Wind turbines stand in the foothills of the Rocky Mountains near Pincher Creek, Alta., on June 6.Jeff McIntosh/The Canadian Press
The federal government is proceeding with a long-awaited guidebook that certifies whether projects meet green and transitionary investment criteria – and leaving the door open for some natural gas to be included.
At Toronto’s Principles for Responsible Investment conference on Wednesday, Finance Minister Chrystia Freeland said the “made-in-Canada taxonomy” would start covering priority industrial sectors within the next 12 months, with the aim of providing investors with certainty that their capital is being spent on activities that meet clear climate objectives.
The green category includes projects with little to no carbon emissions, such as renewable energy; transition-related investments include projects that lower the climate impact of high-carbon industries. The government will appoint an arm’s-length panel to assess whether industrial activities meet the overall goal of limiting the rise in temperatures to 1.5 C above pre-industrial levels.
Ms. Freeland also said Ottawa will mandate climate-related financial disclosures for large, federally incorporated private companies. The move will allow investors to assess risks associated with climate change, she said.
The government will launch a regulatory process to determine what disclosures will be required and the size of companies that will have to conduct such reporting. It will entail making amendments to the Canada Business Corporations Act. Ms. Freeland said small- and medium-sized business will not be subject to the regulations, but will be encouraged to make such disclosures voluntarily.
For the taxonomy, the arm’s-length panel will first focus on electricity, transportation, buildings, agriculture and forestry, manufacturing and extractives, including mineral extraction and processing, and natural gas, she said.
“The external body that does this work is going to be expected to work hard with Canadian stakeholders. We’re expecting them to work hard with industry, to work with Indigenous partners, to work with unions, to work with financial institutions,” Ms. Freeland told an international audience.
“We’re going to provide some additional support through the development phase.”
Sustainable investment professionals have been laser-focused on the need for a taxonomy to help prevent greenwashing and attract the capital needed to meet the national net-zero emissions target. Ms. Freeland estimated that sum as high as $140-billion a year, up from the existing amount of $15-billion to $25-billion.
Many in the industry have expressed disappointment over how long it has taken to move forward while other countries and jurisdictions have put similar documents into force. The announcement drew applause at Wednesday’s event, which brought together Canadian and international investors.
A taxonomy roadmap was completed two years ago by a financial-industry panel the government convened called the Sustainable Finance Action Council. It ended its work earlier this year with some frustration its work had not been formalized.
One sticking point was whether new natural gas production or expanded projects should be included in the document. The oil and gas industry and western provincial governments have pushed for gas to be covered by a taxonomy, but climate activists are adamant that fossil fuels have no place if it is to be credible in international markets.
The government said it does not anticipate new gas production will adhere to the 1.5 C criteria, but it left open the possibility that activities to reduce emissions from gas or “limited buildout” of gas facilities could be covered if the output displaces more polluting fuels internationally. It said the new arm’s-length panel will make that determination through its scientific research.
Barbara Zvan, chief executive officer of University Pension Plan Ontario and one of the architects of the council’s taxonomy roadmap, said she is pleased that the government is moving forward using most of the recommendations that her group made, including governance provided by an external panel. The natural gas stipulation is based on reducing emissions and not increasing production, she said.
“If it’s science-aligned, keeping to 1.5 C, that’s the key governance, and that’s what makes it interoperable with everything else in the world,” Ms. Zvan said.
Laurel Collins, the environment critic of the New Democratic Party, said the announcements represent meaningful developments, but argued the guidebook should omit natural gas.
“In the leadup to this, environmental experts and advocates have been really clear that we cannot label fossil fuels as sustainable. We can’t allow the government to greenwash sustainable finance for the big banks and big oil companies,” she said.
Julie Segal, senior program manager of climate finance at Environmental Defence, an advocacy organization, said the taxonomy and disclosure rules are “gentle steps” and that much more is needed for the country to meet its climate targets, including requirements for companies to disclose their strategies for a low-carbon transition.
“We need policies that align our financial system with climate action, and this isn’t yet enough,” she said.