Canada moves ahead on creating green taxonomy for resource-heavy economies

Efforts could lead to ‘one global sustainable finance standard’ if there is market support

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Canada’s financial markets have secured the funding to develop a “made-in-Canada” green taxonomy, in a bid to provide investment definitions that are more suitable to resource-heavy economies than the EU’s new, high-profile classification system.

14 players, including representatives from Canadian banks, pension funds, NGOs, asset managements, auditing firms and industry groups, have been working as a ‘task group’ with the Canadian Standards Authority (CSA) over the past six months to sketch out and secure funding for the project, which will create “a national standard of Canada for Green Taxonomy”, building on existing global frameworks such as the EU taxonomy, the Climate Bonds Initiative’s definitions and the Green Bond Principles.

“Most green taxonomies developed around the world do not recognise several Canadian natural-resource sectors as being green or in transition,” explained the group in a document. “Canada needs to develop a made-in-Canada definition of green as an important contribution to this rapidly changing landscape”.

Earlier this month, the EU closed its public consultation on the first iteration of its green taxonomy, which it hopes will become the ‘go to’ reference point for green investors, policymakers and issuers around the world.
Peter Johnson, Director of Social and Environmental Risk and Opportunity at Scotiabank, is Chair of the Canadian task group, having spent a decade at CSA before joining the banking industry. He told RI “it would be a challenge for natural resource-based economies to adopt the EU taxonomy”, however. “It’s a very wonderful framework for a service-based economy,” he added, “but we do want recognition that the move towards a low-carbon economy is going to involve transition, and that will be different in different regions. Canada wants to be a leading voice at the table on the creation of a global transition taxonomy that is relevant for Canada and other natural resource based economies.”

The task group is now being replaced by an official CSA Technical Committee, which is “currently being formed” ahead of its first meeting on October 3. There are expected to be around 40 members of the committee from investment, banking, NGOs, government, regulatory authorities, research and academia, professional services and industry. As is standard with all CSA groups, certain stakeholders with potential vested interest, such as those in the natural resources sector, will be able to participate as observers in the new Technical Committee, but won’t have any voting rights when it comes to developing the standard.Johnson did not disclose the list of funders, but said “the initiative is being financed by Canada’s financial community – the six largest banks, a number of Canadian pensions and some of the large insurance companies and investors”. No companies or governments were asked to provide funding.

‘If the markets are willing to accept multiple taxonomies and standards then there will be multiple taxonomies and standards’ – Peter Johnson

The CSA is one of more than 160 national standards bodies that make up the International Standards Organisation (ISO), which is already working on a number of green finance topics including green bonds and impact measurement. ISO standards are generally put forward by a national body, and take around three years to develop. They have to be signed off by all ISO member bodies in order to become a global standard.
Earlier this year, the British Standards Institute led the creation of an ISO Sustainable Finance Committee to oversee the various standards that have started to be developed. It is chaired by Peter Young, Founding Director and Chair of the influential NGO Aldersgate Group and had its first meeting in March.

“In the near term, there will be different taxonomies that operate around the world – this has been the trend with many other sectors over the year,” said Johnson, pointing to other environmental topics, as well as health & safety and automotives. “But if there’s to be harmonisation, it’s likely to happen through ISO.”

“Countries will come with their taxonomies, and there will be negotiations on an international level, so that hopefully we could eventually have one global sustainable finance standard.” However, he added, it is ultimately down to market demand: “If the markets are willing to accept multiple taxonomies and standards then there will be multiple taxonomies and standards, like there are in green buildings and forestry, for example.”