More than two years after experts urged the federal government to develop a sustainable finance taxonomy to guide climate disclosures, Finance Minister Chrystia Freeland took advantage of a major responsible investment conference in Toronto to announce another 12-month process to get the first pieces of the taxonomy in place.
The announcement followed weeks of hype and speculation about a possible big reveal at this week’s PRI in Person conference in Toronto, hosted by the UN’s Principles for Responsible Investment network, with one expert reporting “positive indications” last July for a plan that excluded new fossil fuel investment and set strict criteria for attaching a green label to “transition” projects in high-emitting industries.
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In the end, Freeland unveiled a “plan to deliver Made-in-Canada sustainable investment guidelines,” featuring “mandatory climate-related financial disclosures for large, federally incorporated private companies” to help investors identify “green” and “transition” economic activities.
The plan is to be delivered by a third-party agency, and its first components will take at least a year to complete.
“Specifically, the government intends to bring forward amendments to the Canada Business Corporations Act that will require these disclosures,” Finance Canada said in a release. “The government will launch a regulatory process to determine the substance of these disclosure requirements and the size of private federal corporations that would be subject to them. As small- and medium-sized businesses will not be subject to the requirements, the government is considering ways to encourage those businesses to voluntarily release climate disclosures, if they wish.”
A federal backgrounder defines green investments as “low-or zero-emitting activities, such as green hydrogen, solar, and wind energy generation, or those that enable them, such as electricity transmission lines and hydrogen pipelines.” The transition category will allow investments aimed at “decarbonizing emission-intensive activities that are critical for sectoral transformation and consistent with a net-zero, 1.5°C transition pathway, such as installing lower-emitting (electric) furnaces to produce steel.”
It includes a series of yes/no questions for defining green and transition investments, based on the SFAC findings.
The backgrounder says the initial phase of taxonomy development will “focus on developing eligibility criteria” and drafting taxonomies for two or three priority sectors. That work is to conclude within 12 months after one or more arm’s length, third party organizations can get started on the work. The release is silent on what third party organizations might take on the work, or when they would start.
The backgrounder lists electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractive industries as the sectors that will eventually be covered by a taxonomy.
Holding Finance Accountable
A roadmap for a Canadian taxonomy was first published in September, 2022 by the federally-appointed Sustainable Finance Action Council (SFAC), whose 25 members disbanded in disappointment in March, 2024 after its three-year term ended with implementation still stalled.
The slow pace prompted two open letters supporting different versions of a taxonomy, one from a coalition of climate and environment groups, the other from members of the Clean50 network led by Barbara Zvan, president and CEO of Ontario’s University Pension Plan (UPP).
“Having disclosure and a taxonomy is now the recognized infrastructure that you need to have sustainable finance,” she wrote earlier this year. “This is not experimental anymore.”
[Energy Mix Publisher Mitchell Beer is a member of Canada’s Clean50 and signed on to the Clean50 letter on behalf of Energy Mix Productions.]
“In the absence of clear rules, financial flows are not yet moving in the right direction,” the 55+ climate groups wrote. “The majority of people in Canada support new regulations to clear up greenwashing in the financial sector. Yet Canadian financial institutions face regulatory complaints for making untrue sustainability and net zero claims.”
The climate groups’ criteria for a credible taxonomy called for exclusion of expanded oil, gas, or coal production, and of carbon capture technology attached to fossil fuel projects, alignment with the 1.5°C temperature threshold in the Paris climate agreement, and assessing company-wide alignment, not just individual projects.
The Clean50 position allowed for carbon capture and storage (CCS) attached to existing gas production. “It’s not exploration and production,” Zvan told The Energy Mix at the time. “It’s how do I decarbonize and reduce methane,” given the outsized share of emissions that come from the fossil fuel sector.
In July, Zvan, who chaired SFAC’s taxonomy group, said Ottawa seemed poised to adopt strict rules for a new taxonomy, along with a secretariat approach that reflected the September, 2022 roadmap. In a LinkedIn post this week, she wrote that she was “thrilled” with the end result, including “improved disclosure requirements [that] will support transparency and credibility, as well as increased interoperability with global markets.”
Allison Ashcroft, director of sustainability at the Municipal Finance Authority of British Columbia, agreed that Freeland’s announcement “sends a critical message to global investors that there is a standardized and agreed upon set of criteria for how investments are labeled and marketed, what constitutes eligibility and inclusion or exclusion, and the thresholds that must be satisfied in order to be categorized as green or transition.”
While “many will disagree with what is included or excluded,” she added, especially as transition investments, “no one can disagree that Canada needed to adopt and make mandatory this taxonomy in order to keep pace with investor expectations and the many other countries in both the global North and global south [that] already have established their own taxonomies.”
‘Planning to Make a Plan’
Climate groups pointed to the gaps in the plan and the continuing delays in bringing a taxonomy to life.
“The definition of what constitutes a sustainable investment should be watertight to ensure it does not promote greenwashing, and has to be driven by science, not politics,” said Julie Segal, program manager, climate finance at Environmental Defence Canada. “The government’s acknowledgement that new oil or gas projects are inconsistent with a safe climate is a positive step, but investments in any type of gas projects still risk locking Canada into an anachronistic economy.”
“Taxonomies and disclosures are nice, but what we really need is for our elected officials to step up and set clear rules to move big money out of fossil fuels and into climate solutions,” said Greenpeace Canada Senior Energy Strategist Keith Stewart. “Anything less is an insult to everyone picking up the wreckage of their lives after unnatural disasters like wildfires, floods, and storms supercharged by the burning of fossil fuels.”
“The task of completing a climate transition is not about short-term marginal emissions reduction. It’s about creating a systemic pathway for fully replacing fossil fuels in our energy system,” said Adam Scott, executive director of Shift: Action for Pension Wealth & Planet Health, who received on of this year’s Clean50 awards in Toronto Thursday evening. “Policies like Canada’s new climate taxonomy must get this right in order to avoid stranded assets and climate failure.”
There’s also concern about further delays in finalizing the taxonomy—especially with a federal election looming.
“This taxonomy announcement was meant to settle what does and doesn’t count as a ‘sustainable investment’—an ingredient in a broader effort to align Canada’s financial sector with Canada’s climate commitments, and ensure one isn’t working actively against the other,” said Ecojustice lawyer and sustainable finance lead Karine Peloffy. “Instead, what we got was yet another ‘plan to eventually make a plan’ that leaves the door open to considering fracked fossil gas as a climate solution, and brings us no closer to reining in the climate-heating investment practices of the financial sector.”
Experts say that gap could eventually block Canadian exporters’ access to markets where they would be seen as dumping higher-carbon products, while impeding investment from businesses in the EU or elsewhere that have climate targets to meet in their own jurisdictions.
“It’s very important that the government set a course for publishing a Canadian taxonomy,” Deloitte partner and veteran climate finance analyst Céline Bak told The Mix this week. “There is a small window to enable a taxonomy approach to Canada’s benefit in the context of carbon border adjustment options in the United States,” depending on the outcome of that country’s hotly-contested presidential election next month. Carbon border adjustment mechanisms are also an emerging reality in the European Union, Bak added, citing U.S.-EU negotiations on steel and aluminium.
In Canada, the next federal election must take place by October 20, 2025, and some of the recent daily drama in the House of Commons suggests it could happen sooner—prompting severe doubts among many observers that the taxonomy will survive a likely change in government over the next year.
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