Fall Economic Statement could create much-needed momentum for sustainable finance

The federal government’s Fall Economic Statement (FES) included some important commitments for advancing sustainable finance in Canada and catching up to global competitors. It signalled the government’s intent to work toward making climate-related financial disclosures mandatory for Canadian firms, and to fund the development of a green and transition taxonomy, or classification system, for investments in climate solutions. According to ISF’s experts, it will be vital to seize this momentum and execute on the details quickly and effectively to create certainty and clarity for Canadian markets.

FES sustainable finance announcements

In the FES, the federal government pledged that the departments of Finance; Innovation, Science and Economic Development; and Environment and Climate Change will work to “develop options for making climate disclosures mandatory for private companies.”

The FES also stated that, building on the Taxonomy Roadmap Report by Canada’s Sustainable Finance Action Council (SFAC), the department of Finance will work with Environment and Climate Change, and Natural Resources, “to undertake next steps, in consultation with regulators, the financial sector, industry and independent experts, to develop a taxonomy that is aligned with reaching net-zero by 2050 …” and the government will “provide $1.5 million in 2024-25 to the Department of Finance to support this work.”

Reaction from Barb Zvan and Ryan Riordan

“As more and more countries take measures to solidify their climate finance frameworks, undertaking commitments to develop mandatory climate disclosure and a net-zero aligned taxonomy in a timely manner is essential for Canada to maintain its competitive position on the global stage,” said ISF Advisory Board Member Barb Zvan, who is Chair of the Taxonomy Technical Expert Group for SFAC, which developed the Roadmap. “These are key infrastructure pillars needed to create an investment environment that encourages and identifies more opportunities in Canada. We are committed and ready to engage with government on next steps and look forward to further details, including implementation timelines. I would like to acknowledge and thank all members of SFAC for their contributions, ongoing support, and continued efforts to advance sustainable finance in Canada,” she said.

“There have been growing calls from the financial sector, environmental groups and others, for the federal government to get behind these two fundamental aspects of sustainable finance: disclosures and the taxonomy,” said Ryan Riordan, Director of Research at the Institute for Sustainable Finance. “There is a lot of hard work ahead, but the right federal sustainable finance policies will be critical. We need to act now.”

Moving forward on disclosures

With regard to disclosures, more rapid progress is required to keep up with global trends and investor expectations. The Canadian Securities Administrators released draft regulations for public comment two years ago and is reportedly now in consultations with the Canadian Sustainability Standards Board to develop climate reporting regulations for Canadian companies. Canada is lagging behind Europe, the U.K. and parts of Asia in mandating climate reporting. Many Canadian firms that operate in Europe, for example, will soon have to report under the EU’s Corporate Sustainability Reporting Directive. California is another example of a jurisdiction showing leadership on disclosures with its new law mandating disclosures of Scope 1, 2, 3 emissions (for any company with revenues over $1-billion U.S.).  

Canada’s regulations should align with the International Sustainability Standards Board’s (ISSB) recently released standards and be competitive globally, including with upcoming regulations from the U.S. Securities and Exchange Commission (SEC). Inclusion of Scope 3 emissions (emissions produced by companies in a firm’s value chain such as customers and suppliers) should be a key requirement, as will be reporting on climate-related risk. Provisions will have to be made for supporting and gradually phasing in smaller firms with less in-house capacity for climate-related reporting.

With mandatory disclosures, useful, comparable, and standardized climate data will be easier to obtain and use. Issuers have noted a broad range of benefits from disclosures, including a lower cost of capital and better-informed net-zero planning. 

Implementing the taxonomy

Canada’s Taxonomy Roadmap Report, with broad support from the financial sector, was delivered to the federal government more than a year ago. Since then, other countries have been racing ahead on taxonomies, notably Australia, which has modelled its green and transition taxonomy on Canada’s proposed framework. There are more than 30 sustainable finance taxonomies in place or under development globally, and it is vital that Canada takes the lead in establishing a green and transition taxonomy that is suited to our resource-intensive economy.

Federal funding and support is welcome. The government must act quickly, in consultation with key stakeholders, to finalize the framework and governance structure and implement the taxonomy. A Canadian taxonomy will enable businesses and capital providers to credibly identify green and transition projects, and facilitate  further mobilization of capital to support the Canadian economy’s transition. 

The Institute for Sustainable Finance is a core knowledge partner for SFAC's taxonomy work. Learn more with our taxonomies resources page which includes a video interview with Barb Zvan. See also the video of ISF’s webinar, titled Demystifying Canada’s Taxonomy Roadmap Report.

For more on the state of climate-related disclosures in Canada, check out ISF’s annual "TSX Report" by Simon Martin, Ryan Riordan and Sean Cleary, which evaluates progress by Canada's public companies on greenhouse gas emissions reporting and target setting. And learn more about Scope 1, 2 and 3 emissions reporting with ISF’s Primer Article.

About the Institute for Sustainable Finance

ISF was launched in 2019 as a Canadian-specific centre of expertise and collaboration for advancing sustainable finance. Housed at Smith School of Business at Queen’s University, ISF is independent and non-partisan. It focuses on developing research, education, and collaborations among academia, business and government that will improve Canada’s capacity for sustainable finance as the shift to a low-carbon economy occurs. ISF’s work is generously supported by Ivey Foundation (inaugural supporter), McConnell Foundation, McCall MacBain Foundation, Chisholm Thomson Family Foundation, Smith School of Business, Queen’s University and Founding Contributors BMO, CIBC, RBC, Scotiabank and TD Bank Group. For more information, visit https://smith.queensu.ca/centres/isf/

Media contact

David Watson
Associate Director, Communications, Institute for Sustainable Finance
david.watson@queensu.ca
C: 613.796.3605