On October 10, 2024, the Canadian government announced plans to develop a sustainable investment taxonomy. This initiative aims to establish guidelines for categorizing economic activities aligned with the goals of carbon neutrality by 2050 and limiting global temperature increases to 1.5°C. The primary objective is to facilitate financial flows and investments necessary to achieve these climate targets.
The new taxonomy will include “green” and “transition” categories and will be made available to businesses and financial institutions on a voluntary basis. Simultaneously, the government announced plans to introduce mandatory climate reporting for large corporations.
This initiative aligns with a global trend where jurisdictions like the European Union, the United Kingdom, Singapore, Hong Kong, and Australia have already established or are in the process of developing classification systems to define sustainable economic activities. Canada aims to ensure its taxonomy is interoperable with other international scientific frameworks.
The Canadian taxonomy will define “green” activities as those with low or zero emissions, such as green hydrogen production, solar and wind energy, or supporting infrastructure like electric transmission lines and hydrogen pipelines. “Transition” activities will include those that decarbonize high-emission sectors, essential for sectoral transformation and consistent with net-zero and 1.5°C pathways, such as installing lower-emission electric furnaces for steel production.
Priority sectors for the taxonomy include electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractive industries, particularly mineral extraction and processing, as well as natural gas. Notably, the taxonomy may include activities significantly decarbonizing existing natural gas production but is unlikely to encompass new natural gas production.
The development and governance of the taxonomy will be entrusted to third-party organizations, with the first two or three priority sectors expected to be published within 12 months of commencing work.
Chrystia Freeland, Deputy Prime Minister and Minister of Finance, stated: “Today’s release of a roadmap for Canadian guidelines on sustainable investments and climate disclosures for large corporations will accelerate the flow of private capital in Canada, boosting our economy, creating good jobs, and advancing our path to net-zero emissions by 2050.”
Canada’s initiative to develop a sustainable investment taxonomy marks a significant step toward clarifying and standardizing criteria for responsible investing. For investors, this taxonomy will provide a transparent framework to identify and evaluate investment opportunities aligned with national climate objectives. Monitoring the taxonomy’s development and considering integrating assets that comply with these new guidelines into investment portfolios is recommended to capitalize on the growing trends in sustainability and energy transition.
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