Canada Introduces Sustainable Investment Taxonomy to Accelerate Net-Zero Goals

The Government of Canada is advancing a Made-in-Canada sustainable investment taxonomy aimed at accelerating progress toward net-zero emissions by 2050. This taxonomy will categorize “green” and “transition” investments based on scientifically determined criteria, providing a framework to guide private capital into activities that align with the Paris Agreement’s goal of limiting global temperature rise to 1.5°C above pre-industrial levels.

The Canadian taxonomy sets a high standard to maintain credibility by mobilizing investment in low- or non-emitting sectors and identifying decarbonization pathways for emissions-intensive industries. The “transition” category will support investments that help these sectors significantly reduce emissions, contributing to Canada’s leadership in transition finance globally.

The development of this taxonomy will initially focus on key sectors such as electricity, transportation, buildings, agriculture, forestry, manufacturing, and extractives. A classification system for two to three sectors is expected to be released within 12 months after the third-party organization overseeing the taxonomy begins its work.

An official from the Sustainable Finance Action Council (SFAC) stated, “This taxonomy is a vital tool for accelerating private investment in Canada’s net-zero economy, providing clarity on what qualifies as a green or transition activity.”

The Canadian taxonomy will serve as a voluntary tool for financial institutions, lenders, and other stakeholders to classify climate-related investments. Designed to be interoperable with international taxonomies, it aims to provide consistency and clarity for global investors while being tailored to Canada’s unique economic and environmental context.

By defining “green” and “transition” investments, the taxonomy will support a broad range of applications, from climate-related bonds to evaluating the sustainability credentials of various financial instruments. The goal is to unlock private sector capital, facilitate Canada’s transition to a low-carbon economy, and create sustainable jobs in the process.

A government representative highlighted, “With the launch of this taxonomy, we’re building a system that guides investors and industries in making informed decisions that align with net-zero pathways.”

In addition to launching the sustainable investment taxonomy, Canada has also introduced mandatory climate-related financial disclosures for large private companies. This policy underscores the government’s commitment to transparency and accountability in climate action. Together, these initiatives are creating a comprehensive framework for sustainable finance, bolstering investor confidence while advancing national climate goals.