Canada’s ‘HLEG’ considers alternative green taxonomy for resource-heavy economies

Expert panel considers EU-style taxonomy in domestic context

Canada’s Expert Panel on Sustainable Finance is considering developing a green taxonomy that will be more sensitive to the economies of countries with heavy resource and fossil-fuel industries.
Speaking at the RIA Conference in Montreal, Tiff Macklem, Dean of the University of Toronto and Chair of the expert panel, said that Europe has been a leader on defining ‘green’ investments so far and has made the creation of a taxonomy a priority in its sustainable finance agenda.
“The Europeans want their taxonomy to be an international standard, and they are ahead of us. But it’s important for us to look for a taxonomy that represents our country,” he said, adding that Europe “doesn’t have a great resource base” in terms of fossil fuels.
Macklem was Senior Deputy Governor of the Bank of Canada under Mark Carney and served as Chair of the Standing Committee on Standards Implementation at the Financial Stability Board.

Asked by Elodie Feller, Investment Lead at the UN’s Environment Programme Finance Initiative, how the panel saw Canada’s plans for defining green in the context of the EU’s incipient taxonomy, Macklem said: “Our idea is that there are two tracks that we’d like to merge: one track is for Canada to be more mobilised in the international discussions on this; and the other is to look at having a taxonomy in Canada that will be good for the entire economy.
“We have a big energy sector in Canada… and because it’s a high carbon industry, a lot of investors are not interested in these investments,” he said, but pointed out that in the Canadian context, these may be the areas where the highest carbon savings could be made.

“The taxonomy should have a way of respecting those type of investments and industries…. The big message for us is that we shouldn’t divest from [high-emitting] sectors, but we should enact a transition,” he told the audience. “We should work with other countries with similar, resource-based economies… [to] drive a taxonomy that includes high-emitting sectors. And then we should work on the international stage, too. Those two things should go together – but initially we should probably have two tables and then eventually merge them.”

The four-strong expert panel was created last year.It comprises: Kim Thomassin, Executive Vice-President of Legal Affairs at public pension fund Caisse de dépôt et placement du Québec; Barbara Zvan, Chief Risk & Strategy Officer at Ontario Teachers’ Pension Plan; and Andy Chisholm, board member of the Royal Bank of Canada and former co-head of Global Financial Institutions Group at Goldman Sachs.

It was set up by the Canadian Finance Ministry and Environment Ministry to mirror the work of similar groups in the EU, Hong Kong, the UK and France, providing recommendations to policymakers and governments on how to develop sustainable finance in the country.

Thomassin was also speaking on the panel, and said there will be 15 final recommendations – which are due some time in May or early June – which will include the creation of a Canadian Centre for Information and Analytics, which will function as a private-sector hub for climate-related data.
“We want to better coordinate all the information that’s already out there. We want to work out how to centralise that,” she said, adding that robust data was highlighted as one of the biggest obstacles during the panel’s feedback period with the market. “It needs to be available to people but not at an expensive rate, because people need this information to make investment decisions, so this will be one of our recommendations.”
Another recommendation relates to the state-backed Canada Infrastructure Bank. While the EU’s expert panel recommended the creation of an infrastructure body to stimulate investment into appropriate projects, Thomassin pointed out that Canada already has a suitable bank. “So we don’t need to recommend the creation of that, but when the infrastructure bank was created, they completely forgot sustainability, so we will suggest that any new project financed by the infrastructure bank will have sustainability considerations.”
Macklem added that there would also be recommendations related to energy efficiency retrofits for real estate, and sustainable infrastructure.
Speaking after the panel, Michael Janzi, CEO of Sustainalytics, told the audience: “I cannot emphasise how important that panel is in bringing these ideas together. When it comes to sustainable finance, Canada is behind. We want to think we’re leaders, but we’re not. We have a lot of work to do.”