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The Government of Canada outlined a plan to develop a new sustainable investment taxonomy, a set of guidelines to help categorize sustainable economic activities aligned with the goals of reaching net-zero emissions by 2050 and limiting global temperature rise to 1.5°C, aimed at facilitating financial flows and investments needed to achieve these goals.
The new taxonomy will include both “green” and “transition” categories, and will be available for use by companies and financial institutions on a voluntary basis, the government said.
Alongside the new taxonomy, the government also announced plans to introduce mandatory climate-related reporting for large companies.
Canada’s plans mark the latest in a series of initiatives across jurisdictions to set up a classification system for the definition of sustainable economic activities, including taxonomy systems already established or in development in the EU, UK, Singapore, Hong Kong and Australia. Canada’s government said that it has set interoperability with other major science-based taxonomies and frameworks globally as a key principle for its new taxonomy.
According to the government, the aim of the new taxonomy will be to mobilize investment to support the country’s net zero transition, by helping communicate to investors which economic activities will help deliver on its climate goals, with the taxonomy available for use cases including classifying climate-related financial instruments, or evaluating the green or transition credentials of investments and companies.
The taxonomy will, at a high level, define “green” activities as “low-or zero-emitting activities, such as green hydrogen, solar, and wind energy generation, or those that enable them, such as electricity transmission lines and hydrogen pipelines,” and “transition” activities as “decarbonizing emission-intensive activities that are critical for sectoral transformation and consistent with a net-zero, 1.5°C transition pathway, such as installing lower-emitting (electric) furnaces to produce steel.”
The initial focus of the taxonomy will be on sectors including electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractives, including mineral extraction and processing, and natural gas. Notably, the government said that the taxonomy could include activities to significantly decarbonize existing natural gas production, but is not likely to include new natural gas production.
The taxonomy will be developed and governed by third party organizations, and will be released for the first two or three priority sectors within 12 months of the beginning of the organizations’ work.
Chrystia Freeland, Deputy Prime Minister and Minister of Finance, said:
“Today’s release of a path for Made-in-Canada sustainable investment guidelines and climate disclosures from large companies will accelerate the flow of private capital into Canada, in turn growing our economy, creating good jobs, and advancing our progress to net-zero emissions by 2050.”