Cautious welcome for sustainability commitments in Canadian budget

Plans on climate disclosures rules, green bonds and taxonomy revealed in Fall Economic Statement.

Canadian stakeholders have welcomed sustainable finance measures announced by the government but expressed concerns about timelines and lack of specifics on the taxonomy. 

The Fall Economic Statement, presented by finance minister Chrystia Freeland on Tuesday, included sections on climate disclosures, green bonds and the taxonomy.

These included an announcement that the finance ministry, along with the department for innovation, science and economic development, and Environment and Climate Change Canada, “will develop options for making climate disclosures mandatory for private companies”.

The government also revealed plans to update its green bond framework to include eligibility for some nuclear energy expenditures. It cited the EU’s inclusion of nuclear in its green taxonomy, as well as the positive response from investors to green bonds issued by Canada’s Bruce Power and Ontario Power Generation to fund nuclear energy projects. 

On the taxonomy, the finance ministry announced plans to work with Environment and Climate Change Canada and Natural Resources Canada “to develop a taxonomy that is aligned with reaching net zero by 2050”.

This will be done in consultation with regulators, the financial sector and industry, and the work will be supported by “external technical experts”, it added.

Canada’s taxonomy has had a bumpy road. Work stalled in early 2022 when the body overseeing it at the time, Canadian standard setter CSA Group, said there was a “fundamental differences of opinion” between committee members, who included representatives of Canada’s finance and natural resource sectors.  

The Sustainable Finance Action Council (SFAC), which was established by the government in 2021 to help Canada’s financial sector integrate sustainable finance into standard industry practice, took over responsibility for the taxonomy work shortly after. 

Last month at RI Canada, Kathy Bardswick, chair of SFAC, said the council had still not received a formal response from the government to recommendations from autumn 2022 on what a green and transition finance taxonomy could look like, as well as thoughts on the path forward on climate-related disclosures submitted in January. 

“I’m not going to mince words,” she said. “I’m very concerned that it’s taking us too long. We were hoping we would see progress more quickly. And it’s not because the financial system has not been clear that it wants to see this progress.”  

In a joint statement to Responsible Investor on this week’s budget, Bardswick and University Pension Plan Ontario CEO Barbara Zvan, who chairs SFAC’s taxonomy group, said: “We are pleased to see commitments by government to develop mandatory climate disclosure options, as well as undertake next steps to develop a net-zero aligned taxonomy – key infrastructure pillars required to create a competitive investment environment that encourages and identifies more opportunities in Canada.” 

The pair said they are committed and ready to engage with the government on next steps and look forward to further details, including implementation timelines. 

In the coming months, SFAC is due to provide additional advice to the government on strategies for aligning private sector capital with net zero, as well as on climate data and analytics. 

More details needed

Kevin Thomas, CEO of SHARE, also welcomed the government’s taxonomy announcement.

The taxonomy is not just a way of differentiating investments during the transition to net-zero – it’s also a roadmap for how we get there, laying out the kinds of investments we need and where the financial sector should allocate capital to help us tackle this generational challenge,” he said. 

However, “given the urgency of the situation”, Thomas said he would have liked to see more specifics from the government on its governance and a clear timeline for completion. 

“So much of the work has already been done, and a lot of capital is riding on getting this done right, getting it done credibly, and getting it done now – not later,” he said.

“The European Union introduced its own taxonomy regulation more than three years ago, and its system is now fully in place. Any further delay risks putting Canada even further behind the curve.” 

Dustyn Lanz, senior adviser at ESG Global Advisors, also stressed the risks of delay. 

Market participants have been waiting in limbo, and Canada has fallen behind many other jurisdictions in developing its taxonomy,” he told RI. “Hopefully this announcement will help us play catch-up. The taxonomy is not just about developing a sustainable finance market – it is about securing Canada’s competitiveness in a low-carbon economy.” 

Lanz also took issue with the C$1.5 million ($1.1 million; €1.0 million) budget allocated to the work for 2024-25. “It isn’t a whole lot to work with,” he said. “It will cover some basic administrative, research and technical services, but more resources will be needed to stand up the taxonomy’s governing bodies at some point.

“Given the importance of this work, I would have liked to see a bit more support up front to hedge against a potential change in government.” 

Timeline concerns

Senator Rosa Galvez, a leading sustainability advocate, welcomed the news on the climate disclosures and the taxonomy but also expressed concerns about progress on the taxonomy.  

How many more steps are there?” she asked. “Canada has been working on this for five years.”

Galvez pointed to the Climate-Aligned Finance Act, a bill she introduced to the Senate in 2022, which aims to align the activities of Canadian financial institutions with Canada’s climate commitments.

“It is the only concrete option on the table for Canada to go from plan to action now,” she said. 

The bill was studied by the Standing Senate Committee on Banking, Commerce and the Economy on Wednesday. 

Also responding to this week’s budget, Julie Segal, senior programme manager of climate finance at Environmental Defence, said the taxonomy cannot greenlight any oil, gas or coal “while maintaining credibility” and that the next steps must be informed by independent climate experts.  

She added that disclosures “must focus on ensuring companies set plans to cut emissions, not only count emissions.  

“Rules to align finance with climate action have been the missing piece of Canada’s climate plan. This commitment from the government is progress on a file they have moved slowly on, but the promises need to turn into policies. The government must pick up the pace.”