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Floods, wildfires and record high temperatures are turning investor attention to the climate emergency, raising the threat of higher borrowing costs for Canadian provinces with large oil and gas industries. Backed by government taxing powers, Canada’s provincial and territorial bond market receives high scores from credit rating agencies. The $1-trillion market for these bonds helps to finance schools, hospitals, social services and other provincial spending. Institutional investors have traditionally had little concern about environmental, social and governance (ESG) risks on these bonds since they are used to provide needed public services. But climate risks are beginning to change this picture, according to a new report released last month by the Principles for Responsible Investment (PRI), a global network of more than 5,000 investors representing US$121 trillion in assets. This is especially the case in Alberta and Saskatchewan, where provincial governments are determined to maintain fossil fuel production, despite the scientific consensus that carbon emissions must be curbed. “Climate transition risks are significant for Canadian provinces with substantial fossil fuel sectors,” says Jasper Cox, a fixed-income analyst with PRI, in an email interview. “Provinces’ economies and revenues can be heavily exposed to these industries, and to any fall in demand […]
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