The Empire Club of Canada Presents
Annual Financial Outlook 2024: How Can We Make Canada a Great investment?
Chairman: Sal Rabbani, President, Board of Directors, Empire Club of Canada
Head Table Guests
[Information Coming Soon]
Moderator
John McKenzie, CEO, TMX Group
Distinguished Guest Speakers
Charlotte Wang, Enterprise Technologist, AWS
Pamela Steer, President & Chief Executive Officer, CPA Canada
Lisa Baiton, President & CEO, CAPP
Panellists
Earl Davis, Head of Fixed Income & Money Markets, BMO
Rhona DelFrari, Chief Sustainability Officer & Executive Vice-President, Cenovus
Barbara Zvan, President & CEO, University Pension Plan Ontario
Introduction
It is a great honour for me to be here at the Empire Club of Canada today, which is arguably the most famous and historically relevant speaker’s podium to have ever existed in Canada. It has offered its podium to such international luminaries as Winston Churchill, Ronald Reagan, Audrey Hepburn, the Dalai Lama, Indira Gandhi, and closer to home, from Pierre Trudeau to Justin Trudeau; literally generations of our great nation’s leaders, alongside with those of the world’s top international diplomats, heads of state, and business and thought leaders.
It is a real honour and distinct privilege to be invited to speak to the Empire Club of Canada, which has been welcoming international diplomats, leaders in business, and in science, and in politics. When they stand at that podium, they speak not only to the entire country, but they can speak to the entire world.
Welcome Address by Sal Rabbani, President, Board of Directors, Empire Club of Canada
Good afternoon, and welcome to the Empire Club of Canada. My name is Sal Rabbani, and it’s an honour to stand before our community, both in person and virtually, as Chair of the Board of Directors of the Empire Club.
To formally begin this afternoon, I want to acknowledge that we are gathering today on the traditional and treaty lands of the Mississaugas of the Credit, and the homelands of the Anishinaabeg, the Haudenosaunee, and the Wendat Peoples. We encourage everyone to learn more about the Traditional Territory on which you work and live.
The Empire Club and TMX have combined forces to curate a new kind of Annual Outlook Event today. We aim not only to look ahead at what the new year will bring, but also, to establish an executive agenda. Today, we’re hosting a dynamic discussion on important emerging economic topics, and hopefully providing an opportunity for all of you and your organizations to get ahead on the issues that will matter in 2024.
The Empire Club is a not-for-profit organization, and we’d like to recognize our sponsors, who generously support the club, and make these events possible and complimentary for our online viewers to attend. Thank you to our Lead Event Sponsors, Amazon Web Services (AWS), the Canadian Association of Petroleum Producers (CAPP), and CPA Canada, Chartered Professional Accountants Canada. And thank you also to our VIP Reception Sponsors, National Bank and McCarthy Tétrault, and thank you to our Supporting Sponsors, ENY and KPMG. Lastly, a thank you to our Season Sponsors, Amazon AWS, Bruce Power, and Hydro One. Why not?
As always, we accept questions from the audience for our speakers, and you can undertake to scan that QR code found on that program booklet in front of you. and for those of you joining online—on the video player.
I’ll start, you know, beyond the economic and financial agenda for 2024, today, we aim to make progress on answering one important question, and that is: how can Canada, and how can we make Canada, Canada a great investment? We are, and I say it in all humbleness, lucky to be in Canada, a beautiful, rich, diverse country, with at least half a million people from around the world, you know, coming here, and call it their home, you know, their new home every year. We focus on diversity and inclusion; we’ve got a highly educated population, focused on advancing equality, promoting the right values coast-to-coast. It’s Perfectly Imperfect. I’ve said it before on this podium, and I’ll say it again, the best country in the world, here.
In fact, the world is on the cusp of huge transformations: polarization, increased competition, global conflicts, artificial intelligence, climate change, you name it. And at home, we need to tackle business productivity challenges, and chronic underinvestment in technology and automation. It’s all impacting our competitiveness as a country, while economic uncertainty continues to top the list of concerns for both households and businesses. So, the question: how can we capitalize on our strengths to attract the kind of investment from within our borders and outside, that Canada needs to thrive? You know, I, I spend my days interacting with business owners from all walks of life, helping them grow and be more competitive—and I’ve seen many succeed, and I’ve seen quite a few fail. And I’ve asked myself many times, what makes the champion succeed? What’s the recipe? I guess, the spoiler alert is that I just don’t have that answer just yet. But I have seen patterns and common traits. And I believe we find these qualities in all champions in business, and sport, entrepreneurship, you name it.
The first one is resilience. Champions are stubbornly relentless; they never give up. The second one: innovation. It doesn’t have to be disruptive innovation; it can be slow, incremental adjustments. It’s the constant effort of always being better. As one business owner put it, ” I know, Sal, there’s a better way. I just haven’t found it yet, but I’m working on it.” And the third quality of all champions—or at least I’ll propose that they share—is ambition. I can guarantee you’ll see all of these elements in all successful people, in all successful countries, by that matter. They’re resilient, they constantly innovate, and they’re ambitious. So, for Canada to be a champion, we need more of these three things: resilience, innovation, and ambition.
I want to leave you with a story I heard from one executive I used to work with a while ago, and it comes from the venture capital world—and I’m sure many of you have heard iterations of this—but I believe the idea is important, and it may help frame the conversation today. In Silicon Valley, unless you talk about this, you know, insane double-digit growth, unless your ambition is to be the best company in the world, you kind of get laughed out of the room. In Canada, when you talk about insane double-digit growth, about being the number one company in the world, you kind of get laughed out of the room. I think, you know, this mindset is one of the keys in making Canada the best version of Canada and making it a great or greater investment destination. The question is, how ambitious are we for ourself? How can we be just a bit more unreasonable in our own aspirations? And how can we dream bigger dreams for our country, and for all of us? I certainly hope today’s panel will help us find some answers to these questions, and I look forward to the conversation. With that, it’s now my pleasure to welcome to the stage Pamela Steer, President, and Chief Executive Officer for CPA Canada.
Opening Remarks by Pamela Steer, President & Chief Executive Officer, CPA Canada
Good afternoon, everyone. I’m absolutely thrilled to be here today to support the Annual Financial Outlook, and this new experiment, a collaboration between the Empire Club and TMX. CPA Canada is absolutely very proud to add its support to this event. I think we’re all looking forward to today, as it’s a timely and dynamic conversation about Canada’s economic prospects for 2024. I’m sure that the current state of the world, as Sal just alluded to, is occupying all of our thoughts these days, and there’s no doubt that we need greater collaboration like this event, diverse thinking, and strong leadership, something that CPAs have in abundance. We are guardians of financial integrity; we are stewards of economic resilience, and we are committed to maintaining and strengthening Canada’s economy. Let’s face it: professions and economies aren’t confined to the provinces, or even the country in which we live—and it is a great country. They are global ,and impacted and influenced by events far, far beyond our borders. Our world, as Sal noted, is increasingly competitive and fragmented. To maintain Canada’s status as a global economic player, we must continue to ensure that our capital markets remain attractive. A strong national CPA profession is not just a professional matter; it is critically important that, through our unity, we continue to elevate trust and confidence in Canada’s economy. And now, more than ever, it’s imperative that as Canadian business leaders, all of us, we continue to work together to foster an environment that is conducive to investment, innovation, and sustainable growth. And we cannot be complacent about that at all. We cannot continue to assume that our past successes will see us continue to flourish into the future.
A recent open letter by the Canadian Chamber of Commerce noted how quickly the world has changed, with the established international order being very challenged, as well as being undermined. As the letter states, Canada is increasingly being viewed by our partners as a well-meaning, but unserious player on the global stage. We together can do more, and we must. We have an opportunity to demonstrate our international leadership, and help set the global agenda next year, when we take on the G7 presidency once again. The world needs more Canada, not less. I’m confident that we are known for our collaborative action, and a rules-based system and society, grounded by law and principles of fair play. I’m really confident that today’s conversation, including John, Barb, Earl, and Ronna, will pave the way for a better understanding of the economic landscape in 2024 and beyond, and inspire our collective efforts to make Canada a prime investment destination. Thank you so much to the Empire Club for continuing to convene these really important opportunities to exchange ideas, and thought-provoking discussions. Everyone, enjoy the event today.
Charlotte Wang, Enterprise Technologist, AWS
Good afternoon, everyone. I’m Charlotte Wang. I’m an enterprise technologist with Amazon Web Services, and my role is basically to act as an advisor and a hub back to AWS Services, on behalf of my customers, typically supporting digital transformation, but also, looking at how to harvest and opportune the data that you have. I’m fortunate to actively participate in advising and collaborating with customers. And in terms of 2024, I believe that “follow the data” is definitely going to be an active theme. There is incredible opportunity that I see, the ability to improve your operational efficiency, but also, to understand the value, and harvest the value of the data that you get from your day-to-day business. In fact, earlier this month, I was part of an experiment where, in two weeks, we set up a bot to search a knowledge base of a very large enterprise customer, to answer frequently asked questions in a relevant and meaningful way. The experiment achieved results in seconds, which allowed the contact centre, or the service support people, to spend more time on the complex problems that they were dealing with on behalf of other customers. And just that efficiency alone, in one week, saved 300 hours of toil. And so, that experimentation and that ability to complement human interaction, freeing up for more complex problem-solving, I think is exactly the opportunity that we have for innovation, but also for investment. Interestingly enough, Canada is recognized as having great thought leadership in artificial intelligence. But in a recently released report, we ranked 20th in AI adoption out of 35 OECD countries. So, I really do think that there’s an opportunity for allowing our data to work for us, but also, to invest and see where the opportunities are to monetize your data.
In terms of a few highlights about AWS and our presence in Canada, we just recently opened up what we call a “Region,” which is a series of data centres, to support our services, in Calgary. We’re investing 21 billion dollars by 2037, and our expectation is that that’s going to harvest approximately 40 billion dollars of GDP, supporting about 5,200 employees. And what this means for you is, there is now an opportunity for secure, resilient, high-performing services, that are also regulatory compliant, keeping the data of Canadian citizens within our borders—so, those services that you can offer stay within Canada. And I’m really pleased and proud of that investment that we’ve made.
And further, from a sustainability perspective, by 2025, we are committed to being off the grid. So, you can imagine data centres, and our fulfillment centres where your Amazon.ca orders come from, consume an enormous amount of energy. And so, with solar and with wind, we’re investing—and one fun fact is that we’re creating the largest solar farm in Vulcan, Alberta, that is going to be able to provide energy to power 100,000 homes. So, that investment and that continuing, you can see that there’s a theme here, that from an Amazon and an AWS perspective, we think Canada is a great place to invest. And now I’ll introduce you to John McKenzie, our moderator. John is the CEO of the TMX Group, and he’s worked at TMX for over 20 years. Prior to his appointment, he was the CFO. He has led TMX through several major acquisitions, including the Maple transaction, the acquisitions of the Montréal Exchange, and Treport, and just last month, the acquisition of Vertify, a US indexing company. John is a CPA, and has an MBA from Edinburgh Business School, and an Honours BA from Wilfrid Laurier University. John, over to you, to introduce today’s discussion.
Joh McKenzie, CEO, TMX Group
All right, good afternoon, everyone. Thank you again for joining today, for attending. Today, we’re hoping this is the event to kick off a series of great discussions throughout 2024, on how we move forward. As Sal mentioned, we are trying something a little different this year, in terms of Economic Outlook, and making it more of a discussion and a conversation about the things that are emerging, the things that we can do differently, to continue to make these great Canadian markets even stronger, even better. So, just a, you know, a handful of opening remarks to share with you today, before I introduce the esteemed panel that’s with me today. I think most people here know TMX. For those that don’t, you know, we operate a very unique position in the country’s capital market ecosystem, as both the owner and the operator of the Toronto Stock Exchange, the Montréal Exchange, as mentioned, the TSX Venture Exchange—we really are operating at the heart of the Canadian capital market. And we redefined our purpose as an organization a couple of years ago.
I really believe in companies that have purpose-driven strategies, and our purpose being to make markets better and empower bold ideas. And it’s a phrase that I try to candidly repeat over and over again in every engagement—and not just because it’s the TMX purpose, but I really believe it’s the shared purpose of everyone here, who participates in the capital markets in the Canadian economy. We have that collective shared purpose of making these markets better. And it’s a commitment we need to prove out over and over, through our actions. I, I was picking up on some thoughts that Sal had, as he was introducing, and thinking about, one thing about Canadians, we’re known for being quite apologetic. But I think today, we will be unapologetic. We actually operate collectively some of the best capital markets in the world, if not the best. And if we have to keep reminding policymakers of that to help them drive change, we’ll continue to do that as a team. So, I mean, this all means collectively, we’re here to strive for ways to make things better. We believe that’s actually part of our role is to champion growth, to speak for Canadian companies, Canadian investors, ecosystem players. And so, we thought it was only appropriate that today, that, you know, TMX not just as an operator of marketplaces, today will be a marketplace of ideas, and try to facilitate a discussion on key leaders in the industry, in terms of what we can do better to make Canada a great investment.
And so, as you can see, as I introduce folks, we are all leaders that are actively involved in the day-to-day of our organizations, in sectors that are all about driving Canadian economies. This is deliberate. We are believers that discussions are more impactful when they’re based on firsthand experience, when they’re based on people that have accountability, and responsibility. So, we are not commentators, we are not critics from the sideline; we all live this every single day. And hopefully, we’ll start to hear from us what we want to see from our governments, our policymakers, our regulators, and our decision-makers, about how we actually make this more successful. And candidly, it’s actually okay for us to be a little impatient. You know, Canadians are often impatient—we’re going to get a little less patient today, in terms of the drive for change.
So, with that, let me introduce the panellists. Earl Davis is the Head of Fixed Income and Money Markets at BMO. Earl has over 25 years of experience in fixed income and FX. And in his current role, has responsibility for actively managed fixed income mandates. And then, prior to joining BMO, Earl led develop markets, fixed income, and FX, at a leading pension organization, where he had the oversight over the nominal inflation and global bond market portfolios—which sounds like you’re going to know a lot.
Here, I have on the far side, we have Rhona DelFrari, Chief Sustainability Officer and Executive Vice-President at Cenovus. Rhona works to ensure environmental, social, and governance considerations are embedded in the company’s strategy and business plans. She’s also responsible for leading the company’s communication efforts, and building strong relationships with stakeholders, including working with Indigenous communities, members, government officials, and community partners. Thank you, and welcome, Rhona.
And in the middle, Barb Zvan. Barb, who I’ve known for many years now—who has done a great job of telling me how to make the markets better, as well—is President and CEO of the University Pension Plan Ontario. She is responsible for realizing UPP’s strategies to deliver value, lifelong pension security, and service excellence to UPP’s more than 39,000 members, while establishing UPP as the pension solution of choice for Ontario’s university community.
So, please join me in welcoming our panellists. So, are we ready? So, before we get into kind of the discussions of where we’d like to see change, where we see the marketplace going, and the ideas that we have, we thought we would start with a bit of a snapshot of the current environment. Earl, let me lead this with you. You know, can you give us an overview of where you’re seeing the Canadian economy today, and the trends you anticipate having a real impact on the year ahead?
Earl Davis, Head of Fixed Income & Money Markets, BMO
Yeah, yes, definitely. Good afternoon, everyone. I do see a few familiar faces in the crowd, and for those who know me, know I like to speak with analogies and stories. So, to set the context of the economy, let us picture, as a collective, that our retirement objective is to retire on the White Sands of a Caribbean Beach. Okay? So, right now, we’re on that plane towards the White Sands of the Caribbean Beach. And from the 1980’s up to 2020, we’ve had 40 years of an idyllic weather system—you know, lower inflation, lower interest rates, higher asset prices across [indiscernible]. So, everything has been idyllic on this flight to the Caribbean in our retirement. Then, all of a sudden, we hit COVID—and then what happens? Another weather system’s coming in. This weather system is higher inflation, has resulted in higher interest rates. And picture, when you’re on a plane and two strong weather patterns hit each other, what happens? Turbulence. And we got extreme turbulence. Not your five-foot or, you know, potholes on the road. We had 500-foot drops. Interest rates went up 500 basis points, you know, on the short end. We had longer-term interest rates go up even higher. And although we’re past the most volatile periods, there’s still going to be turbulence, there. The most important thing, when you have turbulence and you’re on that plane, the very most important thing is for the pilot to get on the mic and say, “First of all, this plane, our system, our economy, our country, is built for this. We’re getting through this,” and also, to give direction as to where we’re going. And that’s part of what this conversation’s about.
And the two things that we’ll touch upon that came about through this turbulence are, one, the opportunities of yesterday won’t be the opportunities tomorrow. And the other one is, by definition, because the cost of capital, interest rates are higher—and yes, we do expect them to go lower this year, but not to where they were—capital becomes more dear. So, how does, how do we increase in Canada access to capital? And how do we reduce the friction around it? And I think that’s the conversation we’re going to have today around that.
John McKenzie
I’m going to reuse “turbulence” many times in the future, now. I can tell you from our own experience that we know of hundreds of companies that would love to raise capital, but turbulence keeps them out of the market. You transitioned a little bit, there, in terms of kind of financing to the future, so I’m going to pick up on that theme and talk to one of the biggest themes around financing in the future, which is around financing around transition, transition investments, changing the economy. And we all know, to continue to grow this economy, especially in this market, we’re going to need to attract investment. And a lot of discussion around how do we finance this transition to clean energy sources. We have a long history of leadership in energy, and resources, and an opportunity to lead the way to a near-zero future. However—and I’ll give a couple of anecdotes, as we get into the question—we used to raise 20 to 30 billion a year in Canada’s capital markets and public markets to support the energy sector, both traditional and emerging energy sector. Last year was less than one billion, and the years before that were less than one billion. So, we know there needs to be change. I want to quote from an RBC report that’s coming. RBC just released their Climate Action Report earlier this week, and found that while annual investment flows to climate action have grown to around 22 billion, public and private, they’ll need to reach 60 billion a year for the rest of the decade, for us to be on our course to Net-Zero in 2050. I think we’ll agree that’s a fairly sizable gap. So, with that, let me start with you, Rhona. What role does the Canadian energy sector play in transitioning the economy and driving financing back in?
Rhona DelFrari, Chief Sustainability Officer & Executive Vice-President, Cenovus
Well, I can tell you one thing, that I’ve had to put my seat belt on for the turbulence in the energy sector over the past few years, and that’s just a given, in our sector. So, we play a critical role in the energy transition—and in providing global energy security, but absolutely, in the energy transition, and I’ll tell you a few reasons why. First of all, there are no scenarios, no matter where you look, that show zero oil and gas in the future; 2050, even the most aggressive decarbonization scenarios show that the world will still need oil and gas. Whether that’s for asphalt, or for parts for your computers, or anything else. So, I’ll park that there. If, and I believe we do need oil and gas into the future—you can argue about how much of it—we are very strongly in the belief that Canada should be that provider. We have the fourth-largest oil reserves in the world, behind Saudi Arabia, Iran, and Venezuela. We have strong environmental, social, and governance—I won’t get into all of that today, but—leading practices with Indigenous partnerships, with land practices, we have transparent regulation and disclosure with our water use, a whole bunch of reasons. And global survey after survey and study shows that we are leading in ESG in our sector around the world. We have, still, a challenge when it comes to emissions, and we’re addressing that now. And that’s what we’re talking about today.
So, over about the last decade, our industry has reduced its emissions by—depending on which period you, exactly, look at—around emissions-intensity by around 25 percent. And now, we are focused on absolute emissions reductions. And that is what is going to lead us into the future as, for Canada. Because our industry is 28 percent of Canada’s overall emissions. So, we represent the best opportunity for Canada to truly progress its emissions-reduction ambitions. Without our sector, that’s going to be very, very, very hard. And we have a shared desire to do this. So, we hear it from the financial community that, yes, we want the energy sector to decarbonize. Our sector is very clearly making commitments that we want to decarbonize. We plan, we have plans to decarbonize—we’ll get into some of that a little bit later—you hear it from the government. So, what’s been the holdup there? And you talked about impatience. I have a lot of impatience right now. And so, I think, you know, the big challenge is that you hear it from Canadians, poll after poll, Canadians want, they understand the contribution of our sector to the Canadian economy, and they want to have a strong energy sector here. You know, we’re about seven percent of Canada’s GDP, that we directly employ about 120,000 people, more than 400,000 indirectly. So, there’s no real question there. They also want us to decarbonize.
And so, to get that going faster, we need to decide where that capital is coming from. And that’s what—when you talk about the turbulence and the uncertainty, that’s the challenge. It’s not technology, it’s always a challenge, but we actually know in our sector how we have technology and it will always improve. But we know what the solutions are to decarbonize, in general—there’s still some more tech dev that has to happen, but we know it. It hasn’t happened, because it costs billions and billions and billions of dollars. And I do get frustrated when I see criticisms that say, “Oh, these companies only care about their shareholders, don’t care about the environment.” It can’t be one or the other. Because—everyone in this room, in particular, knows—if you don’t care at all about your investors, you don’t have investors anymore, and then we don’t have any capital to actually decarbonize, let alone run our business. And so, it has to be both.
And the challenge—and I throw that out, I’m glad you’re both speaking again after—because the challenge that I throw out there is that, where is the trade-off that is needed? Because I mean, we have, we have only so much. There’s only so much money in the bucket. And so, you know, our sector over the last few years per year contributed 45 billion dollars in taxes and royalties to the governments. So, that’s some of our cash flow going out. We’ve paid off debt, because there were years from that turbulence, years recently, where we acquired debt, because we were making no money. So, we have had to pay off debt, so, there’s some more of our bucket of money. We have our operating, you know, our capital cost, our ongoing GNA, there’s some more of that money. So, there’s money that’s left right now, because we’re doing okay, and prices are commodity prices are okay on that volatility scale. Some of it has to go to our investors, and some of it has to go to decarbonization. And when I sit in, I meet with investors often, and I ask this question over and over and over again, especially the ESG teams: Where’s the trade-off? Where’s that balance between how much you’re willing to allow us to put to decarbonization—which you all say that you want us to do, and we want to do it too, because I see for long-term sustainability of our industry we have to—how much do we put towards decarbonization, versus how much do you want for your returns? I’ve never had an answer yet to that question, and I’ve asked it a lot of times. Because it’s difficult. And when you talk about the turbulence and volatility, add on to commodity price volatility that we deal with all of the time, right now we have extreme policy volatility in this country. I, when I talk about the need for capital, I actually don’t even know how much these massive decarbonization projects are going to cost me, as a company. I don’t know what I, I don’t know what a carbon capture and storage project, what part of it will have to come from us, versus our government partners, versus other opportunities. Because, first of all, there’s uncertainty—especially talking carbon capture and storage, that’s more of a technology we know—but things like small modular nuclear reactors, which have huge opportunity to decarbonize, especially the oil sands sector, those, I don’t know how much those are going to cost yet. Nobody really does. And when you layer on the complexity—the “Layer Cake,” we started calling it—of the emissions cap, the methane regulation, the clean fuel standards, the clean electricity regulation, the provincial carbon taxes, some of these things have been out there for a while, but we don’t actually know the final details of them. Even the Investment Tax Credit. That’s fantastic. You know, that’s going to, not just benefit our sector, but spark innovation and move forward, is the idea of it, for carbon capture and storage. But it was announced nearly three years ago, and we’re still are working, they’re still working through the details. So, you should see how many scenarios our modeling team has run through, as we’re trying to do our long-term planning.
So, I bring that back to your answer: our sector can play a huge role. It has to play a huge role in leading Canada into a lower carbon economy—we can’t do it in Canada without our sector. But we have a lot to figure out. We can’t figure that out as a, our sector alone. And I look to people on this panel in this room to help figure out how we’re going to pay for that.
John McKenzie
Well, I’m going to see if we can get some money for you right now.
Rhona DelFrari
Okay! Let’s go, let’s go!
John McKenzie
And we all know from our experience as well—and I’m sure Barb will reiterate, as well—investors do not like uncertainty. And with externalities that create uncertainty, it’s very hard to create a climate to invest. But Barb, you represent the investment community—you represent the whole of the investment community today.
Barbara Zvan, President & CEO, University Pension Plan Ontario
Oh dear.
John McKenzie
And you’ve got a lens and view, in terms of how do we get to net-zero. And so, how do you think about that? How do you think of the investment appetite? What are institutional investors looking for, and how do you think about it, the projections a year ahead?
Barbara Zvan
So, since I’m talking about the whole investment community, I’m going to go to an initiative that we actually have 45, all of that 42 Canadian asset managers and owners part of. And we have come together, because we strongly feel that we need to engage our Canadian companies to talk about the transition to net-zero. So, it’s called Climate Engagement Canada, and it started in 2021. So, we have, call it, 45 investors representing nearly 6 trillion dollars, working with 41 of the companies that are publicly listed in the TMX, who represented around 92 percent of the emissions when we started. So, a significant chunk. And why did we do that? Because we felt, as investors, to your dialogue, you know, we’re going one by one to these companies, and we really needed to speak with a strong voice about what’s really important, and stop this dialogue of so many different versions of the same. And so, we took some notes of the big global initiative. It’s called Climate Action 100+. There it’s 700 investors, representing 68 trillion dollars, working with, call it, 160 large global companies—and only four are Canadian. And so, we thought we need to actually do much more in Canada. And so, we were pretty proud, and pretty special for Canada, that we’re the first national program to get this up and started, compared to the rest of the world who’s tried. So, a good part for Canada is we actually can figure out how to work together. And we’ve benefited from support from TMX, from foundations, as well as from the federal government, to help get research done that supports this.
So, we have five asks. One is governance: so board level and senior management around climate change, we want large companies to commit to a net-zero transition by 2050. We want to make sure that they set measurable, sector-relevant targets, disclosure—big topic—as well as advocacy. And why we did this is if, hey, these companies could get their head around climate change, and manage the transition, they’re going to be better companies, which means they are better investments for us. You know, if large companies can commit, they’re far better to figure out the, how to invest in the smaller companies, which technologies are going to be the ones that help solve the problems. We are too distant away from that. And then, we have to realize—and back to some earlier comments—sustainable finance is a competition. So, we’re all in it together for climate change, but sustainable finance is a competition. We need about 125 to 140 billion dollars a year in Canada. We are putting 15 billion dollars in that bucket today. By 2030, McKenzie estimates that the world needs 9 to 12 trillion dollars. So, we are competing with the rest of the world to get the investors here in Canada, to help fund the things that you spoke about. And, you know, we need to bring down the emissions. And if we are successful with those companies, we’ll bring down by a third of Canada’s emissions in 2019. So, we can have big impact.
So, how are we doing as a country, in terms of attracting that capital? And when—so, we do a benchmark assessment, so, does the global initiative, and we can compare. So, you know, I’m going to give full marks to anyone that answers a question partially, and I’m going to compare our companies today to both the global today, and the global four years ago, when they started measuring. And where are we doing really well? We are doing really well in disclosure, and we’re doing really well in governance, and we’re comparable. So, that’s great, because you got to start with governance, and you’ve got to start telling your story. But where we really are lacking substantively is in how many of our companies are comfortable in making a net-zero commitment by 2050, how many of our companies have not yet made a long-term target to get to net-zero over time, how many of our companies haven’t put a transition plan or decarbonization strategy in place, and how many companies cannot communicate how their capital is going to that strategy. There’s actually none.
So, we are not setting up our companies to actually be competitive in the global environment, where this is expected when you make investments. So, when you look globally at what’s happening, these are the things that the investors are looking for. And when they look at Canada, if they find that that’s not happening—and it’s more and more—money flows where it’s the easiest, right? It will go elsewhere. So, given that, you know, we’re very focused on making sure that we can prepare our companies to be competitive for this financing. So, I would say, in the next year, we’re focused on those same five things, and we’re going to keep working at it until we get more progress with our companies.
John McKenzie
I’m glad to know, at the end of the day, that TMX is net-zero now, and, and I need to place some debt—so I’ll be calling Barb after. I’m going to open this up to even a broader discussion on investing in Canada, I mean beyond, even, the transition piece. Because we talk about how do we invest across all sectors—and why don’t we keep on the theme of pension fund investment, for a minute. It’s just stats, and it’s just data, to know that the amount of that Canadian pension funds have put into Canadian equities is substantially declined for a number of reasons. Again, we know Canadian pension funds are big investors in Canadian companies, Canadian infrastructure, but in equities, we’ve gone from what was once 80 percent to 25 percent of the portfolio, and I think on the Maple 8, now only about three percent. But now that we’re the Maple 11, maybe it’s better. And I know last year, we all saw a, really kind of a start of a broader public discussion around pension investing in Canada, what was driving it out? What could we do to incent it in? And so, why don’t I—you know, without purporting any solutions, Barb—why don’t I start with you? You know, what do we need to do differently in Canada to incent capital entries to invest here, and/or what’s getting in the way of more investment into Canadian companies?
Barbara Zvan
Sure. So, I think in this same Fall Economic Statement, there was actually a statement from the Canadian financial sector on what barriers we saw. So, there’s another group—and sorry for the acronyms—its short form is SFAC, but it’s a Sustainable Finance Action Council. Think of it as the top 25 financial institutions in Canada—so the big banks, big pensions, big insurance—in the room with some niche players, and, trying to say, “What do we need to do to make sure capital stays in Canada, and new capital comes to Canada?” So, this came, also, from the expert panel. And the reason why is, when you do these expert panels, you realize you get a page per recommendation; you don’t really get to say too much on how to get things done. And we thought, if we can get 25 organizations in a room, 25 CEOs in Canada, you have the vast majority of the financial sector. So, we can come up with the solutions, and help government implement them. That was the raison d’être. So, we focused on building the foundations, and if you think of the triangle, on the bottom, it’s disclosure, it’s capital alignment to a taxonomy, and that enables the top, which is transition plans.
And so, unfortunately, if we do the plane analogy, this has taken a lot longer flight, and we still have not landed. So, I’m going to start with two of the key imperatives is disclosure: where is Canada—and back to this, where we had the opportunity for leadership? So, in terms of disclosure, you know, the global standard is the International Sustainability Standards Board. How many people have heard that acronym before? Not bad. So, where did that come from? Sorry, accountants, it’s not from you. It came from investors. So, over a decade ago, there were two initiatives that were voluntary. One was Sustainability Accounting Standards Board, or SASB; another was Task Force for Climate-Related Financial Disclosures, or TCFD. So, SASB, at the end—so I had the privilege of being their Chair of their Investor Advisory Group, and we did that, and we went around the world and said, “Can you support this?” And you know what? It wasn’t a hard sell. They knew that this material was, these types of metrics, were important. And at the end, we had 83 trillion dollars backing SASB in 27 markets. So, on the plane a lot. But that actually helped ISSB say, we’re going to take SASB, and similar events in TCFD, and we’re going to get going. And they rebranded it with S1 and S2. So, a little bit more creativity, Pam, please.
But anyway, Canada went and then went and bid for the office of ISSB, and we were successful in getting the office, one of the offices, in Canada. So, isn’t that fantastic? We are recognized, we are leaders. But since then, you know, you can look at countries like the UK, Hong Kong, Singapore, all have already adopted it. Then you say, “Okay, we’re a natural resource economy,” you know, but Australia, Brazil, Mexico have already adopted it. So, we need to stop with the analyzing, and move forward. Looking forward to the final, hopefully, consultation from the Canadian Sustainability Standard Board this year, and looking for real progress this year. Because I just don’t think we are giving great clarity to our companies on what they need to disclose to get the international investor. And just to understand how many markets ISSB is in: it’s in 164. So, we are one of 164 markets looking at this. It’s time to get into the, you know, this is what everyone’s doing, kind of thing.
The second one is a taxonomy. How many people know what a taxonomy is? Great. Okay. So short form, do an analogy, right? Taxonomy would be, how do we know as investors—because this is a really complicated space in climate—that something is green, so net, basically 2050-ready, or is on something that we need to do on the way to get to green, so, CCUS, for example. It’s really hard as an investor. And it’s really hard because it’s different in every country. So, if anyone, I’m sure everyone has bought an appliance. You go to the store, and there’s an Energy Saver label on it, right? And it tells you if it’s energy efficient. And you’ll go, “Great, it’s energy efficient,” you can move on to other things like price. But do you ever argue with the salesman that that’s not right? Never. Because there’s standards and process and governance around that. And that is really what we’re trying to create with this taxonomy.
So, we undertook that. The Fall Economic Statement, we put in our proposal in 2022. We got something in the Fall Economic Statement that there’s more consultations. And the same document says, Canada is a climate finance leader. So, I will note that we were done the expert panel report that recommended this in 2019—Europe was only one year ahead of us at that point. Europe’s taxonomy is up and running, and now considered the gold standard in the world. We have not put pen to paper. You know, and you say, “Okay, Barb, this is too unique, duh duh duh,” I hear it all the time. There is now 40 taxonomies in the world either develop or developing, because they need the same framework, but the numbers and thresholds have to different for different regions. So, think Singapore, one big city, their taxonomy is going to look really different than Mexico, than Canada, than the EU. So, we’re, most of them are green. But there’s a handful, call it three to five area, regions, or countries, really want to work on transition. How do we help with the energy change? And you know, there’s a real opportunity for Canada to lead. You know, we actually had all 25 of those financial institutions—banks, insurance, pensions—sign off on this recommendation. When does that happen in Canada, right? So, we’re working through this. And so, then you say, “Well maybe it’s not a right good recommendation.” Well, guess what? Australia took our recommendation; they’re off and running, and they published the report in December where they expanded on it. And they invited us to the table, and we cannot participate. And they have the Asian Region, and they have New Zealand, and Japan would be the next most obvious one.
So, what does that mean for our companies—and I’ll get to the punchline, and I’ll get off the plane—is that, you know, when we talk about that number, how much of their capital is [indiscernible] to the taxonomy? Our companies cannot produce a relevant number. Not one. If you look at the Climate Action 100+, 40 percent of those companies are now reporting that number, right? Probably because the EU’s moved it along. EU’s released their first report; they have said that, for the sectors that they reporting, 15 percent of all CapEx is going to the energy transition, and their oil and gas sector that they’re covering is putting in 22 percent. So, they’re actually investing more, and you have the data to see it.
And as an investor, where you’re trying to figure out to put your money through various vehicles, you have absolute clarity that this is actually aligned with climate change. And money flows where is the easiest. So if you want things to go and come here, we need to start putting in the basics infrastructure, the foundation. Because if we just go these transition plans without the foundations, they’re not going to be seen as credible. So, I’m all about trying to figure out where that puck is going—for another backing analogy. You know, we are not going to where the puck is going—it’s kind of like me playing hockey, that puck is gone, and I’m standing still. So, and I will let my counterparts continue.
Earl Davis
Can I speak to this?
John McKenzie
I’m going to come to you, yeah. I heard a couple of things in there, which one of them, if I’m going to summarize it—maybe we’ll put it on the, the summary later—which is stop talking about it and do it, in a lot of these places. We’ve also been engaged on how do we de-risk investment—and I want to get you in on that, Earl, in terms of how do we de-risk this—we’ve been engaged with the government on things that they could do to de-risk, and create certainty and investment around flow through shares, around other structures, around taxonomy, as well. Stop talking about it, just do it. I know you think about this a lot, Earl, in terms of incentives, structures, how do we de-risk investment? Where do you want to take this to, in terms of what we can do to actually incent more investment here?
Earl Davis
Yeah, so an interesting thing that came out of the government, as well, last year in the budget, was basically an allusion to, let’s lean on our Canadian Pension Plans more for Canada. And that got me thinking, first of all, initially, it sounds—there’s some, there’s a good underlying premises to it, because we have the best investment professionals in the world, you know? I worked at Ontario Teachers with, with Barbara for 12 years. And my team there, my fixed income currencies team, I said this team could go up against any team in the world. So, what hit me with that statement saying that, is okay, okay, so they’re working for the pensioners—which is good; that’s what you want—can we expand that? Can they work for Canada as a broader, as well, too? Which got me to thinking—and I don’t know if it’s the right or wrong model, but it got me to go look at the case of the poll model on their website: 18 percent of their AUM goes into Québec, it goes into to make companies global, as well as to support local companies. Again, there’s probably lots of failures, and—but to me the road to success is paved with failure, basically. So, that was interesting.
And then the other thing I went to go look at was PSP, and their North Crest Developments, you know, 500 acres at Downsview. You go look at that and it, it’s inspiring, in regards to the consultation they’re doing with Indigenous, with stakeholders, with neighbours. They’re making it for the long term. And you know what? They’re still making it to make money. But they don’t have to squeeze every single drop of juice out of lemon, right? That could come back to Canada and Canadians.
So, it got me thinking about that. And then I, I tied it kind of with the battery plants, and all the, you’re seeing all the announcement with battery plants, both Québec, Ontario, Canada-wide. You’re seeing a lot of announcements. So, I said take that, put a PSP model with it, and you develop the real estate, you get private partners around where you’re doing it—there’s probably local colleges or schools, you adapt the workers, you have programs there that adapt it. And then, you know what? You take an option from these companies, say, “In 10 years, we want you to make your money, we want you to be successful, but if you hit the certain amount after 10 years, we’re part owners now.” And that option goes right back into the pension plans, goes right back to Canadians. There’s so many wins here, in regards to reduces how much we pay us taxpayers from a sponsorship perspective for this, as well as it increases the upside. So, that—and like I said, I don’t know if it’ll work or not, but it left a seed of thought there for me where there’s potential. And this is where we start thinking about it as Canadians, as a whole. How do we turn something that is static to virtuous? And this is possibly one of the ways.
John McKenzie
Rhona, before we move on, let’s talk about investing from a, from a public standpoint.
Rhona DelFrari
M’hm (affirmative).
John McKenzie
So, you’ve got all the same conditions and ecosystem issues as everyone else. How are you thinking about investing? How is Cenovus thinking about deploying capital?
Rhona DelFrari
And to build on what’s been said, I mean, some of those European countries that have laid out their transition plans, they have a lot of policy certainty in those countries, including on government partnerships, funding partnerships for CCS, in UK and Norway—even in the United States, really close to us, there’s clarity about what those projects, what partnerships are going to happen. So, for us, so, so I’ll just start with Cenovus—we’ll go right down—so, Cenovus, this is how we do it. We have a net-zero ambition. We have a 2035, 35 percent absolute emissions reduction, a milestone on the way there, to reduce our methane emissions, in particular, in our upstream conventional—because our oil sands don’t really have methane emissions—by 80, reduce them from, by 80 percent by 2028, from 2019, and we’re already got them 60 percent reduced. So, we’re making progress. Again, we’re not just sitting there waiting; we’re making progress on the things that we can do, that have certainty right now.
We embed our capital allocation decisions on ESG into every decision that we make. So, there is no project that ever goes ahead at my company that doesn’t look across all of our ESG focus areas: so climate change, water, biodiversity, Indigenous opportunities. All of those things, we give people, we give every engineer and project manager a metric, so they have to say, “Is this presenting a benefit to your ESG target in each area? Or is this going to cause something that needs mitigation?” And so, if you don’t do that as a company, you’re not going to make progress. But we, you know, so this year alone, for 2024, in our 2024 budget, we have about a hundred million dollars that is specifically just for GHG emissions reduction. Over the years, as we really start to get more certainty around those big projects, like carbon capture and storage, or small modular reactor, that 100 million would grow exponentially. Because that’s when the big spend comes. So, right now, a lot of it is on methane reduction, it’s on CCS piloting—because we are, we do have multiple CCS projects at our operations that are going through different stages of engineering and design. And so, we’re taking the action that we can right now—we do operate CCS, also, at our ethanol plants.
And then, what is going to happen next is really going to depend on when we get that certainty—and stop talking about it, I agree. We’re part of, we’re a founder of the Pathways Alliance, all of the oil sands, largest oil sands companies coming together to get to net-zero with a plan. We have laid out a plan; 24 billion dollars, ready to be spent by 2030. But we can’t actually make those spending decisions. We can’t get—if you care about the G of ESG, which we do, you’re not going to get to final investment decisions on a multi-billion dollar project until you actually know what the regulatory certainty, and what it’s actually going to cost your company. So, we are ready, at the Pathways Alliance, for the foundational project, is going to be one of the world’s largest CCS projects. We’re ready to put in a regulatory application. The next step would be to order pipe for the CO2 pipeline. That is scary, as companies that have governance, to make those decisions, when you do not know how much that the project is going to cost, because you don’t know what the government partnerships are going to be.
John McKenzie
Please, everyone, take that piece away, and the piece from Barb, and Earl, as well. We have the largest base of extractive companies in the world, the largest base of energy companies in the world, and what we, collectively ,hear at the marketplace, as well, the time is, “I have no regulatory certainty, how do we invest?” And so, that’s an area where we can all advocate for: clarity, government certainty, policies that actually get executed to move on.
Now, to not be accused of this being a very Bay Street conversation on financing—there’s going to be one more question before we open up some of the audience questions—I’m going to pivot to Main Street for a second. Because the other place that we can really drive investment in Canada is from the everyday retail investor in Canada. And recognizing the fact that the majority of the companies in Canada are, actually they’re not Cenovus, or TMX, they’re actually small and medium enterprises, and they’re the biggest employers as well. About two-thirds of the public companies are actually small and medium enterprises. So, you know, with that in mind, Earl, what’s the Main Street view, in terms of the outlook going forward? What should Main Street take away from this, both for a small company standpoint, and a regular everyday investor?
Earl Davis
Yeah, I’ll talk as a Canadian, individual, as a father. I’m optimistic of the world. I’m constructive. I think one of the key things to realize in this volatility that we’ve been talking about, the next five years are going to be transformational for so many reasons. But that is not a scary thing. That’s a scary—that’s actually an opportunity for what I call wealth redistribution, in regards to retail, and Main Street getting. You just have to be adaptive, you know. The pie is changing, and the pieces of the pie will change. And there is an opportunity to go somewhere where you haven’t before, by being adaptive.
One other thing, too, that I think is important—and I’m trying to teach this to my 8-year-old over time—and it’s an interesting one, about housing. And one of the things I’m trying to teach him is that buying a house is not an-investment. That’s in our mindset, that’s fundamental to us, that buying a house is an investment. And the reason why it’s not an investment: I define investment as delayed consumption. You put a dollar away today to, ideally, get two tomorrow. Delayed consumption. When you’re actually living in the house, you’re consuming it. It’s not delayed consumption, it’s not an investment, it’s a savings tool. It’s not an investment. And part of getting out of that mindset has people more comfortable living in apartments—I lived in apartments till I was 12 years old, it’s all good, still here—and then has a lifetime living in an apartment. But the most important thing about that, that’s capital that could be put into businesses, as opposed to the housing, and you still have a mortgage, and you’re still paying on it. It is not investment, it is a savings tool. And I think that’s an important thing, generationally, that can help Canada get more capital from Canadians.
QUESTION & ANSWER
John McKenzie
All right, I’m going to pivot, quickly, to some questions that we’ve got brought in, so thank you for sharing them with me. We’ve got about four or five minutes left—I’ve already got the signal to keep things moving—I’m going to go with the most provocative one first I saw here. So, this is gloves off now: what’s the bottleneck to change getting done? Who’s holding it up, what does government need to do? And I’ll open it right up to whoever wants to jump in.
Rhona DelFrari
I’ll jump in. I am actually going to be optimistic on this one, even though it hasn’t sounded like we are. Again, I’m going to, I’m going back to, we all have a shared outcome in mind. Everybody wants a strong economy, we want energy security, Canada wants to provide that energy security globally, and we want to decarbonize. So, I think that the first major hurdle is actually, we’re past it, because we all, we’re all aligned on what we’re trying to achieve. Because I think we can agree on all of that. So, I think we’re letting process and complexity get in the way. Because, honestly, I feel like if you just shove everybody that has to make the decisions in a room together for a weekend, and said “You’re not going to get out of here until you make this work, we’ll figure it out.” Too optimistic?
Barbara Zvan
I wish I knew. So, all I can say is, during the Sustainable Finance Action Council, we got 25 of Canada’s largest financial institutions, we brought the official sector, [indiscernible] , Bank of Canada into the room—Peter, the head of [indiscernible] was, you know, publicly saying he wanted to leverage this. And then I’m, I’m stuck at the federal government.
Earl Davis
And I, and I ,yeah, and I’ll say it’s leadership, right? We need hard decisions to be made, you know, and we need someone who’s —you can’t please everyone. People are going to be upset, no matter what you do. And leadership is, you do what you think is best for Canada’s society, and you do it as opposed to, unfortunately, a main driver of getting re-elected, possibly, right? We need that leadership to just go hard, regardless of whether you think it’ll get you re-elected or not.
Rhona DelFrari
And we have to be eyes wide open about the trade-offs. I, I can’t not add that.
Earl Davis
M’hm (affirmative).
John McKenzie
Loud pragmatism.
Earl Davis
Yes.
Rhona DelFrari
Yes.
John McKenzie
And with that, if I’ll add the last pieces, you know, what a lot of these, as Barb you said, a lot of these solutions are ready to go; we need the political will to adopt them.
Earl Davis
M’hm (affirmative).
John McKenzie
We don’t need to recreate the will. So, I apologize we actually weren’t going to able to get to more of the questions, in terms of the conversation is very robust. I wanted to thank all the panellists for the, for sharing, for being open, for willing to challenge the orthodoxy, and actually put it on the line. So, thank you to all three of you. Please let me join everyone in thanking the Empire Club for partnering with us on this great event, for our sponsors for your support, and putting it together. And for everyone here, who I hope will take some of the messages and join us in a shared campaign of advocacy, to making these markets better, so we actually can collectively invest in the future success for the Canadian market. So, thank you all, until we see you again next time.
Sal Rabbani
Thanks, John, for facilitating today’s discussion, and I would like to take this opportunity to welcome to the stage Lisa Baiton, the President and CEO of CAPP to offer the appreciation remarks.
Note of Appreciation by Lisa Baiton, President & CEO, CAPP
Good afternoon, and thanks Sal, for that introduction. And thanks so much for the Empire Club of Canada. I used to sit on the board, so it’s nice to be back here. To John and the TMX Group, and to the panel today, for taking on one of the biggest challenges Canada needs to solve to drive our prosperity, for today and for generations to come.
CAPP represents Canada’s upstream oil and gas producers. Our members are among the largest companies in the country, and they know a lot about getting major projects done in Canada. We recently worked on an analysis with an international consulting firm at [indiscernible], that compared Canada’s major project approvals to a number of our peers, including the US, Australia, UK, Germany, and Sweden. And one of the major findings was that Canada significantly lags each of those countries in the time it takes to approve a major project. For example, Germany, a nation with aggressive climate targets, has been able to expedite the approval process, and complete the construction of three LNG terminals, just since the beginning of 2022. Two of those were completed in under 12 months. Two additional terminals are planned for completion this year. The US and Canada were starting work on their first LNG export facilities a decade ago. The US today, notwithstanding the recent White House decision to pause some approvals, is the global leader on LNG exports, with 8 facilities completed, another 10 approved and under construction. And by contrast, Canada is expecting its very first to be completed in 2025.
I use these examples to show that when a country seizes an opportunity, change and progress can happen quickly. Canada has 470 major natural resource projects under development or proposed in the next decade; 320 of those are energy projects, with a capital value of 520 billion dollars. We need to follow the example of our international peers, so we can compete for large-scale investment on a global stage, to realize that half trillion dollars of investment, and have all of that alpha, and all of that benefit come back to Canada for the benefit of Canadians, and to build a credible track record as a country. Not just getting one or two projects built, but multi, multiple nation building projects getting built.
But to answer John’s question, you know, what do we need to solve? It really comes down to getting our policy environment right. It needs to be clear, it needs to be pragmatic, it needs to be competitive. It does have to offer regulatory and investor certainty, and it needs to align across provinces, and federally, which means we need to collaborate across political lines and across industries. And I think if we get that right, we can ensure that the billions of dollars of investment isn’t evaporating outside of Canada; that it’s coming back to Canada, creating jobs, opportunities, and prosperity for all Canadians in the decades to follow. So, this was a terrific discussion, thank you for having me, and everybody have a happy day.
Concluding Remarks by Sal Rabbani
Thank you. Thank you, Lisa, and a special thank you to David Clark, the head of Government Affairs at TMX, and Rachel Factor, the Director of Communications at TMX Group, for helping make this event a reality. Thanks again to all our sponsors for their support, and everyone joining us today in person or online. As a club of record, all Empire Club of Canada events are available to watch and listen to on demand on our website. The recording of this event will be available shortly, and everyone registered will receive an email with the link.
Join us next Thursday, February the 15th. We’ll have leading AI panellists from top Canadian AI startups, researchers, and venture capitalists, to discuss and debate what Canada needs to do to put together a strong framework for AI in this country. We’re also inviting you all to join us on February 28th, for the Empire Club of Canada’s “Celebration of Black Excellence and History,” a panel of inspirational Black women discussing their careers and paths to success.
Thank you all for your participation and support. This meeting is now adjourned.
