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On October 9, 2024, Canada’s federal government announced it will establish a “Made-in-Canada” sustainable investing taxonomy, and institute mandatory climate disclosure requirements for large, federally-incorporated private companies.
A sustainable investing taxonomy (often simply called a ‘green taxonomy’) is a classification system intended to help investors identify “activities or assets that contribute to environmental and/or social objectives.” The proposed Canadian framework aims to encompass not only obviously “green” investments (solar and wind), but also those that are “transitional”, meaning investments that “help significantly reduce emissions” in high-polluting enterprises. Examples of “transitional” investments controversially include methane and carbon capture projects.
According to plans unveiled by Canadian Finance Minister Chrystia Freeland at the Principles for Responsible Investment conference, the federal government will provide initial funding and support to an “arm’s-length third-party organisation(s)” that will develop scientifically-credible eligibility criteria to categorize investments as either green or transitional.
The taxonomy will draw on the recommendations of the Taxonomy Roadmap Report produced by the Sustainable Finance Action Council (SFAC), launched in May 2021. The initial focus will be on sectors identified as “priority” (i.e., emission-intensive sectors such as electricity and extraction) and guidelines for the first two to three sectors are expected within twelve months of taxonomy work commencing.
Freeland also announced that the federal government is moving forward with plans to amend the Canada Business Corporations Act (CBCA) to require mandatory climate-related financial disclosures required from large, federally incorporated private companies. However, these plans are in their infancy at present, with the government promising to “launch a regulatory process to determine the substance of these disclosure requirements and the size of private federal corporations that would be subject to them.”
It’s an interesting legal point that Canada will require climate-related disclosures from large private companies through its federal corporate legislation, whereas the US and other jurisdictions typically require climate-related disclosures from large public companies, with applicable rules issued by national securities regulation agencies. Canada, however, is in a unique position as a country which lacks a federal securities regulation agencies (though the Canadian Securities Administrators functions as a federal, non-governmental securities coordination agency for the provincial regulators).
Heralded as part of the federal government’s strategy for reaching net-zero emissions by 2050, the taxonomy and disclosure rules are expected to “mobilize further private sector capital towards activities essential to building a net-zero economy.”
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