TORONTO -- Environmental advocates say the financial sector needs firm regulations to push it on climate efforts as voluntary action isn't coming fast enough to meet Canada's obligations.

Groups including Environmental Defence, Ecojustice, and Shift:Action outlined their proposal in a report that pushes the federal government to require "credible" climate plans from the banking, insurance, and pension sectors that would limit warming to 1.5 degrees, and to require assessments of those plans by regulators.

Banks and other financial players have already committed to reaching net-zero emissions by 2050 and this year outlined shorter-term goals on reducing financed emissions for high-emitting sectors by 2030, as required by their membership in the Mark Carney-led Glasgow Financial Alliance for Net Zero (GFANZ).

Advocates, however, point to last week's decision by the alliance to quietly distance itself from another climate club, the UN-backed Race to Zero, as evidence that voluntary commitments aren't strong enough on their own.

The split came after Race to Zero introduced stricter criteria in June around emission reductions and fossil fuel funding, which led to a pushback from many in the banking sector and ultimately led GFANZ to no longer requiring members also be part of Race to Zero.

Julie Segal, senior program manager of climate finance at Environmental Defence, says any credible climate plan has emissions peaking by 2025, while the finance sector is still directing too much money to expanding fossil fuel production.

"We need the financial sector to align with Canada's existing legal climate commitment to keep warming below 1.5 degrees. And that needs to happen now."

She says the proposed regulations and oversight could be implemented within existing agencies and powers, and still leave flexibility for each institution to decide its own path, but current federal climate plans don't focus enough on the financial industry.

"The financial sector is a key missing piece," says Segal. "This is a fundamental gap in Canadian climate policy, and a really key point."

This report by The Canadian Press was first published Nov. 2, 2022.