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On October 9, 2024, the Government of Canada announced that it intends to enact legislation to mandate climate-related financial disclosures for large, federally incorporated private companies. At the same time it released plans for voluntary Made-in-Canada sustainable investment guidelines (Made-in-Canada Guidelines), also referred to as a sustainable finance taxonomy.
These announcements follow earlier commitments from the federal government to broaden the scope of mandatory climate disclosure requirements to private companies, and to create a sustainable finance taxonomy that identifies “green” and “transition” investments (see the 2023 Fall Economic Statement and Budget 2024).
This bulletin summarizes these announcements and related impacts on the private sector.
Mandatory Climate-Related Financial Disclosures
On October 9, Canada confirmed it intends to amend the Canada Business Corporations Act (CBCA) to require large, private companies incorporated pursuant to that Act to make climate-related financial disclosures. The substance of the disclosure requirements and the size of companies subject to the requirement will be prescribed by regulation.
Canada has been signalling its intention to introduce mandatory climate disclosures for private Canadian companies for years. The Government of Canada has been a vocal supporter of the International Sustainability Standards Board (ISSB) since it was established in 2021 and Montreal has been home to one of the ISSB’s offices since 2022. Also in 2022, the federal Office of the Superintendent of Financial Institutions (OSFI) announced that, beginning in 2024, climate-related disclosures are mandatory for federally-regulated financial institutions. Outside of Canada, the list of jurisdictions implementing mandatory disclosure schemes for private companies continues to grow, and now includes California, the EU, the UK, and New Zealand.
It is widely anticipated that the climate-related disclosures required under an amended CBCA will align with the upcoming Canadian Sustainability Standards Board (CSSB) standards. The CSSB standards, which are based on the ISSB standards, were released for public comment in March 2024. Under the draft CSSB standards companies would be required to disclose information to facilitate the evaluation of a company’s assessment and management of sustainability-related and climate-related risks and opportunities. For more information on the draft CSSB standards and the ISSB standards, see our previous bulletins:
Made-in-Canada Sustainable Investment Guidelines
The voluntary Made-in-Canada Guidelines are intended to provide investment certainty through the credible identification of sustainable economic activities for Canada. In creating this taxonomy, Canada follows over 40 jurisdictions around the world that have developed, or are in the process of developing, their own taxonomies tailored for their own domestic economies.
In its September 2022 Taxonomy Roadmap Report, Canada’s Sustainable Finance Action Council (SFAC) recommended the creation and implementation of a green and transition finance taxonomy for Canada. The Made-in-Canada Guidelines are the federal government’s response to SFAC’s recommendations.
The Made-in-Canada Guidelines will include both “green” and “transition” categories. The “green” category will include low- or non-emitting activities, and the “transition” category will include scientifically credible methods to decarbonize Canada’s high-emissions sectors. The taxonomy will first focus on the following sectors: electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractives, including mineral extraction and processing, and natural gas. It is notable that Canada has already indicated that new natural gas production is not anticipated to be included in the Made-in-Canada Guidelines. Also notable is the lack of any mention of oil production, new or otherwise, or nuclear energy.
Next Steps
Canada has not provided any timeline for when either of these initiatives are intended to come into effect. But Canada has indicated that a taxonomy for two to three priority sectors will be released within 12 months of a third party being engaged to create the Made-in-Canada Guidelines. Details on when and how that third party will be engaged are also still to come.
Canada hopes the Made-in-Canada Guidelines will provide market certainty by providing a consistent taxonomy for identifying which investments will contribute to the global net-zero target. The Government of Canada anticipates these initiatives will help attract the necessary investments Canada needs to reach its net-zero emissions target by 2050. Canada estimates the amount of investment needed is approximately $125 billion to $140 billion per year.
The Made-in-Canada Guidelines also might provide a level of protection to financial institutions, asset managers and other companies against allegations of greenwashing under Canada’s securities laws or competition laws, depending on what the guidelines say and if they are followed by such companies.
Whether and when these initiatives come to pass remains to be seen. In any event, the introduction of additional mandatory climate-related disclosures in Canada and a voluntary Canadian sustainable finance taxonomy appear to be inching away from “if” and closer to “when”.