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Climate Crunch: Canada’s cold calculus in a warming Arctic

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➔ Winter Olympics: running out of slope?

➔ Chinese EVs: low emissions, high drama

➔ Notes from Davos: The looming fight for grid power

Hot takes

➔ Only four locations would be able to host Winter Olympics by 2050 if current climate trajectory persists. The 2026 Winter Olympicorganizers are powering venues in Milan and Cortina d’Ampezzo with certified renewable electricity and sustainable sourcing, even as the February event is expected to emit around 930,000 tons of CO2. More crucially, snow management remain an issue as the Alpine region has seen a 25% drop in snowfall since 1980. It’s a problem that’s unlikely to go away: a new University of Waterloo study shows that of the 92 potential Winter Olympic host locations, only 52 would remain-climate reliable for the winter edition and 22 for the Paralympics in the future, if current climate policies persist. Without snowmaking technology—only four will reliably be able to host the event by 2050.

➔ China-made EVs could lower Canadian transport emissions—but at a political cost. The decision to allow Chinese EVs in return for Canadian agri-food access comes as Canadian federal and provincial governments have rolled back subsidies. EVs have done the heavy work of lowering Canda’s emissions over the past six years, with transport emissions down 6% compared to 2019, according to Climate Action 2026 report. Cheaper EVs could help maintain the momentum. But rumblings from Washington suggest the deal could complicate CUSMA negotiations.

➔ Canada’s agri-food processors are not waiting for policy perfection. In Atlantic Canada, processors are investing to extract more output from less energy and water, while farmers see emission cuts as a way to boost productivity, observed our Interim Head Lisa Ashton, during her trip to Prince Edward Island to share Climate Action 2026 report’s findings. PEI farmers are leading the way with their 2040 Pathways plan to reduce GHG emissions, accelerate on-farm climate adaptation actions, and boost economic outputs and trade by 2040. It’s an example of how farmers can organize and design a pragmatic plan to drive environmental and economic outcomes for their businesses.

Warming up to the north

Nowhere has climate change, resources and geopolitics collided more quickly. U.S. interest in the Arctic island of Greenland and Russian ships patrolling the region should compel Canada to cover—and bolster—its northern bases.

Climate change is the trigger for interest in the Arctic: Washington’s sudden interest in the “piece of ice” is sparked by a climate-change induced thaw that’s opening up the region to activity— benign or otherwise. The Arctic has just ended a year of record heat and shrunken sea ice as northern latitudes become rainier and less ice-bound due to the climate crisis, scientists say. That’s also accelerated a race for control by the U.S., Russia and “near-Arctic state” China. Canada needs to catch up.

While the Arctic’s location is strategic—so are its resources. The northern region contains significant fossil fuel reserves—an estimated 13% (90 billion barrels) of the world’s undiscovered conventional oil resources and 30% of its undiscovered conventional natural gas resources. In addition it also contains rare earths, nickel, cobalt, graphite and other elements that are vital for energy transition. While it’s unclear whether the region can meaningfully meet rising global energy demand at cost and at scale any time soon, the faster the region warms, the more attractive and accessible its resources would become.

Sovereignty and strategic competition: Canada’s Arctic sovereignty is shaped by competing interpretations under the United Nations Convention on the Law of the Sea, with Canada ratifying the treaty and defining extended continental shelf claims, while the United States has signed but not ratified it.

The North American Aerospace Defense Command (NORAD) detected and tracked Russian military aircraft operating in international airspace near Alaska in 2025, while China and Russia launched a joint patrol in 2024.

Canada’s calculus: Canada makes up 28% of the Arctic land area, second only to Russia’s 67% Arctic landmass. However, the Canadian Arctic accounts for just under 2% of the Arctic region’s economy, and negligible population.

The Major Project Office’s focus on developing Churchill Port at the mouth of Hudson Bay, the Red Chris Mine Expansion and the North Coast Transmissions Line and Ksi Lisim LNG, along with a separate $1-billion investment to strengthen the North’s trade and transportation infrastructure, suggests Canada is joining the Arctic race. Getting these proposals to completion would be the ultimate test. The projects—and more defence spending—will be vital to allay U.S. concerns about the vulnerability of the Canadian Arctic.  But they also need to be respectful of climate and Indigenous issues.

Notes from Davos: The looming fight for grid power

By John Stackhouse, Senior Vice President, Office of the CEO, RBC

John was at Davos last week to make sense of the new world order and a global economy that’s resembling more a bartering and babbling souk than a tightly wired marketplace. Among his observations, two directly impact energy and climate: the competing priorities for grid power, and the continued rise of renewable energy—against all odds. Read the excerpts:

A/C or AI: It’s gridlock
The next energy crisis won’t be fuelled by oil or gas; it will be strained by the world’s faltering electricity grids. Electricity demand globally is rising three times faster than total energy demand, driven by air conditioning and electric vehicles, as well as data centres.

While 90% of Americans have access to air conditioning, the number is 20% in India, 18% in Indonesia and 5% in Nigeria—each with some of the world’s fastest-growing cities. Add to that the growing demand for EVs, which now account for a quarter of global car sales, up from 5% in just five years.

Fatih Birol, head of the International Energy Agency, said the world will need 10,000 terra-watts of new electricity in the next decade, which is the equivalent of adding another U.S., Canada, Europe and Japan. Without any innovation breakthroughs, that would require 70% more copper, and a vast expansion of steel and critical minerals processing.

A renewable lease on energy: There were two vastly telling moments in Davos’s main Congress Hall, one speaking to scarcity, the other to abundance. Donald Trump went off script to lambaste renewable energy, especially wind which he said was for “losers.”

A day later, Elon Musk used the same stage to profess a glorious future for renewables, especially solar which he said could power all of America if he had his way. Just give him a parcel of land, 160×160 kilometres, and tariff-free solar panels! Away from North America, renewables are still the driver of energy growth and have shifted from a “transition” source to a default for new supply in many markets. Europe reached roughly 50% renewable generation in 2024.

In other fast-growing markets, renewables are increasingly seen as energy additions, not just replacements for fossil fuels. Falling battery costs (solar is down roughly 80% in India) and longer lifetimes (30–35 years) have helped shift economics from a simple cost per unit to a cost per lifecycle.

Read John’s full Davos commentary here.

The Institute in Action

  • Interim Head Lisa Ashton recently hosted a roundtable in Edmonton with industry leaders and investors on growth capital in Canada’s agri-food sector to dive into the investment challenges that were highlighted in The Next Generation of Growth.

  • Energy Lead Shaz Merwat moderated a panel at the BC Natural Resources Forum at Prince George, focused on Canada’s future gas and LNG competitiveness with senior executives from industry, Indigenous organizations.

Curated by Yadullah Hussain, Managing Editor, RBC Climate Action Institute.

Climate Crunch would not be possible without John Stackhouse, Jordan Brennan, John Intini, Farhad Panahov, Lisa Ashton, Shaz Merwat, Vivan Sorab, Caprice Biasoni, Lavanya Kaleeswaran and Joelle Schonberg .

Have a comment, commendation, or umm, criticism? Write to me here (yadullahhussain@rbc.com)

Climate Crunch Newsletter

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The World Economic Forum this year became a tale of two Davoses.

Inside the main Congress Centre, a record number of attendees, including 850 CEOs, 80 tech billionaires and founders, hundreds of ministers and 65 heads of government spent the week hearing about the decline of globalization and the inward turn of societies.

Outside, it was a very different world. On the town’s main promenade, you couldn’t walk 50 metres without feeling like you were in a mash-up of Wall Street, Silicon Valley and the United Nations, as countries from Brazil to Indonesia and companies from Tech Mahindra to Pinterest pitched themselves to the passing kaleidoscope of a crowd.

Mark Carney called this new environment one of “variable geometry.” Others called it a new age of “multi-alignment”—as if the global economy is becoming a bit more of a bartering and babbling souk than a tightly wired marketplace. By any name, the emerging world order, or disorder, seems as slippery and risky as the icy streets of Davos. Here’s some of what to look out for:

Trump’s World: America First or America Alone?

Last year, a day after his second inauguration, Donald Trump spoke by video to the Forum and promised a golden age for America. This time, he came in person to proclaim victory. With five cabinet secretaries and hundreds of American CEOs in tow, the President spent an extraordinary two days in the Swiss Alps projecting a 21st century version of American power. This is no stay-at-home superpower. In Trump’s vision, the world will trade and prosper more than ever, on America’s terms.  Close to three-quarters of global trade is still compliant with WTO rules. Inventory build-ups helped many companies escape the initial tariffs. A greater impact may come this year. But for the most part, “it’s still holding,” said Christine Lagarde, head of the European Central Bank, arguing the global economy is so intricate and intertwined even the U.S. cannot unravel it. Trump’s more mercantile Pax America is not just economic. He came with an unsolicited bid for Greenland that was rejected by his closest NATO allies. He left with a Board of Peace, supported by an unlikely collection of 19 countries with a combined GDP of $5 trillion, roughly equal to Germany. Only four (Albania, Bulgaria, Hungary, Turkiye) are in NATO, and only four (Argentina, Indonesia, Saudi Arabia, Turkiye) are in the G20. Will Trump be able to expand America’s reach without stronger partners? Or is this the new geometry of power?

Carney’s World: Rupture or restoration?

Mark Carney, long viewed as the quintessential “Davos Man,” gave a keynote speech that was widely celebrated for capturing the distraught mood of many there and crystallizing the desire for a new approach to international affairs. His tag line—“nostalgia is not a strategy”—resonated. Now he has to deliver on diversification. There’s no easy path. Canada’s closest allies in Europe are each struggling, economically and politically, weakened by the Ukraine war, immigration crises and a growing appeal of nationalism, which is now the biggest political force on the continent. Europe’s biggest economy, Germany, narrowly escaped a recession last year, after two years of decline. Chancellor Friedrich Merz called Europe “world champions of over-regulation” and at risk of losing its unity if it doesn’t reform. Canada will need more distant partners, too, particularly China and India, which the WEF estimates will account for nearly 40% of global economic growth over the next five years. Both emerging giants can be as tough as Trump when it comes to trade. The Persian Gulf beckons, too, with trillions of dollars of capital investment. But there, too, a new generation of economic partners have different political and legal systems—and social customs—to the neighbourhood where Canada grew up.

“No King” comes for dollar

High above Davos, someone carved a message into a mountaintop glacier: “No King.” It was probably meant for the visiting U.S. President but equally could have been a message from European markets to the mighty greenback. King Dollar had a rough week, facing big questions as global trade winds shift, and countries and companies look to re-orient capital flows. The dollar still dominates 88% of global foreign exchange transactions, and 54% of global trade, which is why so many still cite TINA (There Is No Alternative). Or is there? The WEF opened to the startling news that Denmark’s largest pension funds had dumped U.S. treasuries in retaliation to the Greenland threat. A risk-off America vibe sent U.S. bond yields higher, reducing hopes for broader rate cuts. In moments like this, investors tended to stay in America, through real estate or stocks. This time, at least among Europeans, there was plenty of corridor chatter about a secular shift forming. One fund manager said his investors had asked him to sell down U.S. holdings. A few American tech executives said long-time European clients were cancelling orders. The euro, yen and Canadian dollar may play greater roles. The renminbi should gain prominence, although is years away from being a serious global alternative. Uneasy lies its head, but there’s still only one king wearing the currency crown.

Davos meets (and greets) state capitalism

The World Economic Forum was created in the 1970s to help Europe avoid the rise of socialism, and turn instead to free markets. A half century later, much of the West is again turning to the state to meet various economic ambitions—and the risks are evident. As countries, Canada included, seek to build back their militaries, build up their own technology foundations and become less reliant on the U.S.—home to roughly half the world’s financial capital—they are looking to leverage their own balance sheet and use other tools to direct capital to national priorities. These ambitions are so pronounced that many prime ministers and presidents seemed more like investment bankers working the Davos crowd. Advanced economies like Australia, Norway, Germany and South Korea do indeed have capacity to borrow more for investment, as do many emerging economic powers like Saudi Arabia. But capitalism is about more than capital; it’s about putting capital to work, with results. Singapore’s president, Tharman Shanmugaratnam, offered some sage advice, urging these new nation-state capitalists to be ruthless with investing, and with spending and regulation, too. Growth requires governments to focus on productive investments, including education, rather than redistribution—and a humble recognition that governments are inherently weak at building economic enterprises. If this new shot at state capitalism is to work, a new mindset will be needed, too.

Mark Carney, Prime Minister of Canada.
Photo: World Economic Forum
Donald J. Trump, President of the United States of America.
Davos, Switzerland.
Photo: World Economic Forum
Mark Carney, Prime Minister of Canada.
Photo: World Economic Forum
Special Address by He Lifeng, Vice-Premier of the People's Republic of China. Photo: World Economic Forum
He Lifeng, Vice-Premier of the People’s Republic of China.
Photo: World Economic Forum
Annual World Economic Forum Meeting, Davos.
Photo: World Economic Forum
Dave McKay, RBC CEO, participating in a global panel on banking at the World Economic Forum.
Photo: World Economic Forum
A conversation with Elon Musk CEO, Tesla; Chief Engineer, SpaceX; CTO, xAI, Tesla.
Global Economic Outlook session.
Photo: World Economic Forum
Christine Lagarde, President of the European Central Bank. Photo: World Economic Forum
Volodymyr Zelenskyy, President of Ukraine.
Photo: World Economic Forum
Friedrich Merz, Federal Chancellor of Germany.
Larry Fink, Chair and CEO of BlackRock and Interim Co-Chair of the World Economic Forum, speaks with Microsoft Chairman and CEO Satya Nadella. Photo: World Economic Forum

China lies low, biding its time

Right after Donald Trump was first elected President, Xi Jinping came to Davos, to offer up China as a global leader for an emerging age. In the ensuing decade, Beijing has delivered—in renewable energy, nuclear power, critical minerals, pharmaceuticals and AI. So much so that Xi no longer needs to be there. This time, while the U.S. and Europe shouted at each other, he sent one of his less powerful vice premiers, He Lifeng, to position their country as a defender of multilateral trade and “inclusive globalization.” China experts said Beijing is not missing a moment to quietly advance its two biggest priorities—reunification with Taiwan and AI supremacy. Xi sees AI as critical to China’s future, and DeepSeek 4, the next-generation AI model expected in February, will show how far China’s come. On that other front, it’s believed the Chinese military, which conducted naval exercises around Taiwan at New Year’s, is ready to take the island by force, if necessary, within a year, which would give it sway over the world’s semiconductor industry that is so essential to AI. Democratic Senator Chris Coons, who was at Davos, fears the U.S. Administration doesn’t appreciate the need for “a network of allies with core values” to contain China. We’ll get a clearer picture when Trump and Xi meet in April, but don’t expect a grand bargain between the hegemons. Best case, Coons said, may be a series of “small landing points” to keep the world in balance.

Big Data: A new political target

Data centres seem to be eating the world, electron by electron. But will the capital be there again in 2026 to feed their financial appetite? Data centre spending surpassed $500 billion last year, and when combined with broader electricity needs, according to McKinsey, may total $6.7 trillion over the next five years. The world has never seen an infrastructure boom like this. Data centre construction is now the single biggest contributor to U.S. economic growth; tech spending as a share of all investment is now running 50% higher than it was during the broadband boom of 2000, and triple what the U.S. spent on Interstate highways in the 1960s. Vacancy rates for data centres recently hit a record low of 1.6%, as developers bid up available spaces. “We may need more,” said Larry Fink, CEO of Blackrock. “If we don’t scale, China wins.” Equinix, a large data centre player, faces ten times the demand for every new unit they build. Land is no longer the constraint; energy is, as a medium-sized centre requires the energy of a small town. Such operations last year accounted for two-thirds of U.S. load growth, making them a new political target in boom states like Virginia and Ohio where electricity prices have soared. They’re also a growing concern in Africa and South-east Asia, the world’s fastest-growing regions, where countries have found themselves outbid for gas turbines and other power equipment.

AC or AI: It’s gridlock

The next energy crisis won’t be fueled by oil or gas; it will be strained by the world’s faltering electricity grids. Electricity demand globally is rising three times faster than total energy demand, driven by air conditioning and electric vehicles, as well as data centres. While 90% of Americans have access to air conditioning, the number is 20% in India, 18% in Indonesia and 5% in Nigeria—each with some of the world’s fastest-growing cities. Add to that the growing demand for EVs, which now account for a quarter of global car sales, up from 5% in just five years. Fatih Birol, head of the International Energy Agency, said the world will need 10,000 terra-watts of new electricity in the next decade, which is the equivalent of adding another U.S., Canada, Europe and Japan. Without any innovation breakthroughs, that would require 70% more copper, and a vast expansion of steel and critical minerals processing. Developments in large-scale battery storage and grid digitalization offer some hope, as most electricity systems still suffer a gross mismatch of supply and demand. But an unfortunate truth remains: it’s easier and faster to build power plants than it is to add transmission and distribution. Take this recent experience in Europe: the continent added 80 gigawatts of renewable energy supply only to find it didn’t have the capacity to transmit all that new electricity.

A renewable lease on energy

There were two vastly telling moments in Davos’s main Congress Hall, one speaking to scarcity, the other to abundance. Donald Trump went off script to lambaste renewable energy, especially wind which he said was for “losers.” A day later, Elon Musk used the same stage to profess a glorious future for renewables, especially solar which he said could power all of America if he had his way. Just give him a parcel of land, 160 kilometres by 160 kilometres, and tariff-free solar panels! Away from North America, renewables are still the driver of energy growth and have shifted from a “transition” source to a default for new supply in many markets. Europe reached roughly 50% renewable generation in 2024. In other fast-growing markets, renewables are increasingly seen as energy additions, not just replacements for fossil fuels. Falling battery costs (solar is down roughly 80% in India) and longer lifetimes (30–35 years) have helped shift economics from a simple cost per unit to a cost per lifecycle. But reliability remains a challenge, which will require more battery storage, pumped hydro, and hybrid round-the-clock systems. But that’s happening in places like India, which has installed 2.7 million rooftop solar systems and 3.1 million solarized pumps and has already hit its 2030 target for renewables to account for roughly 50% of non-fossil fuel energy.

For companies, AI goes small

AI has shifted from an experimental technology to foundational infrastructure—and now an operating system for companies and governments. The competitive advantage is not just model innovation; it’s diffusion and how fast firms can beat their competitors to transform. As diffusion accelerates, Anthropic co-founder and CEO Dario Amodei sees 2026 as the year when AI systems build AI systems, including within firms, in ways that could upend entire business models. Demis Hassabis, co-founder and CEO of DeepMind, said the advantage will go to “continuous learners” who track what models are doing and adjust strategies and workflows. Seizing that approach, most CEOs have taken AI ownership out of the tech department and parked it on their desk. A BCG survey, released at Davos, found that 72% of global CEOs see AI as a core part of their mandate, with half believing it will define their tenure. Companies plan to double AI spending this year, even though a 2025 MIT study found very few adopters had seen a financial return. David Sacks, the Silicon Valley guru who is Donald Trump’s AI czar, sees the need for leaders, in government, business and media, to dispel fears, and embrace the chance to disrupt and innovate. He cited another study that found 83% of Chinese are optimistic about AI, compared to 39% of Americans. Sacks worries that “a fit of pessimism” will result in the U.S. losing the AI race due to what he described as a “self-inflicted injury.”

On jobs, AI becomes snakes and ladders

There’s a new financial math for AI. It’s what Microsoft CEO Satya Nadella calls “tokens per dollar per watt”—basically the energy cost per unit of compute. Think of it as a kind of basic wage and productivity measure for AI. And the companies, and countries, that can drive down that unit cost will be positioned to win in the data economy. This new math may fundamentally change the nature of human work, too. Think of it as “data x energy x labour = success.” The C-suite consensus at Davos seemed to be that labour, like data and energy, will be needed even more. CEOs said the entry-level “job cliff” is overstated; the real problem is a widening skills mismatch, as most roles will require a re-bundling of tasks and skills. The winners will be the workers (and firms) that can integrate and operate with AI. This transformation is resetting corporate ladders, especially in professional services and governments, where basic tasks like document review, screening and modelling can be done by machines. New apprenticeship designs will be the hot HR need, to build judgement, context, and supervision skills. More model design and modification will be pushed to the frontlines, where employees can create small pieces of automation to transform their work. All this can flatten organizations, and give advantage to those with abundant data, cheap energy and AI-savvy teams.

Zero Sum = Zero Trust

Growing divisions in the world, and within countries, is a matter of trust. And we’re losing it. Stefanie Stantcheva, a Harvard economist, finds it’s especially acute for her generation—those under 40—who see a zero-sum world and their slice shrinking. She shared research at Davos showing how distrust now spans the political spectrum, with a wide range of millennials feeling other groups have captured government agendas through mainstream media, corporate influence and old-school politics. That tension will grow as aging voters in the West demand more income and health security, perhaps at the cost of economic and national security. The Edelman Trust Barometer, which surveys 34,000 people in 28 countries and is released annually at Davos, found societies sliding from grievance into insularity; seven in 10 people are hesitant or unwilling to trust those with different values, backgrounds, or information sources. Trust is also shifting away from institutions to “people like me,” neighbours, co-workers, and one’s CEO. Business is now seen as both most competent and most ethical, surpassing NGOs on ethics for the first time, while government and media remain the least trusted. Most starkly, optimism is fading: in many countries, majorities no longer believe they or their families will be better off in five years, citing economic anxiety, AI, misinformation, and global conflicts.

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John Stackhouse is Senior Vice President, Office of the CEO, at RBC, and a senior fellow at the Munk School of Global Affairs & Public Policy at the University of Toronto. He is a former editor-in-chief of The Globe and Mail and was its correspondent in New Delhi from 1991 to 1999.

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Six charts that analyze Canadian-U.S. oil ties amid new geopolitical developments in oil markets

The U.S. loves heavy oil. The blend is vital for diesel, jet fuel and petrochemicals, and Canada is, by some distance, its biggest foreign supplier. However, a U.S. plan to influence and revive Venezuelan oil has raised concerns that Canada—already facing U.S. pressure on several other domestic industries—could start losing market share to Venezuelan heavy crude in a few years. It could amount to a Washington squeeze on Canada’s most prized resource.

Canadian oil has displaced rivals, including Venezuela and OPEC, in the U.S. market over the past three decades

Imports of crude and liquids into the U.S., the millions of barrels per calendar day

U.S. crude import patterns reflect a clear structural divergence between Canada and Venezuela. The result is a fundamental reorientation of U.S. import dependence toward Canadian supply, reinforced by reliability, infrastructure, and long-cycle capital investment.

But Canadian oil is not just a Gulf Coast (PADD3) play. It’s also a strategic and critical player in the U.S. Midwest refinery complex (PADD2)

U.S. Imports, millions of barrels per calendar day

Venezuelan crude once dominated Gulf Coast imports, but its collapse created space that has only partially been filled by Canadian barrels. The Gulf Coast is seen as a battleground, but only 10% of total Canadian imports flow into the region known as PADD 3. Most Canadian crude growth has occurred within the Midwest refinery region, known as PADD 2, which accounts for 69% of total Canadian export growth into the U.S. over the past three decades.

U.S. refineries are engineered for the oilsands and other heavy oil: the co-dependence with Canada will be hard to break

Total U.S. Refining capacity by refining region, millions of barrels per stream day

U.S. refining capacity growth has been concentrated in PADD 3 and PADD 2, reinforcing the system’s orientation toward large-scale, complex refining hubs. The Gulf Coast’s dominance reflects decades of investment designed to process heavier and more diverse crude slates, positioning it as both a domestic refining centre and a globally relevant supply hub.

The U.S. and Canada are poised to ride the plastics boom: U.S. refineries spent billions to bolster their heavy-oil dependent petrochemicals sector

Total U.S. coking operating capacity by refining region, millions of barrels per stream day

Coking capacity remains a defining feature of the U.S. system’s ability to process heavy crude, with the majority of investment concentrated along the Gulf Coast. The steady build-out of coking units over time highlights how refiners structurally adapted assets to heavier barrels, further entrenching supply relationships that favor Canadian crude.

Canada provides oil security to the U.S., while U.S. refineries serve as gateways for Canadian oil to reach global markets

U.S. Total Crude + Product Exports, millions per barrel per calendar day

The U.S. energy system is increasingly focused on exports, with petroleum products accounting for majority of outbound volumes over time. This underscores the Gulf Coast’s role not only as a refining hub, but as a critical petrochemical and export platform. For Canada it reinforces the importance of market access, blending, refining, and re-export pathways within an evolving global trade landscape.

However, U.S. oil investments in Canada have seen a decade of capital flight

U.S. investments in western hemisphere in the mining, quarrying, oil and gas extraction sector

For all the cross-border integration, U.S. capital investment in the Canadian resource sector (mining, oil and gas) has fallen by more than half from its US$39.1 billion peak in 2011. Meanwhile, U.S. investments into other Western Hemisphere countries has steadily grown from US$16 billion in 2000 to US$64 billion in 2024, even without Venezuela.

The competition for investment dollars from the U.S. into the Western Hemisphere is growing—Canada will need to lock in American capital to ensure it preserves its pre-eminent position in the U.S. market.

Contributors

Shaz Merwat: Policy Lead, Energy, RBC Thought Leadership

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➔ How’s Canada doing on fighting climate change? It’s complicated

➔ Is the world falling out of love with Teslas?

➔ Canada’s methane rules get pragmatic

Hot takes

➔ Can the IPCC survive its breakup with Washington? The UN-backed Intergovernmental Panel for Climate Change is in a “keep calm-and carry-on” mode after the U.S. decided to pull out, noting that it continues to work on its next cycle of reports, starting in 2027. The IPCC reports are extremely influential, and many countries benchmark themselves to its authoritative data. It’s critical for IPCC to persist, but one of the criticisms of the body is its focus on the science and the tech, that underplays the economics and politics of energy transition. While the White House labelled the IPCC (and the 65 other UN organizations the U.S. exited) as a “waste” of American taxpayer money, others argue that the IPCC has been instrumental in focusing global policymakers on one of the world’s most critical challenges. Science, they hope, will prevail.

➔ New methane rules mark a pragmatic evolution in Canadian climate policy. The new rules—covering onshore oil and gas operations and large landfills with requirements beginning in 2028—pair high ambition with greater regulatory flexibility. The most consequential change is optionality, says Vivan Sorab, our Clean Tech Lead. Government estimates suggest that the new rules could deliver cumulative reductions of 304 Mt CO2e from 2028 to 2040. Operators can follow a regulator-prescribed inspection pathway, subject to regulatory verification and enforcement, or demonstrate compliance through their own processes, backed by monitoring and verification. The removal of the five-year expiry on federal-provincial equivalency agreements further strengthens the framework by improving long-term certainty for provinces and the industry. The rules are reinforced by a $16-million federal investment in methane monitoring and verification tech. Given ongoing uncertainty on methane emission volumes, the focus on measurement could prove to be crucial.

➔ Is the world moving past Elon Musk’s Tesla? It’s hard to say whether the billionaire’s politics put off many, but it could certainly be a factor. Globally, EV cars sales hit a record 21.7 million last year, Bloomberg New Energy Finance estimates, even as Tesla sales contracted 9% to 1.64 million. BNEF forecast 24.3 million EV car sales in 2026—a slower pace of growth than previous years—as falling government incentives are offset by falling battery prices, a bump in commercial vehicle sales and the slow ramp up of robotaxis.

What it takes to write a climate action report

Behind the scenes, the Climate Action Institute team spent the past six months on what’s emerging as a benchmark of Canadian climate action: our Climate Action report, now in its third year.

While there’s been some retreat on climate policies, there’s plenty of action too, on climate. Our report title, Retreat, reset or renew?, suggests it’s all of the above.

The report is based on calculations, aggregations and estimates using a variety of measures from across the economy and society. We selected those metrics to help paint a picture of where we’re at, how far we’ve come and some of the distance ahead. The report, and its measurement tools, are not designed to be a precise diagnostic of any one sector, policy or technology—it’s more like a mirror in which we can see Canada’s successes and shortcomings.

The report was also informed by our team attending over 100 events, and visiting farms, facilities and offices, cross-country, where we listened, spoke and compared notes with peers, experts and skeptics. Over 2,000 Canadian consumers and 150 business executives participated in our two annual surveys. Peer groups dove into the methodologies and several external experts stress-tested our analysis. For our case studies, several companies agreed to heart-to-hearts on the challenges of putting their boardroom promises into action on their factory or office floor. The result is a snapshot of Canada’s climate journey: some milestones achieved, a few dead-ends, and strapping up for the next curve round the bend.

Read the full report here, but here’s a peek at a handful of findings:

  • Emissions progress is mixed: National emissions are down 7% since 2019, with reductions in electricity (-27%), buildings (-19%), and oil/gas (-19%) sectors. However, new projects like the TMX pipeline expansion and LNG Canada Phase 1 are projected to increase oil/gas emissions.

  • There’s a strong pipeline of climate funding. Climate capital flows of around $20 billion annually continue to support the low-carbon sector.

  • …And there’s more on the way. Nearly $100 billion worth of incentives for clean-tech and climate programs and initiatives budgeted for deployment between now and 2035—although funding remains uncertain given policy shifts.

  • Climate Action Barometer declined: the Institute’s flagship index fell for the first time in six years amid policy uncertainty.

  • Canadians still care about climate: Cost of living issues, healthcare access and strengthening the economy were front and centre, but 33% still consider climate change as a top-three priority for policymakers.

Five insights from the frontlines of climate policy

Don’t fixate on 2030 Canada’s emissions targets. That’s the message from Environment and Climate Change Canada (ECCC) in its latest progress report on the country’s 2030 emissions reduction plan, released days before the Christmas break. Focusing on 2030 targets “at all costs” risks undermining the long-haul climate fight, the report notes. “Focusing narrowly on short‑term reductions could also divert attention from the deeper, systemic transformations needed to reach net‑zero by 2050.”

Pushing heavy industry and oil and gas—two sectors that are deeply tied to competitiveness, investment flows, and trade— could “trigger capital flight, carbon leakage, and a loss of international competitiveness, especially if compliance costs outpace those faced by peer economies.”

Economist Farhad Panahov pored through the data trove to glean 5 valuable insights:

  • Emission declines are impressive, given population growth. By 2023, Canada’s emissions declined 8.5% from 2005 levels. More impressively, emissions intensity was down 35% based on the economic size and 29% based on population (which has been growing at a fast clip over the past two decades).

  • We need four times the pandemic era emissions declines. Canada’s emissions would need to drop fourfold compared to the 2020-COVID-era magnitude to reach its 2030 targets.

  • Most sectors are pulling their weight. Electricity, transportation, heavy industry and buildings sectors are projected to deliver a combined 68 MtCO2e emissions reductions by 2030, through several measures including electric vehicle and heat pump adoption, fuel switching and electrification in heavy industry, and renewable technology deployment.

  • Fossil fuels are the outliers. Oil and gas sector, however, has a diverging projection, ranging from either flat to 33 MtCO2e emissions with enhanced methane regulations, hydrogen substitution, and deployment of solvent-based extraction technologies.

  • What’s going to move the needle? The controversial, and now shelved, Oil and Gas Emissions Cap (excluded from the projections) would have only added 3MtCO2e in emissions reduction. Meanwhile, agriculture practices along with nitrogen management could contribute up to 12 MtCO2e in emissions reduction.

The Institute in Action

  • John Stackhouse will be on the ground in Davos next week. Watch out for his analysis on what he saw, shared and heard at the world’s most influential forum for discussion and debate on the global economy.

  • Lisa Ashton, the Institute’s Interim Head, was the keynote speaker on how agri-food can lead a new era of economic development at the Saskatchewan Crops Forum this week.

  • Lisa also hosted a roundtable in Saskatoon with industry leaders and investors on growth capital in Canada’s agri-food sector to dive into the investment challenges that were highlighted in the Next Generation of Growth.

  • Shaz Merwat, Director of Energy Policy, is moderating a panel on Canada and B.C.’s Competitive Edge as a Global Gas and LNG Producer on Jan. 21 at the B.C. Natural Resources Forum.

On our binge list

  • The Elements of Power: A Story of War, Technology and the Dirtiest Supply Chain on Earth by Nicolas Niarchos, on what it takes to usher in the battery era.

  • TV series Landman, starring Billy Bob Thornton, that shows wildcat drilling is alive and well in Texas—often powered by wind turbines.

  • Disruptors podcast: Alberta’s Next Energy Mix. John Stackhouse speaks with Premier Danielle Smith about the future of power in Alberta.

  • Things Are Never So Bad That They Can’t Get Worse (2022), by William Neuman, on the steady collapse of Venezuela over the years.

Curated by Yadullah Hussain, Managing Editor, RBC Climate Action Institute.

Climate Crunch would not be possible without John Stackhouse, Jordan Brennan, John Intini, Farhad Panahov, Lisa Ashton, Shaz Merwat, Vivan Sorab, Caprice Biasoni, Lavanya Kaleeswaran and Joelle Schonberg .

Have a comment, commendation, or umm, criticism? Write to me here (yadullahhussain@rbc.com)

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Consumer carbon pricing—scrapped. Electric vehicle mandate—delayed. Oil and gas emissions cap—all but gone. The headlines suggest Canada’s climate ambition is in retreat. However, much of the climate action-enabling capital has already been locked and loaded, with an estimated nearly $100 billion worth of incentives—by our count—ready to be deployed between now and 2035 for clean-tech and climate programs and initiatives.1

Federal givernment's climate related financial support

As part of the Climate Action Report 2026, which will be released on January 13, we analyzed the various federal government’s climate policy and commitments over the decades.

For the Canadian Government Climate Sentiment we used OpenAI’s advanced reasoning models to curate and analyze contextual framing of climate and related topics to assess government resolve around climate.

Federal Budgets: Evolving climate narrative

Our research applied the analysis to federal government budgets across three main categories: narrative (references to climate trends and past actions), policy, commitments and plans signalling government intentions, and new funding announcements.

Canadian governemnt climate sentiment

  • The Trudeau years were packed with talk—and action. Climate talk hit its highest levels during the pandemic years. Justin Trudeau’s Liberal government started strong with a number of climate focused funding announcements in its first federal budget in 2016 to about $6 billion, according to our count.2

  • Climate funding has been frontloaded. Since 2016, cumulative budgeted climate-related spending has risen to $150 billion. Clean economy Investment Tax Credits of around $78 billion as initially announced are already in place and will support adoption of low-carbon technologies for another decade into the 2030s.3 Program spending, transfer payments and other tax expenditures accounted for another $70+ billion in financial support.4

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RBC Climate Action Institute’s latest annual survey of 150 executives shows 136 (91%) Canadian executives said their organization had a greenhouse gas (GHG) emissions reduction strategy—a sizable jump from 73% in last year’s survey.1

The survey, part of the RBC Climate Action Institute’s soon-to-be released Climate Action 2026 report, finds businesses in review-and-reset mode.

While a strong majority had a strategy, they were scaling back their targets in the interim: the percentage of executives “agreeing” or “strongly agreeing” when asked whether their organizations will reach its 2030 climate targets stood at 71% this year, compared to 81% last year.

That seems understandable as tectonic shifts are shaking up several planks of the Canadian and global economy this year, including trade, investments and energy security. Nearly three out of five senior leaders said their companies are planning to scale, or have already scaled back, their climate commitments or targets. More than a quarter cited the risk of political blowback in the U.S. as a key factor in their company’s decision, while just over 20% pointed to shifting sentiment at home for their decision.

Canadian Businesses hold on to hopes of meeting their 2030 climate targets

A few other highlights from our survey:

  • Executives believe they should be driving climate progress. Corporate priority (63%) was the biggest driver of their emissions reduction strategy, followed by government regulation (60%). With several federal and provincial government climate policies in retreat in Canada, it will be interesting to see whether GHG emission reduction strategies wane in future surveys.

  • Energy efficiency was a popular way (82%) to lower emissions. When asked “what’s the primary focus of your organization’s climate strategy?” 62% picked waste reduction, and 41% identified the purchase of carbon credits—similar to last year. There was, however, a drop in switching away from fossil fuels (46% in 2025, versus 52% in 2024), and electrification (48% in 2025, versus 59% in 2024).

  • Customers are seeking sustainable products and services. Customer/client demand (54%) was the next big driver of their strategic decision-making—little changed from last year despite new economic and affordability pressures on customers. However, only 30% of executives cited investor demand as a key factor.

  • Sustainability policies are viewed as expensive… 60% of executives said implementing sustainability policies led to a moderate cost increase of between 5 to 15% to their business costs, while another 13% reported cost inflation exceeding 15%. In our survey, we did not define what sustainability policies companies were pursuing.

  • … But deploying climate policies had upside, according to the executives. Around a third of executives (32%) reported commanding premium pricing for their lower-carbon products and services, with 29% reporting securing new market access; 45% said their climate initiatives attracted new customers and business partners. However, nearly a third suggested they faced cost disadvantages compared to competitors with fewer climate considerations. A fifth reported noting no difference from their climate action.

  • Lack of access to capital tops the barriers list. In addition, the challenge of qualifying for government incentives and regulatory uncertainty, along with macro-economic conditions, were most frequently ranked as the top three barriers facing executives in their effort to lower their corporations’ GHG emissions.

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Climate change may have slipped on Canadians’ priority list, but it remains front and centre when it hits closest to home—most notably in the form of wildfires inflicting property damage, raising insurance costs and impacting health.

That’s one of the key findings of RBC Climate Action’s latest consumer survey, which polled 2,000 Canadians. The survey is part of the Institute’s third annual Climate Action report, which reviews Canada’s progress on its environmental goals. (The full report is out Tuesday, January 13.)

Concerns around climate change has ebbed and flowed in tandem with Canadians’ economic prospects. In last year’s Climate Action report, 14% of respondents reported climate change as one of their top three concerns, down from 26% in 2019. This is consistent with the general observation that climate change, while important, ranks below pocketbook issues such as the cost of living and job security. When the economy is strong and jobs are secure, people can ‘afford’ to prioritize climate action. In times of economic stress, climate change tends to be de-prioritized.

This year’s consumer survey, conducted by market research firm Ipsos, again finds Canadians focused more on the economy, jobs and personal finances. However, the frequency of extreme weather events ensures that environmental issues continue to simmer just under the surface.

Here’s what we heard in the survey:

  • It’s about personal issues right now. Cost of living (79%), healthcare (75%) and economy and jobs (63%) were the top three challenges for most Canadians. Only 33% of respondents listed climate change as a top three issue. One-in-eight Canadians (12%) identified it as their top priority.

  • More than three out of five Canadians (67%) didn’t see climate change as a top three priority. It appears that climate change as an abstract concept is struggling to capture the attention of Canadians in the same way as the immediate impact of wildfire smoke or urban flooding does.

    Priority ranking of key issues for Canada including cost of living, healthcare, job creation, national security, and civic peace

  • That does not necessarily mean climate inaction. Canadians are trying to reduce their carbon footprint in measures they can control: avoiding air travel and cutting meat consumption. Strong majorities either reduced or intend to reduce consumption or boost recycling efforts (84%), cut home-energy usage (77%), while roughly half changed or intended to change their travel habits (51%) and diets (49%).

  • Weather over climate: Around 60% of respondents would place greater emphasis on climate action if extreme weather events were even more frequent. Canada’s last three wildfire seasons were among the worst according to federal records dating back to 1970.2 As the survey suggests, the frequency and intensity has had an immediate impact on the quality of life for many Canadians.

    Impact of continued extreme weather events

  • Canadians want wildfire-containment action: Personal health (56%), including smoke inhalation and heat stress, topped the list of concerns from wildfires, followed by property damage and insurance costs (54%), and the inability to enjoy outdoor activities and nature (50%).

    Canadians are leaning on cutting back on consumption to lower their carbon footprint

The challenge for policymakers and business leaders will be to harmonize environmental goals with other priorities and ensure economic growth does not override climate priorities.

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Why Trump’s ‘very severe’ fertilizer tariff threat is a big deal

By Lisa Ashton, Director of Agriculture Policy, RBC Thought Leadership

U.S. President Donald Trump’s US$12 billion aid package for American farmers struggling with rising input costs like fertilizer and seeds comes with a sting for Canada. Trump is considering “very severe” tariffs on Canadian fertilizer to “bolster” U.S. domestic fertilizer production. 

This could prove to be an own goal for Washington. More tariffs on Canadian fertilizers are likely to raise prices for U.S. farmers in the short-term and could create volatility in securing long-term supply. The proposed move comes as the U.S. has few alternatives to Canadian fertilizer, while American farmers have limited leverage in the market and are price receivers. Here’s what is at stake for both the Canadian and U.S. agriculture sectors:

  • Canada accounts for 81% of U.S. potassium-based chemical fertilizer imports and tariffs would further raise costs along North America’s interconnected agri-food supply chain.1

  • The U.S. tried a version of this before: It imposed broad tariffs (25%) earlier this year on many Canadian imports, including potash and other fertilizers. After pushback from American farmers and industry groups, fertilizer tariffs were reduced to 10%.

  • Those moves proved to be a body blow as U.S. Import Price Index for chemical fertilizers rose from 164.5 in December 2024 to 186.5 in September 2025.2

    • The U.S. Prices Paid Index tracking costs paid by U.S. farmers rose to 149.9 in June 2025, up from 139.9 the year before. Over the same period, fertilizer costs were the primary driver for rising costs for U.S. crop farmers, up 11% in the index.3

  • Canada has the world’s largest potash reserves, with 1.1 billion tonnes of potash, which is 5x larger than U.S. reserves.4 Canada’s scale of potash mining by production volumes was 36x larger than the U.S. in 2024.5

  • Fertilizers account for roughly 30% to 45% of a U.S. farmer’s annual operating cost, depending on the crop.6 As farmers are vulnerable to volatility in input prices, they often can’t pass rising input costs onto consumers since many sell into commodity markets (i.e. corn, wheat, soybeans). That could challenge the U.S. administration’s efforts to reduce costs for farmers ahead of 2026 mid-terms with active tariffs on their inputs and threats of more.

The week that was

  • The U.S. could carve out separate deals with Canada and Mexico says U.S. Trade Representative Jamieson Greer. He said the Trump administration is leaving all options on the table when it comes to the Canada-U.S.-Mexico Agreement (CUSMA). Mark Carney was quick to dismiss the possibility of separate deals: “That’s not what they’re saying.”

  • Kirsten Hillman, Canada’s ambassador to the U.S. who played a key role in the CUSMA negotiations, announced that she will step down in the New Year. Hillman’s replacement has yet to be announced but reports surfaced that Mark Wiseman, former chief executive of the Canada Pension Plan Investment Board, is the front-runner.

  • Canada’s $153-million trade surplus in September blew past analysts’ expectations of a $4.5-billion deficit. Exports to the U.S. rose 4.6% (imports fell 1.7%). And exports to other parts of the world shot up 18.6%.

  • In the U.S. exports surged in September, resulting in the smallest trade deficit in 5 years.

  • And China’s trade surplus tops US$1 trillion for the first time. Despite trade tensions with the U.S., Beijing exported US$3.4 trillion worth of goods in the first 11 months of the year by finding, in part, new markets for its outbound shipments, including Africa (+26%), Southeast Asia (+14%) and Latin America (+7.1%).

Trump’s tariff toll

By Jordan Brennan, Managing Director, RBC Thought Leadership

President Trump has been making the point that tariffs carry with it short-term pain for long-term gain. The data confirms that he’s got the pain part right.

Inflation: Since Trump’s so-called ‘Liberation Day’ in April, producer prices in the U.S. have moved meaningfully higher. The knock-on-effect: consumer inflation has grown for five consecutive months and now stands at 3%—a level not seen since early 2024.

Producer and Consumer prices march higher since liberation day

Consumer sentiment: According to the University of Michigan’s long-running survey of consumers, confidence is sitting at half-century lows. Four of the 10 worst monthly readings have come since Liberation Day.

Manufacturing: Far from rebounding, manufacturing employment—including politically-sensitive auto jobs—has worsened since January. The U.S. has shed nearly 50,000 manufacturing jobs this year.

U.S. Manufacturing Employment Deteriorates in 2025

The rejoinder from the White House is inevitably that the tariff policy takes time and discomfort is transitional. But voters rarely reward distant promises over immediate pain. And Trump has already started to ease off, recently slashing tariffs on beef, coffee and assortment of other grocery-store items. Expect more selective tariff relief—targeted by region and by product—as the midterms draw closer.

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I sat down with former Australian prime minister Scott Morrison while he was in Toronto this week, to talk about that country’s bold bets on the space sector and what Canada can learn.

Morrison helped launch Australia’s space sector into a higher orbit, and is now active in the global sector, especially in the U.S. Here’s some of what he shared with me, as well as a group of Canadian space leaders and investors:

  • Space is “once again becoming a geopolitical contest,” echoing the 1950s–70s space race. Pretty much every aspect of intelligence and national security now has a space connection. 

  • Canada should see space as a way into the world’s most important military and security alliances. AUKUS (Australia-UK-US) is one of those groups, as is the Quad (US, Australia, India and Japan) and the Five Eyes intelligence network of the US, Britain, Australia, New Zealand and Canada. 

  • AUKUS is worth watching as it shifts attention from submarines and undersea dominance to orbital dominance. Space may be Canada’s opportunity to join an AUKUS2.

  • While NATO has been slow on space, that will shift. The Ukraine war — and the role of satellites and drones — shows where future battlefields lie.

  • The sector is projected to grow ~9% annually, heavily driven by semiconductors, satellites and global AI demand.

  • Combined, AI and space will be the defining mega-trends of the next 50 year, shaping global security, economics, and national capabilities.

  • A dedicated national space agency, with senior oversight from government, is essential for the sector’s growth, providing critical mass, coordination, and legitimacy.

  • Large private-sector players are essential, too, but public capital and international partnerships are required.

  • Launch leads to legitimacy. If a country can’t launch its own assets into orbit — right now, Canada can’t — it won’t be a leader. Australia is aiming to build the only near-equatorial launch site among the Five Eyes, making it more indispensable to intelligence partners. 

  • Don’t stop at launch. “The sexy stuff is rockets,” but real industry growth depends on infrastructure, logistics, testing, science support and service capacity.

  • Others are on the move. Japan is aggressively scaling its space ambitions, targeting 30 launches per year and leveraging tight state–industry coordination. New Zealand has Rocket Lab and a politically energized space agenda.

Here’s what Morrison says Canada needs:

  • A credible national space strategy with funding behind it.

  • A capability others need.

  • A willingness to invest politically and financially at the scale the US and Australia are committing.

  • A concrete capability that strengthens our alliances, including  space domain awareness, Arctic surveillance, satellite manufacturing, launch capacity, AI-enabled sensing and cyber integration.

  • A security-focused rationale, aligned with allied threat assessments — particularly those related to China.

“At the end of the day, this is a security initiative, not an industry development initiative. At home, governments will speak about employment and economic benefits. But in Washington, Canberra, London, Tokyo, or Wellington, the argument must be strictly: ‘Here is the capability Canada brings to collective security.’”

John Stackhouse is Senior Vice President, Office of the CEO, at RBC, and a senior fellow at the Munk School of Global Affairs & Public Policy at the University of Toronto.

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Artificial Intelligence is poised to reshape how value is created across Canada’s economy. To understand that shift, RBC Thought Leadership interviewed more than two dozen firms that are on the frontlines of building or deploying AI for Bridging the Imagination Gap: How Canadian Companies Can Become Global Leaders in AI Adoption. The report distilled the patterns that emerged from those conversations.

Building on that report, our series of case studies goes a level deeper. Here we follow how Manulife, a global insurer and asset manager, used generative AI as a catalyst to rethink how the organization learns, shares, and scales new ideas. The company’s experience shows that successful AI adoption is not a technology challenge alone—it’s a challenge of capability-building, governance, and empowering people to work differently.

Summary

Manulife, a global asset manager headquartered in Canada, saw AI as a chance to move beyond incremental efficiency gains and reimagine products and operations. Leadership judged the sector “too comfortable,” set a clear ambition to become a digital-customer leader, and treated OpenAI’s Large Language Model in 2022 as a tipping point. A hands-on executive session turned AI from a niche experiment into a CEO-level agenda item, signalling that real impact would require structure, governance, and integration—not one-off pilots.

Build absorptive capacity (infrastructure). Manulife created a multi-tier learning stack and embedded ~200 data science and machine learning experts, and used leadership rituals to grow the “stock of prior knowledge,” so new AI advances could be absorbed and embedded faster.

Institutionalize adaptive capacity (the engine). Leaders normalized copying—if one team built something useful, others reused it. This turned isolated wins into shared playbooks and spread improvements quickly. By embedding that habit, Manulife accelerated the cycle of adopt, invent, select, scale, building adaptive and innovative capacity together.

Balance speed and safety (governance by outcomes). Responsible AI principles, expanded model-risk frameworks, cross-functional review, and real-time telemetry treated fast iteration and strong oversight as complements, not one-off pilots

It was mid 2020. Jodie Wallis, then Manulife’s Global Chief Analytics Officer, had summoned the company’s top executives into a Toronto boardroom. She knew the meeting would mark a turning point: OpenAI’s breakthrough latest large language model (LLM), GPT1– 2 had just been released, and, at nearly 100 times stronger than its previous models, GPT-2’s implications stretched far beyond the technology itself. For Manulife, a 137-year-old insurer built on actuarial precision and risk discipline, the question was whether this new capability would be treated as a passing novelty, or as the spark for deeper change.

For years, AI at Manulife meant prediction and automation—underwriting models, fraud detection, lead scoring. Even as the frontier advanced with machine-learning models that could conjure hyper-realistic images, these applications still felt contained within the realm of “computer things.” They were useful and very impressive but safely bounded by expectation.

To Wallis, large language models like GPT shattered those boundaries. Designed for an iterative exchange, they created value not through a single output but through an unfolding dialogue—shifting the dynamic from command-and-response to something closer to collaboration. LLMs could now reason with a human-like cadence, inviting conversation rather than instruction. The breakthrough was not a more polished “answer,” but the model’s ability to so fluidly augment inquiry itself—generating new directions of thought and discovery.

That shift—from bounded tasks to open-ended discovery—was as unsettling as it was exhilarating. Wallis framed the moment with unusual candor: “Our industry has been too comfortable. This technology isn’t just another tool—it’s a fork in the road. We either harness it, or risk being reshaped by it.”

Around the table, reactions varied: curiosity, excitement, apprehension. The challenge was immediate. Should Manulife treat generative AI as an experiment at the margins, or as the new trajectory of the business itself? Wallis herself was convinced of the answer, but she also knew the technology was still raw—too raw, perhaps, for the boardroom to fully accept. The choice would force hard calls about strategy, governance, culture, and investment, all at the breakneck pace at which the frontier was advancing.

In such moments of technological upheaval, corporate boards look to figures like Wallis to distinguish passing trends from transformative forces. Unlike the technologist-soothsayers popular at the time, her task was consequential: to foresee how generative AI might reshape an institution built on actuarial discipline, and to ensure Manulife seized the opportunity rather than being undone by it. Frame the moment correctly, and new value could be unlocked; misjudge it, and the consequences could be existential.

But foresight alone would not suffice. Wallis knew no memo or slide deck could capture the implications of generative AI; words on a page risked being dismissed as abstractions. The only way forward was direct confrontation. To overcome that gap, one had to experience it themselves. Fortunately, the technology itself offered an answer—the opportunity to turn the crystal ball around and let skeptical peers glimpse inside for themselves.

So, she placed a tablet in front of each leader, preloaded with the latest OpenAI model, and invited them to test it—to ask it the questions they might otherwise have asked her. The room fell silent as screens lit up with blinking prompts. One by one, Manulife’s senior leaders began conversing with GPT-2, watching as it generated fluent answers in real time. The exercise was disarmingly simple, yet it shifted the atmosphere. Within minutes, the conversation had moved from “is this real?” to “what does this mean for us?”—the kind of pivot that months of memos and meetings could never have achieved.

It was Wallis’s decision—to make her colleagues experience the frontier for themselves—that created conviction at the top. But she knew conviction alone would not be enough. To matter, it had to be built into infrastructure, and then into the agility to adapt. With that boardroom experiment, Wallis set the flywheel in motion—conviction, infrastructure, adaptation—that would carry Manulife through one of the most profound technological shifts in its history. In doing so, Manulife joined a small group of financial giants positioning Canada at the forefront of AI transformation.

To understand how this journey unfolded, RBC Thought Leadership sat down with Jason MacDonald, Chief of Staff in the Office of the CEO, and Jodie Wallis—now the company’s Global Chief AI Officer—to explore how they and their colleagues steered a $72-billion insurer through one of the most profound technological shifts in its history.

Insight One: Show, Don’t Tell: Creating Conviction at the Top

Strong buy-in from senior executives is critical at the beginning of any transformative initiative. Wallis understood that leaders had to experience AI directly for themselves. In doing so, she was putting into practice what Everett Rogers’ diffusion theory had long shown: new ideas spread faster when they are trialable—safe to experiment with in low-risk conditions—and observable—when peers can see results firsthand. Together, these conditions turn abstract technology into something tangible enough to believe in.

That is exactly what unfolded in the boardroom. Once a few respected voices found the tool useful—asking follow-ups, reading fluent outputs aloud—trialability was satisfied: executives could experiment in a low-stakes, hands-on way. And because these experiments happened in public, observability took hold: colleagues could watch, compare reactions, and see the system working in real time. What could have been a solitary experiment quickly became a shared moment of discovery. Peer-to-peer reinforcement allowed skepticism to fall away and curiosity to spread, because the technology no longer seemed risky or abstract.

But conviction alone is not enough. To matter, it had to be translated into infrastructure that would let Manulife absorb and scale what leaders had seen. That is where absorptive capacity comes in.

Insight Two: Absorptive Capacity: Building Knowledge Infrastructure

A single demo, however persuasive at the individual level, fades unless an organization as a whole can metabolize what it saw into repeatable capability. That is the job of absorptive capacity—a firm’s ability to recognize the value of new information, assimilate it, and apply it to commercial ends—the infrastructure that makes later adaptation possible. Research on absorptive capacity, first developed by professors Wesley Cohen and Daniel Levinthal in the 1990s, highlights two foundations of that infrastructure:

Knowledge is cumulative and path-dependent—it builds fastest on what people already know, meaning prior knowledge is like scaffolding for future learning.

Breadth of knowledge expands absorptive reach—organizations with a wide base of prior knowledge can take in and apply new external ideas more effectively.

Absorptive capacity is about learning—building the knowledge base and routines to embed new tools. Adaptive capacity (discussed in Insight Three) is about changing—reconfiguring those routines when the frontier shifts and old paths no longer fit. Manulife needed both, but it started by deliberately building the absorptive infrastructure needed to allow the organization to learn. In doing so, Wallis’s team treated culture and skills as equal pillars to technology and designed a multi-tier learning stack:

AI 101 for anyone with an interest

advanced prompt-engineering and data-science for power users, and

tailored executive modules delivered with university partners.

They then wove AI into leadership rituals. At Manulife’s Global Leadership Conference, for example, executives showcased employee-built solutions to their peers, creating a common language of use cases and governance. The goal wasn’t just awareness; it was to give every layer of the company—front line to boardroom—enough context to recognize where AI was relevant and embed it in daily work.

In Cohen and Levinthal’s terms, Manulife was steadily increasing its stock of prior knowledge, so each new wave of technology could be absorbed and recombined faster. Wallis’s actions directly aligned with the two conditions they described: training and rituals made learning cumulative by building on what employees already knew, and broad participation across the workforce expanded the base of knowledge available to draw on. In an industry often criticized as “too comfortable,” this gave Manulife a distinctive edge: the ability to build on new tools and embed them into its routines in ways that accumulated advantage over time.

But infrastructure alone is not enough. Once that foundation was in place, the challenge became keeping momentum when the frontier shifted and old paths no longer fit. That required a different capability: adaptive capacity—the engine that keeps the flywheel turning.

Insight Three: Adaptive Capacity: The Innovation Flywheel

When then-CEO Roy Gori warned that the industry had grown “too comfortable,” Wallis knew this complacency was dangerous in a domain where new AI models and applications were appearing at a breakneck pace, driven by massive new capital flows. Absorptive capacity had already given Manulife the infrastructure to learn and embed AI tools across the enterprise. The next challenge was agility: ensuring the company’s response to advancing technology was equally swift and dynamic. Adoption couldn’t be a one-off event; it had to become iterative. That insight set the stage for adaptive capacity—the engine that converts adoption into continuous reinvention.

Research underscores why this engine is critical. Prior adoption experience is the single strongest predictor of inventive capacity: organizations learn to invent by first copying. Yet when firms switch paths—moving to new models or methods —performance often dips before it recovers, as old mental models stop fitting the new approach. Adaptive capacity is therefore the discipline of riding out that trough and recovering faster, turning temporary disruption into cumulative learning. Manulife operationalized this discipline through a set of deliberate routines.

Adoption→ taking in new tools, practices, or patterns developed elsewhere, and embedding them into the organization’s routines.

Selection and Scale → filtering what works, embedding it into routines, and scaling proven solutions across the enterprise.

Invention→ creating original solutions internally, without relying on external patterns.

Manulife built this discipline deliberately. With a strong foundation of AI literacy embedded across the company, leadership worked to smooth adoption pathways by normalizing copying as a precursor to invention. Wallis instituted prompt-a-thons and leadership conferences where employee-built tools were showcased, creating a common language of value and risk. These rituals made it legitimate to borrow, refine, and scale what worked—ensuring adoption wasn’t confined to early enthusiasts but cascaded across the enterprise. In Cohen and Levinthal’s terms, this was about continuously increasing the firm’s stock of prior knowledge so that when a path switch came—whether a new model, platform, or application—the organization could absorb and apply it faster.

Secondly, Wallis deliberately designed for safe path-switching. A vendor-agnostic, cloud-ready stack allowed models to be swapped ‘even daily,’ making technology change a managed routine rather than a disruptive reset. Scaling decisions were tied to clear business outcomes—revenue lift, cost savings, risk reduction, or productivity—so that pivots created value rather than noise.

Finally, it embedded selection capacity—the discipline to prune weak ideas quickly and scale winners. Cross-functional forums and outcome-based funding kept the portfolio focused, so absorptive capacity compounded rather than leaked.

Together, these routines formed Manulife’s innovation flywheel: adoption experience generated invention; selection routines filtered the noise; flexible architecture enabled safe path-switching; and the loop restarted with each cycle stronger than the last.

Insight Four: Responsible Governance: Balancing Speed and Safety

From the outset, the company made responsible AI governance a design choice. In the absence of clear national rules, it created its own responsible AI principles and operating rules to ensure experimentation and deployment stayed aligned with ethical, privacy, and compliance obligations.

Manulife expanded its existing model risk frameworks to address GenAI’s unique challenges—vetting third-party vendors, monitoring outputs for bias or hallucinations, and requiring ongoing performance assessments for every model in production. A cross-functional governance committee reviewed use cases for ethical and privacy risks, aligning policies with evolving global guidelines. Governance was embedded as a living process, not a static policy.

Critically, Manulife treated fast iteration and strong oversight as complements, not trade-offs. Continuous model monitoring—tracking accuracy, drift, and usage—was used to tighten controls in real time. This outcome-based approach allowed models to stay in production as long as they met error and bias thresholds, and to be adjusted or pulled the moment they didn’t. Iteration was welcome, but never at the expense of trust.

This proactive stance enabled Manulife to scale GenAI quickly and responsibly, building confidence with compliance teams, customers, and policymakers, even in the absence of clear regulation. The broader lesson is that firms in sensitive sectors should not treat regulation as a brake. By self-imposing principles, operationalizing oversight, and demonstrating to regulators that innovation can be pursued responsibly, companies can get ahead of uncertainty. For policymakers, the takeaway is equally important: enabling real-time oversight and outcome-based guardrails may achieve safety faster than prescriptive, one-off compliance checks.

Results: From Experiment to Enterprise Transformation

Within just a year of embracing generative AI, Manulife achieved broad-based adoption at a speed few incumbents match. Its proprietary assistant, ChatMFC, went from pilot to near ubiquity: within months, 40% of employees were using it monthly, and by early 2025, more than 75% of the global workforce was actively engaged with GenAI tools, training, or use cases. Adoption was not siloed to tech teams; it touched nearly every function, from sales and service to back-office operations.

The impact on productivity was equally striking. In call centers, AI tools shaved 30 – 40 seconds off average call times without lowering customer satisfaction. Across the enterprise, generative AI was no longer a side project—it had become embedded in the daily flow of work.

Customer-facing gains were even more visible. Newer advisors ramped up faster, using AI coaching to practice and refine interactions. Meanwhile, advisors reported that AI freed them to focus on client relationships, creating the unusual outcome of a technology initiative that delivered both efficiency and deeper human engagement.

At the strategic level, the flywheel was spinning. By mid-2025, Manulife had 35+ GenAI use cases in production and 70 more in queue. Early deployments alone contributed an estimated $4.7 million in benefits, while the broader digital transformation program (with AI at its core) yielded over $600 million in 2024 benefits—savings, new sales, and better risk outcomes. Looking ahead, the company projects a threefold return on AI investments over five years. These results affirm that Manulife’s design choices — hands-on executive engagement, outcome-gated scaling, perpetual-beta governance—transformed AI from novelty to institutional capability.

Numbers

$1.6T Assets under management
35MCustomers worldwide
$53BMarket Capitalization
$5.1BNet Income
38kNumber of employees
200Data scientists and engineers embedded across teams
$600mBenefits attributed to digital transformation (with AI as a core part) in 2024.
75+AI use cases deployed by the end of 2025
75%Share of Manulife’s global workforce engaged with GenAI

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Project Lead

Reid McKay, Director Technology Policy, RBC Thought Leadership

Contributors

Nora Bieberstein, Director, Strategic Programs, RBC Thought Leadership

Yadullah Hussain, Managing Editor, RBC Thought leadership

Special thanks to Janice Stein, Founding Director, Munk School of Global Affairs & Public Policy and Nicole Harris and Avaani Singh, Graduate Students, Munk School of Global Affairs & Public Policy.