Budget 2025’s sustainable finance commitments ‘underwhelming’

The only new sustainable finance measure the federal government proposed in the budget was to update the current greenwashing provisions in the Competition Act, which it said “are creating investment uncertainty and having the opposite of the desired effect with some parties slowing or reversing efforts to protect the environment.”

But sustainable finance experts, who have long viewed Carney as someone in their corner, say the details for these plans are still sparse and that they expected more.

“We all know who Mark Carney is,” said Maya Saryyeva, director of the Institute for Sustainable Finance (ISF).

“We always saw him as this finance industry leader who also gets the climate side of things. And so, seeing the budget, I was expecting a little bit more on the sustainable finance strategies. I was hoping to have something that surprised us or gave us that piece of excitement.”

Instead, Saryyeva called the budget “underwhelming,” adding that “except [for] the greenwashing law updates they’ve referenced, everything else has been baking for a while.”

Julie Segal, senior program manager, climate finance with Environmental Defence Canada, echoed those sentiments.

“This budget has not materially advanced sustainable finance in Canada,” she said.

Implementing a taxonomy

Budget 2025 reconfirmed the government’s support for the development of a taxonomy, which would help investors, lenders and stakeholders identify “green” and “transition” investments, by the end of 2026.

The government said it will select and announce by the end of 2025 an external organization to develop the voluntary sustainable investment guidelines.

Saryyeva said she’s glad to see the government forge ahead with this taxonomy. Her team at ISF has been waiting to see which organization will be tapped to lead this work.

“There’s no transparency around the selection process,” she said.

“We don’t know which entity will be selected, how it will be selected. Are they going to be collaborative? What sectors will be part of the discussion? … The details are still unclear. I guess the good news is that we have some sort of a timeframe.”

The timeframe the budget identified for selecting an external organization and implementing the taxonomy may seem “tight,” but the Sustainable Finance Action Council (SFAC) laid the groundwork for this work with its 2022 Taxonomy Roadmap Report, said Jonathan Arnold, director of sustainable finance at the Canadian Climate Institute (CCI). ISF and CCI were among the groups that worked on the report.

“It’s not like Canada’s starting from scratch here,” Arnold said.

“That [report] was signed on by and endorsed by 25 of Canada’s largest financial institutions and I think sets a very good foundation for the work moving forward.”

However, Canada has some catching up to do on this front, he said.

“Since that report was released by SFAC, Australia has taken that initial framework that we developed for Canada and refined it and produced their final taxonomy guidance earlier this year. So, they’ve leapfrogged Canada.”

Sustainable bond framework

The budget also announced the government’s intention to explore the development of a sustainable bond framework that would align with the proposed green and transition taxonomy.

Canada has been issuing green bonds since March 2022, so the next step is for the government to identify what constitutes a transition investment as part of the taxonomy in order to roll out transition bonds, which would finance the country’s transition to net zero, said Anik Islam, a senior research associate at the Smart Prosperity Institute (SPI).

“That, right off the bat, is a clear indication that the government has been thinking about these alignments. But obviously, more clarity is needed,” he said.

Greenwashing update

Since the federal government made amendments to the Competition Act to address instances of greenwashing, some companies have pulled back on making environmental claims to avoid legal repercussions.

The budget proposed amending the Competition Act “to update the greenwashing provisions by removing the requirement for businesses to substantiate their environmental benefit claims based on internationally-recognized methodology standards.”

It also proposed tweaking the provisions to remove “the ability for third parties to bring cases directly to the Competition Tribunal for greenwashing complaints.”

Those proposals received mixed reactions.

Saryyeva said ISF “strongly” believes some greenwashing legislation is needed to protect consumers, “but we need to do it in a way that doesn’t have the negative effect on disclosures.”

She suggested that the government should amend the legislation to include safe-harbour provisions for forward-looking climate statements, which would offer legal protection to companies that are attempting to make projections around sustainability that might inform capital allocation decisions, but are dependent on subjective assumptions.

Segal said she anticipated the government would propose some amendments to the Competition Act, but that the commitment to remove the ability of third parties to bring potential greenwashing cases directly to the Competition Tribunal is “surprising and concerning.” 

Instead, she said a “comprehensive package” of sustainable finance policies is needed.

“It would have been better sequencing to have required standardized, clear climate related-disclosures and transition plans, and to have greenwashing policy that complements that,” Segal said.

“Removing greenwashing provisions only creates more risk, given that mandatory disclosures haven’t been put forward.”

The budget mentioned that the government will work with provinces and territories to improve climate disclosure, seeking to align with “international standards and harmonized rules across federal-provincial-territorial jurisdictions.”

But Segal said this language is “not clear” and weaker than what the Liberals proposed in October 2024, which was to implement mandatory climate-related financial disclosures for large, federally incorporated private companies.

“It seems like backtracking from that rather than moving forward,” she said.

The Canadian Securities Administrators also paused its efforts to finalize mandatory climate disclosures in late April, citing global economic and geopolitical developments for the decision. The CEO of the Ontario Securities Commission later said this pause was not “indefinite,” but there’s been no word on when this work will continue. 

Speaking generally about the recent pullback in sustainable finance commitments, Saryyeva said Canada is “completely bogged down with everything that’s going on with the tariffs coming from the south of the border, while really not capitalizing on the opportunities that sustainable finance presents.”  

Meanwhile, Islam similarly said a more comprehensive sustainable finance framework is needed. His think tank is pushing for a national climate information architecture that consists of climate-related financial disclosures, climate transition plans, climate scenario analyses, a green and transition taxonomy, and data and analytics. 

“It’s all interconnected,” Islam said.

“I don’t think that’s entirely possible where you can state all this in a budget, because the budget obviously serves a different purpose, but I think it’s important to recognize that in order for it to be effective, to reduce the cost of the transition, attract the investment capital that is needed, [all of these tools need] to work together.”

Climate transition plans absent

Climate transition plans, which outline how an organization will adapt its business model and operations to align with a low-carbon economy, were not mentioned in the budget.

Arnold said this was “a gap, for sure.”

“But when we think about taxonomy and disclosure, the two big levers of sustainable finance, they’re both in there. And I think the government is doing all that it can, within its jurisdiction, to drive that forward,” he added.

Arnold also pointed out how there were “some positive signals” from the budget around improving and modernizing Canada’s industrial carbon pricing system.

“This is one of the most important policies in driving emissions reductions in Canada, while also keeping costs low for businesses. And that is the foundation of sustainable finance policies,” he said.

Islam noted the absence of transition plans in the budget as well, but said this is “the next phase of the work that needs to be happening” around sustainable finance in Canada, as there needs to be more clarity on what a credible transition plan is, what a phased-in approach would look like in such a plan and its key components.

Ultimately, the sustainable finance community will be watching to see how the government’s proposals play out.

“Directionally, there are a lot of good pieces in the sustainable finance [section of] the budget, but the execution will make it or break it,” Saryyeva said.

Segal seconded that: “Really, the devil’s in the details.”