By Tammy Nemeth and Ron Wallace
REALITY: Senator Galvez’s BILL S-238 would force every federally regulated bank, insurer, pension fund and Crown financial corporation to treat the financing of oil, gas, and coal as an unacceptable systemic risk and phase it out through “decommissioning.”
Prime Minister Mark Carney has spent the past weeks proclaiming that Canada will become an “energy superpower” not just in renewables but in responsible conventional energy as well. The newly created Major Projects Office has been proposed to fast-track billions in LNG terminals, transmission lines, carbon-capture hubs, critical-mineral mines, and perhaps oil export pipelines. A rumored federal–Alberta Memorandum of Understanding is said to be imminent from signature, possibly clearing the way for a new million-barrel-per-day oil pipeline from Alberta to British Columbia’s north coast. The message from Ottawa is clear: Canada is open for energy business. Yet quietly moving through the Senate is legislation that would deliver the exact opposite outcome.
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Senator Rosa Galvez’s reintroduction of her Climate-Aligned Finance Act, now Bill S-238, following the death of its predecessor Bill S-243 on the order paper, is being touted by supporters not only as a vital tool for an “orderly transition” to a low-carbon Canadian economy but also to be “simply inevitable.” This Bill does not simply ask financial institutions to “consider” climate risk it proposes to re-write their core mandate so that alignment with the Paris Agreement’s 1.5 °C target overrides every other duty. In fact, it would force every federally regulated bank, insurer, pension fund and Crown financial corporation to treat the financing of oil, gas, and coal as an unacceptable systemic risk and phase it out through “decommissioning.” For certainty this means to:
“(i) incentivize decommissioning emissions-intensive activities, diversifying energy sources, financing zero-emissions energy and infrastructure and developing and adopting change and innovation,
(ii) escalate climate concerns regarding emissions-intensive activities of financially facilitated entities and exclude entities that are unable or unwilling to align with climate commitments, and
(iii) minimize actions that have a climate change impact that is negative.”
As discussed here in May, the reach of the Climate Aligned Finance Act is vast, targeting emissions-intensive sectors like oil and gas with a regulatory overreach that borders on the draconian. Institutions must shun financing and support of emissions-intensive activities, which are defined as related to fossil fuel activities, and chart a course toward a “fossil-free future.” This would effectively starve Canada’s energy sector of capital, insurance, and investment. Moreover, Directors and Officers are explicitly required to exercise their powers in a manner that keeps their institution “in alignment with climate commitments.” The Bill effectively subordinates traditional financial fiduciary responsibility to climate ideology.
While the new iteration removes the explicit capital-risk weights of the original Bill (1,250% on debt for new fossil fuel projects and 150% or more for existing ones) it replaces those conditions with directives for the Office of the Superintendent of Financial Institutions (OSFI) to issue guidelines that “account for exposures and contributions to climate-related risks.” This shift offers little real relief because mandated guidelines would still require “increased capital-risk weights for financing exposed to acute transition risks,” and the “non-perpetuation and elimination of dependence on emissions-intensive activities, including planning for a fossil-fuel-free future.”
These provisions would grant OSFI broad discretion but steer it inexorably toward punitive outcomes. As the Canadian Bankers’ Association and OSFI warned in their 2023 Senate testimony on the original Bill, such mechanisms would likely compel Canadian lenders to curtail or abandon oil and gas financing.
In plain language, Ottawa would be directing the entire financial system to stop lending to, insuring or investing in the very industries that are central to Canada’s economic future. In addition to providing tens of billions in royalties and taxes to governments each year, the oil and gas sector contributes about 3–3.5% of Canada’s GDP, generates over $160 billion in annual revenue and accounts for roughly 25% of Canada’s total exports.
The governance provisions proposed in Bill S-238 are beyond the pale. Board members with any past or present connection to the fossil fuel industry would have to declare it annually, detail any associations or lobbying involving “organizations not in alignment with climate commitments,” recuse themselves from every discussion or vote involving investments in oil, gas or coal, and make these declarations within a Climate Commitments Alignment Report. While oil and gas expertise is not banned outright, it is nonetheless ‘quarantined’ in ways that create a de facto purity test in the boardroom. At the same time, every board must appoint at least one member with “climate expertise”. Contrary to long-established principles for financial management, while seasoned energy experts would not be banned outright from such deliberations, they would effectively be sidelined on the very investment files where their expertise would be most valued.
The contradictions posed by Bill S-238 are simply breathtaking. The Major Projects Office is promising 68,000 jobs and CAD$116 billion in new investment, much of it tied to natural gas and oil-related infrastructure. These new pipeline and LNG export projects will require material private capital investments. Yet under Bill S-238 any bank that provides the capital needed for the projects would face escalating, punitive capital requirements along with public disclosure of its “contribution” to climate risks that are to be declared annually in a “Climate Commitments Alignment Report.” No MoU, Indigenous loan guarantee or federal permit can conjure financing out of thin air once Canada’s banks and insurers have effectively been legally compelled to exit the fossil fuel energy sector.
Current actions constitute a clear warning about the potential legal consequences of Bill S-238. Canada’s largest pension fund is currently being sued by four young Canadians who claim the Canada Pension Plan Investment Board (CPPIB) is failing to properly manage climate-related financial risk. Alleged are breaches of fiduciary duty through fossil fuel investments that are claimed to exacerbate climate risks and threaten ‘intergenerational equity’ with the demand that the CPP divest from fossil fuels entirely. The case, filed in Ontario Superior Court, demonstrates how financial institutions may be challenged in their traditional roles as stewards of balanced economic growth and instead used as agents for enforced decarbonization. In short, such legislation enables regulatory laws to re-direct, if not disable, capital investment in the Canadian non-renewable energy sector.
In May 2024, Mark Carney, then Chair of Brookfield Asset Management Inc. and head of Transition Investing, appeared at a Senate Committee hearing. He lauded the original Bill, calling key elements “achievable and actually essential” to champion “climate-related financial disclosures.” He noted that: “Finance cannot drive this transition on its own. Finance is an enabler, a catalyst that will speed what governments and companies initiate.” However, the new revised Bill S-238 goes far beyond disclosure. Like its previous iteration, it remains punitive, discriminatory and economically shortsighted, jeopardizing the very economic resilience that Carney has pledged to fortify. It is engineered debanking dressed up as prudential regulation.
This is at a time in which Richard Ciano described Canada as a land of “investment chaos”:
“While investment risk in the United States is often political, external, and transactional, the risk in Canada is systemic, legal, and structural. For long-term, capital-intensive projects, this deep, internal rot is fundamentally more toxic and unmanageable than the headline-driven volatility of a U.S. administration.
If the “rule of law” in Canada is meant to provide the certainty and predictability that capital demands, it is failing spectacularly. Investors seek clear title and dependable contracts. Canada is increasingly delivering the opposite. Investors don’t witness stability — they witness a fractured federation, a weaponized bureaucracy, and a legal system that injects profound uncertainty into the most basic elements of capitalism, like property rights.”
Bill S-238 is yet another example of how Canada is imposing unrealistic laws and regulations that contribute to investment uncertainty and that directly contradict policies proposed to accelerate projects in the national interest. While the Carney government trumpets Canada as a future energy superpower that produces and exports LNG, responsibly produced “decarbonized” oil and critical minerals, Bill S-238 would effectively limit, if not negate, the crucial financial backing and investments that would be required to accomplish this policy objective.
Rhetoric about nation-building projects is cheap. Access to capital is what turns promises into steel in the ground. This Bill would ensure that one hand of government will be quietly strangling what the other hand is proposing to do in the national interest.
Tammy Nemeth is a U.K.-based energy analyst. Ron Wallace is a Calgary-based energy analyst and former Member of the National Energy Board.
