The federal government is forging ahead with establishing voluntary, made-in-Canada sustainable finance guidelines, otherwise known as a taxonomy.
On Thursday, it announced that it selected the Canadian Climate Institute (CCI) to lead the development of the science-based taxonomy, which will help investors, lenders and other stakeholders identify “green” and “transition” investments that are environmentally friendly and consistent with Canada’s goal of achieving net-zero emissions by 2050.
The government-funded research institute will work with Business Future Pathways, a non-partisan investor-driven initiative backed by representatives of major financial institutions and technical experts, on the guidelines.
Jonathan Arnold, head of CCI’s sustainable finance team and a member of Business Future Pathways’ secretariat, said this is “a long-awaited announcement in Canadian sustainable finance policy” that will increase the competitiveness of the Canadian economy.
“When you look at the list of Canada’s trading partners outside of the U.S., and, of course, we have a commitment to rapidly increase our exports to these countries, most — if not all of them — have taxonomies, either in development or fully developed,” Arnold said in an interview.
“And so, this really is a question of access to global capital as well as access to markets. This will help provide clarity and consistency to how different projects and how different assets in the Canadian economy align with these climate and competitiveness objectives.”
CCI will lead the technical research and advice for developing the taxonomy guidelines, and it’ll work with Business Future Pathways to establish advisory bodies and an independent taxonomy council that will ultimately approve the guidelines, Arnold noted.
He described CCI as the “research engine of the taxonomy,” while Business Future Pathways will manage the engagement side of the effort.
Independent experts and representatives from academia, the financial sector, civil society, climate scientists and Indigenous representatives will form the council and its advisory groups. Working groups with specific areas of expertise in key industries and sectors will also be established to make recommendations to the council.
The independent taxonomy council is expected to finalize guidelines for three priority sectors by the end of 2026 to establish the taxonomy, with guidelines for three additional priority sectors slated to follow in the fall of 2027.
Government, industry and other key stakeholders will work with the council to determine the initial priority sectors, which the government said are sectors where the taxonomy is expected to have the greatest potential for delivering emissions reductions.
The work builds on the efforts of the Sustainable Finance Action Council (SFAC), which the federal government launched in 2021 to help lead the Canadian financial sector toward integrating sustainable finance into standard industry practice.
SFAC released its Taxonomy Roadmap Report in 2023, featuring a framework for developing a Canadian green and transition taxonomy, which was backed by Canada’s 25 largest financial institutions.
That report laid the foundation for the work CCI and its collaborators will be doing over the next two years in developing Canada’s sustainable finance guidelines, which will also draw on and align with international taxonomies and frameworks, Arnold said.
“That’s really the benefit of where we’re at today versus five years ago — we’re not starting from scratch. We have that SFAC roadmap report. We also have the work that Australia has done,”
He noted that Australia was “a little bit behind Canada” on developing a taxonomy, but in recent years, the country “leapfrogged Canada,” publishing its final sustainable finance taxonomy this June.
“Their final taxonomy … made some really important adjustments to the SFAC work, so, there’s some really good work to build on,” Arnold said.
In a release, Finance Minister François-Philippe Champagne said the taxonomy will allow Canada to mobilize more private capital to grow its economy and meet its 2050 net-zero target, while also providing clarity around what green and transition investments are.