for large-scale infrastructure owners and funders. There are a number of drivers for this.
First, data from asset owners, funders and, notably, other jurisdictions, show that early action on systemic risk promotes market stability, in that it provides predictability, which in turn allows market participants to assess and model threats, as well as opportunities.
Second, early action is possible. Existing disclosure frameworks (of which the TCFD is paradigmatic, supported by other initiatives as necessary 3) may not be perfect, but they provide foundational support for action. In particular, the TCFD recommendations urge organizations to consider and disclose how climate change-related risk and opportunities impact their core business and asks how these risks are being managed in an integrated way. This type of systemic transparency should be required of all large-scale infrastructure owners and funders.
Third, the failure to adopt a consistent approach will result in increased infrastructure investment costs and poor risk management. It will lead to individualized responses by market participants, which is inefficient (increased costs for participants to develop bespoke responses). It may also lead to an uneven playing field (investors will not be able to compare infrastructure projects consistently). It may also lead to responses by infrastructure participants that are insufficient to address climate risk. Conversely, the early engagement by infrastructure participants on applying TCFD-practices (including, critically, with respect to decisions about our future climate and physical risks) is likely to accelerate a more efficient and effective response. That is to say, the sooner infrastructure participants are required to engage on climate-risk and opportunities, the sooner the market will reach maturity on them.
Finally, Government support of the TCFD with respect to infrastructure owners and funders will have an indirect but significant impact on entities beyond any specific project (i.e., throughout the value chain).
The mandatory adoption of the TCFD for infrastructure owners and owners might be supported by a Government initiative to collect, aggregate and disseminate regional climate data that is broadly applicable to the infrastructure sector (i.e. that reaches beyond any individual project). That data can then used and applied by both infrastructure owners and funders (e.g. pension funds and real estate investment trusts).
3. Determine the best ways to fund and finance infrastructure
Recommendation 5: Promote transparent price signals and remove disincentives for green infrastructure
Transparent price signals (ideally derived from compliance markets) represent a critical tool (a) for investors and other stakeholders to assess the risks and opportunities relating to infrastructure risk (i.e. to assist price discovery), and (b) for policy-makers to effect meaningful emissions reductions and climate resilience (i.e. to achieve jurisdiction-wide climate change objectives). These positive price signals can also promote innovation and have a multiplier effect to accelerate climate-resilient capital allocation.
In parallel with price signals that promote investment, the Government should also consider updating existing rules and requirements (e.g. prudential penalties) that compromise or delay capital allocation to infrastructure projects that are intended to respond to or address climate-risk. This should begin with ‘green infrastructure’, where existing rules and requirements may be based on outdated assumptions or data. The Government should consider providing relief on regulatory capital requirements (e.g. by supporting action of the Office of the Superintendent of Financial Institutions) related to green infrastructure projects, where this can be done in a responsible way and with oversight to maintain the stability of the financial system. 4
Recommendation 6: Invest and engage in nature-based solutions
We acknowledge the Assessment’s reference to investing in the natural environment, and support the expansion of the Government’s infrastructure mandate to include green and natural spaces that either accelerate Canada’s transition to net-zero emissions or improve the resilience of Canadian infrastructure to physical risks presented by climate change.
In this context, we recommend working alongside the members of the Taskforce on Nature-related Financial Disclosures (“TNFD“). The TNFD is expected to develop and publish its recommendations by 2023, which means that the Government of Canada has the opportunity to demonstrate a leadership role in developing an efficient and effective market for nature-based solutions. The Canadian Government can leverage that leadership and experience to accelerate its national infrastructure ambition and attract investment into Canada.
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We are available to discuss any aspect of our submission, and welcome the opportunity to present our views and work at your convenience.
If you have any questions or comments, please do not hesitate to contact Pete Richardson (Climate Strategist, Policy and Government) at email@example.com.
Additional information on Manifest Climate can be found at https://manifest.caleywalsh.com.
Director of Policy and Legal Affairs
Office of the Minister of Infrastructure and Communities