July 18, 2023

Looking down the road: Climate-related risks for road transportation in Canada

Canada has over a million kilometres of roads, according to Transport Canada. Most constitute the National Highway System. All of Canada’s roads, including Yellowhead Highway 16, the number one highway running TransCanada, are vulnerable to climate change.

Transportation infrastructure is essential to move goods across the country. Road networks are especially crucial for remote communities to have access to food, fuel, medicine, and construction materials.

Road transportation is the most predominant means of conveying freight and passengers in Canada, and yet it is threatened in the face of climate change.

Climate risk and its financial impact on the transportation sector

Climate-related risks for road transportation in Canada are two-fold: risks associated with the physical impact of climate change (physical risks), and risks associated with the transition to a low-carbon economy (transition risks).

Physical risks related to Canada’s road transportation sector include extreme weather events such as severe rainfall, flooding, fluctuations in surface air temperature and water levels, hurricanes, wind gusts, storm surges, blowing snow, fog, and wildfires. All of these physical risks present possibilities for infrastructure damage and delay throughout global supply chains, all of which can have serious financial impacts for the transportation sector, but also other sectors directly dependent on the transport of goods.

In November 2021, when the Fraser Valley and Sumas Prairie in British Columbia’s Lower Mainland were inundated by massive flooding, Metro Vancouver was cut off from the rest of Canada by road. Nothing could leave the Port of Vancouver, massively impacting the supply chain, prairie farmers, manufacturers, and many other businesses.

Canada’s road transportation is also prone to transition risks such as changes in policies, technological innovations, changes in consumer perceptions, and litigation. With respect to policy risks, different policies impact Canada’s road transportation industry, including the proposed Light Duty Zero-Emission Vehicle (ZEV) Regulations which requires at least 20% of new passenger vehicles sold in Canada to be ZEVs by 2026, 60% by 2030 and 100% by 2035. In terms of technological risks, studies reveal that the advancement and use of new technologies such as electric vehicles (EV), hydrogen vehicles, natural gas vehicles, and connected and automated vehicles (CAVs) could impact the competitiveness of some road transport corporations, their manufacturing and delivery costs, and eventually the demand for their services from consumers. It could also lead to diminished market demand for high emitting road transport services, leading to reduced revenue for some road transport corporations. As transport companies transition to low carbon economy, choices made by those companies also create changes in consumer preferences, justify the stigmatization of the companies, and increase stakeholder concerns and negative stakeholder feedback, all of which amount to reputational risks.

There is also a risk of litigation in the sector. Research shows that publicly traded road transport companies could face litigation and regulatory sanctions if they “greenwash” their disclosures or fail to disclose material risks. Several climate-related litigation suits have been filed abroad against high profile road transport companies, including against BMW. With the rising increase in the value of loss and damage caused by climate change, it is also anticipated that litigation risks for Canada’s transport companies will continue to grow. Road transport corporations may face an increasing financial burden arising from court fines and judgments.

The role of effective climate governance in managing climate risks and opportunities

Corporate directors have a key role in ensuring businesses manage climate risks effectively and integrate these risks into their strategic plans. With the increasing number of regulations requiring companies to disclose climate-related information as well as higher expectations from investors as they evaluate their exposure to climate risks, Canadian directors of transportation companies need to effectively oversee and have a more active role in managing climate-related risks to ensure they fulfill their directors’ duties and protect the long-term interest and viability of their corporation.

The Canada Climate Law Initiative is here to help

The Canada Climate Law Initiative helps directors and officers of Canadian transportation companies to consider, manage, and disclose climate risks through its free and confidential presentations to boards of directors. Powered by the nation’s top expertise, we help businesses understand their fiduciary obligations with respect to climate, the current and upcoming climate disclosure requirements, and tools to facilitate climate reporting.

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