Federal announcement on green and transition investment guidelines a major step toward accelerating climate capital

The federal government has announced its plan to deliver a set of “made-in-Canada” guidelines for green and transition investments, or a “taxonomy”, which when completed are expected to drive significant amounts of Canadian and foreign capital to fighting climate change.

In Wednesday’s announcement by Finance Minister Chrystia Freeland, the government committed to:

• The creation of an arms-length governing body of diverse stakeholders to guide taxonomy development.
• Principles for a green and transition taxonomy including guidance on transition-eligible activities in heavy industries.
• Priority sectors for a “metrics-based” Canadian taxonomy, including: electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractives, including mineral extraction and processing, and natural gas. 
• Amending the Canada Business Corporations Act to require mandatory climate-related financial disclosures for large, federally incorporated private companies.

It is encouraging that the government has largely followed the recommendations of the Sustainable Finance Action Council in building its taxonomy plan, according to ISF experts.

“These guidelines announced by the government will be key for unlocking the billions in private sector capital we need to get to net zero,” said ISF Interim Executive Director Maya Saryyeva. “Investors have been demanding these vital tools to bring clarity to green and transition investments, and eliminate greenwashing. We encourage the government to act swiftly to establish the governance body and develop eligibility criteria for priority sectors”

“I welcome the government’s long-awaited announcement on the taxonomy and disclosure and am pleased by the alignment with the Sustainable Finance Action Council’s recommendations,” said Barb Zvan, President and CEO of University Pension Plan Ontario, Chair of the SFAC Taxonomy Technical Expert Group, and a member of ISF’s Advisory Board. “This is a big step forward in establishing the foundations of sustainable finance in Canada. Canada now joins over 40 other countries and jurisdictions that have sustainable finance taxonomies in use or in development.”

“It is really great to see a clear plan ahead for a green and transition taxonomy and defined governance structure. This has been a long time coming as other jurisdictions have implemented taxonomies, so Canada has some catching up to do in the global race for climate capital,” said ISF Director of Research, Ryan Riordan. “The transition category is vital. Canada has a large resource economy and a lot of heavy industry and we need to invest in transitioning these big emitters.”

The Institute for Sustainable Finance served as 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 "TSX Report", 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.

The development of a Canadian taxonomy is expected to have a positive impact on the development of green and sustainable bonds, one of the most important financial instruments for investing in positive environmental and social outcomes. Learn more with ISF’s “Canadian sustainable bond market report.”