Tiff Macklem

Climate change should be part of regular savings and investment decisions: U of T's Tiff Macklem

Christopher.Sorensen — Thu, 04 Jul 2019 15:08:50 +0000

Climate change should be part of regular savings and investment decisions: U of T's Tiff Macklem

Christopher.Sorensen Thu, 07/04/2019 - 11:08

Cutline

To accelerate climate-conscious investment, we need to actively engage Canadians in the climate opportunity and make their stake in fighting climate change more tangible (photo by Lisa Lightbourn)

Tiff Macklem

Topic

Our Community

Climate Change

Finance

Rotman School of Management

Sustainability

The Conversation

As a member of the Expert Panel on Sustainable Finance, we recently published our final report on mobilizing financial services to support Canada’s economic prosperity through the global transition to cleaner growth.

Our recommendations seek to connect the dots between Canada’s climate objectives, its economic ambitions and its investment imperatives. The overriding message is that if Canada is to meet its long-term environmental and economic objectives, sustainable finance needs to go mainstream.

Put simply, climate-conscious risk management and investment need to be part of the everyday savings and investment decisions made by individuals and businesses across Canada.

The report makes recommendations to grow and scale the market for sustainable finance, and then focuses on the products and services needed to meet the financing requirements of Canada’s economic sectors that are critical to the transition to cleaner growth, such as clean technology, oil and natural gas, infrastructure, buildings and electricity.

Normally, this would be all you need; market forces should do the rest. But globally, the market is not keeping up with climate change, and Canada is not keeping up with its peers.

Engaging Canadians

To accelerate climate-conscious investment, we go a step further and recommend actively engaging Canadians in the climate opportunity and making their stake in fighting climate change more tangible.

To engage them, we recommend the federal government create an incentive for Canadians to invest in accredited climate-conscious products. Specifically, we recommend that the minister of finance create additional space in RRSPs and defined contribution pension plans for these investments and offer a “super deduction” – in other words, a taxable income deduction greater than 100 per cent – on eligible investments.

With few Canadians maximizing their registered savings contributions, the super deduction is a way to broaden the reach to every Canadian with a registered savings or defined contribution pension plan.

This simple intervention could be powerful. The economic effects of climate change and the opportunities for new value creation would be discussed and debated as part of Canadians’ savings and investment decisions, and individual investors would have a tangible stake in the performance of solutions.

The effect would be to significantly accelerate the fly wheel of climate-conscious investment advice, product development and capital flows to sustainable economic activities.

Working with provinces

To engage the business and financial communities, we recommend that the federal government work with the provinces and the private sector to develop a capital plan that maps out the necessary investments to realize Canada’s environmental and economic objectives.

This all starts with an ambition for innovation and global competitiveness, sector by sector, and a strategy to get there. The capital plan to underpin this strategy would include financing requirements and sources – both public and private – and identifying critical financing gaps.

This sounds like a big job – and it is. But fundamentally, it’s what anyone would do when considering an investment.

Suppose you decide to remodel your home to make it more comfortable, improve its aesthetics and reduce your energy costs and GHG emissions.

You would begin with a vision for your remodelled home; you would research the available technologies and designs and develop a strategy to achieve your vision; and you would develop a capital plan to finance the project, drawing on different sources – perhaps some of your own savings, a government green grant or loan program and a new mortgage from a bank.

You would also consult your home insurance provider and consider how to make your remodelled home more climate-resilient and, in doing so, improve your comfort and reduce your home insurance premiums. Our recommendation is simply that we do this for the whole economy, sector by sector.

‘Mid-century objective’

We also recommend extending the horizon for Canada’s climate ambitions beyond 2030 to 2050. With 2030 little more than a decade away, we need a mid-century objective to provide the horizon to mobilize capital at scale.

Together, a clear vision, a mid-century target and an associated capital plan would spell out the scope and horizon of the opportunity very tangibly, providing a beacon for the private sector and a road map to where their ingenuity, expertise and capital are needed.

Of course, the capital plan would be a forecast and would need to be updated as new technologies develop, climate effects materialize and new information becomes available, but a plan beats no plan.

Canada has some catching up to do, but we believe our country can be among the leaders in the global transition to a low-emissions, climate-resilient future. But seizing this opportunity will require us to lean in and put some skin in the game. We believe our practical and achievable recommendations could prime the opportunity and make climate change part of Canadians’ everyday savings and investment decisions.

Tiff Macklem is the dean of the Rotman School of Management at the University of Toronto.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

U of T's Tiff Macklem on the urgent need for Canada to diversify its trade

noreen.rasbach — Wed, 14 Nov 2018 16:26:22 +0000

U of T's Tiff Macklem on the urgent need for Canada to diversify its trade

noreen.rasbach Wed, 11/14/2018 - 11:26

Cutline

Cargo containers from Asia are seen in the port of Vancouver in 2015. Tiff Macklem argues that Canada needs to diversify its trade beyond the U.S. and increase our links to rapidly growing emerging market economies (photo by Shutterstock)

Topic

Rotman School of Management

The Conversation

Trade

United States

With the difficult renegotiation of the trade agreement with Canada’s largest trading partner now resolved, it’s time for Canada to get serious about trade diversification.

The experience of renegotiating NAFTA – or USMCA as it is now called – has highlighted Canada’s vulnerability to one dominant trading partner that buys roughly 75 per cent of our exports.

As a country, we should not be in this position. We need to diversify our trade beyond the United States and increase our links to rapidly growing emerging market economies, particularly in Asia, despite the “anti-China” clause in the USMCA.

Given that growth has pivoted to these emerging markets in the last 15 years, the first question is why has this not happened already. The answer is straightforward.

For a long time, being right beside the United States – the biggest, richest market in the world – has been a great ride for Canada. What’s more, we’re very comfortable and good at doing business with Americans.

Fewer benefits of living next to U.S.

So why diversify? The short answer is being right next door to the United States is not the ride it used to be. Part of this is the alarmingly protectionist sentiment of U.S. President Donald Trump’s administration, but the root of the answer pre-dates Trump.

In the last 15 to 20 years, the United States has not been the engine of global growth that it was in the past. The U.S. share of global growth has been almost cut in half in the last two decades, falling from about 32 per cent in the 1990s to about 17 per cent in this decade. Over the same period, Asia’s share has risen from 32 per cent to just over 50 per cent, according to our analysis of World Bank trade data from the Institute for Competitiveness & Prosperity. This has created a double challenge for Canada.

First, we are significantly underexposed to emerging market economies, so we are getting little upside from their acceleration in growth.

Too engaged with sluggish economies

In addition to the 75 per cent of our trade that goes to the U.S., another 10 per cent goes to other slow-growth advanced economies, largely in Europe. Only about nine per cent of our trade is with faster-growing emerging economies like China, India, South Korea, Mexico and Brazil.

This is much lower than our peers. In Germany, the share of exports to emerging markets and other developing countries is in the 20s; for Japan and the U.S., it’s in the 30s; and in Australia, it’s in the 40s.

Containers wait to be unloaded onto a container ship berthed at the Australian port of Melbourne. Australia does enormous trade with emerging markets, far more than Canada (photo by Shutterstock)

Second, these rapidly growing economies are providing increasingly fierce competition for our products in the U.S. market. In 2000, Canada was the leading source of American imports. Today, China has the largest share of U.S. imports at 22 per cent, up from only eight per cent in 2000. In the same period, Canada’s share has declined from just over 18 per cent to about 13 per cent.

We should have developed a diversification strategy a decade ago. But without a crisis, there has been little imperative. Call it lack of vision, risk-taking or leadership.

Asian markets seen as risky

Emerging markets and Asian markets, in particular, are often seen as distant and less familiar. They are seen as risky and more expensive to penetrate. The consequences have been stark.

In the last 15 years, Canada’s share of the world export market has slipped from about 4.5 per cent to about two per cent. Part of this trend was inevitable as large emerging market economies joined the global trade and investment network, but Canada’s slide has been particularly precipitous.

Across the world’s Top 20 exporting countries, Canada’s performance since 2000 has been the second worst – only Japan has seen a bigger decline in its trade share than Canada.

Canada is losing share in the U.S. market that itself is losing share globally. We should instead be focused on gaining share in markets that are gaining share. This means diversifying our trade towards emerging market economies, particularly in Asia.

The place to start is with Asia’s two biggest economies, India and China. The new USMCA contains provisions that allow signatories to pull out of the deal if one country pursues a separate free-trade agreement with a “nonmarket country” – namely, China. But that should not be a barrier to this pivot.

India is a thriving democracy with strong ties to Canada. And as highlighted in a recent report on trade diversification from the Public Policy Forum, there is much that can be done with China short of a comprehensive free-trade agreement through sectoral agreements that offer “the best means for realizing quick and significant gains.”

Instead of waiting for a crisis, let’s make trade diversification the priority it should have been for at least the last decade.

Tiff Macklem is the dean of the University of Toronto’s Rotman School of Management and a professor of finance.

This article is republished from The Conversation under a Creative Commons license. Read the original article, including Macklem's disclosure statement.