In two separate open letters released recently, advocates have urged the Canadian federal government to expedite the development of a sustainable finance taxonomy aimed at aligning investments with a 1.5°C climate target.
The letters emphasize the need to exclude fossil fuel investments from the taxonomy, urging Ottawa to prioritize climate action.
The first letter, signed by 230 members of Canada’s Clean50, highlights the detrimental impact of delays in finalizing the taxonomy, noting that it is hindering Canadian companies from taking urgently needed climate action. The slow pace jeopardizes the competitiveness of emerging cleantech sectors and carbon-intensive industries transitioning to cleaner alternatives.
“We encourage the government to quickly deliver a taxonomy to define sustainable investments,” stated the Clean50 letter. “But not if it includes fossil fuel-related investments as eligible for the sustainability label.”
Another letter, co-signed by 55 climate groups and coordinated by Environmental Defence Canada, echoes the call for a swift implementation of a credible taxonomy. It emphasizes the necessity for the taxonomy to be consistent with keeping global warming below 1.5°C, exclude fossil fuel-related projects, respect a just transition and Indigenous rights, and incorporate balanced expertise in governance and decision-making.
“There should not be a Canadian taxonomy unless it credibly aligns with the overarching goals of the Paris agreement,” the climate groups emphasized.
The recommendations for a Canadian taxonomy were initially proposed in 2022 by the Sustainable Finance Action Council, which dissolved last month due to implementation delays. The council advocated for a framework categorizing investments as ‘green’ or ‘transitionary’ based on their greenhouse gas emissions and future viability. However, the absence of clear rules has resulted in financial flows not yet moving in the right direction, according to the climate groups.
Barbara Zvan, president and CEO of Ontario’s University Pension Plan (UPP), emphasized the necessity of the taxonomy in holding the financial sector accountable for climate claims. She highlighted the importance of assessing technologies like carbon capture and storage (CCS) attached to fossil fuel projects and providing investors with accurate information to make informed decisions.
“In the absence of clear rules, financial flows are not yet moving in the right direction,” Zvan stated. “Having disclosure and a taxonomy is now the recognized infrastructure that you need to have sustainable finance.”