Delegates talk as a model of a floating LNG (FLNG) facility vessel is displayed at the booth of Japan's JGC Group during the LNG2023 conference, in Vancouver, on July 11, 2023.DARRYL DYCK/The Canadian Press
Canadian institutional investors are growing impatient that Ottawa has yet to formalize a guidebook for sustainable finance, according to a new survey, with some saying the country risks losing out in the race for green capital.
The poll released Monday, however, highlights one reason for the delay: Not all institutions agree whether a green taxonomy should include new natural gas exploration and production among certified transition-related investments that fit with the country’s goals to reach net-zero emissions.
That question is seen as a main stumbling block to moving forward with a long-delayed taxonomy while other jurisdictions in Europe and Asia have adopted such guides. Taxonomies are frameworks aimed at assuring investors that their capital is being directed to legitimate emission-reduction and other environmental projects.
The energy industry argues that natural gas represents a cleaner alternative than coal in power generation and should be included in the rulebook. Environmental groups are adamant that would go against what science demands in the fight against climate change.
According to the survey, conducted by Montreal-based consultancy Millani, 21 per cent of institutions would like natural gas to be included, and the same percentage want it excluded. Fifty-eight per cent would be open to keeping the fossil fuel off the list for further study if it means the taxonomy can be put into force.
Several asset managers expressed frustration with the delay, having made commitments to their investors to design portfolios and financial products that are certifiably sustainable as their international competitors have done, said Milla Craig, Millani’s chief executive officer.
“There’s a real pressure point on this particular question. At some point, someone’s going to have to make the decision,” she said.
“In the meantime, what I’ve heard was this growing sentiment from the investor community that we’re losing our competitiveness here as an industry – there’s a very strong frustration in the financial community.”
Millani’s semi-annual tracking of environmental, social and governance sentiment is based on a survey of 37 asset owners and managers representing $5.4-trillion in assets under management. AlphaFixe Capital, Beutel Goodman Investment Counsel, Caisse de dépôt et placement du Québec, Jarislowsky Fraser Global Investment Management and Scotia Global Asset Management were among companies polled.
Two years ago, the Sustainable Finance Action Council, a government-appointed expert panel, completed a preliminary taxonomy draft that it said addressed the unique needs of the Canadian economy by offering green and transitionary categories. Finance Minister Chrystia Freeland and Environment Minister Steven Guilbeault have not offered a specific timeline for implementation.
The council, which wrapped up its work earlier this year, has said the taxonomy is important for attracting an annual $115-billion needed to help Canada get to net-zero emissions by 2050. Formalizing the guide would also provide credibility for the country to initiate discussions around the world to promote a common definition of “transition,” the council said.
The government said Friday that it is working on the taxonomy in conjunction with experts and other stakeholders: “It will provide an update on the development of a Canadian taxonomy later this year,” finance department spokesperson Navpreet Chhatwal said in a statement.
Meanwhile, investors are largely in favour of aligning Canadian sustainability reporting standards with those set by an international body, according to the Millani survey.
The Canadian Sustainability Standards Board is in the process of tailoring the first set of corporate sustainability disclosure standards to the domestic economy. Feedback from the CSSB’s call for public comments revealed a stark divide between investors demanding detailed comparable data, and companies and industry associations complaining some factors are still too uncertain and implementation too burdensome. That included reporting Scope 3 emissions, which stem from transport and end use of products.
In the survey, many asset managers and owners expressed the view that reporting requirements should not be dominated by climate considerations, but a full suite of sustainability-related factors. That contrasts with commentary from Canadian Securities Administrators – which would implement the rules for public companies – that climate would be a priority, according to Millani.
One benefit of adherence to international standards would be helping to remove uncertainty for companies as they deal with disclosure under Ottawa’s new anti-greenwashing rules within Bill C-59, Ms. Craig said.
Many companies, notably in the energy sector, scrubbed environmental content from their public communications after the passage of that legislation, saying it put them at legal risk.