A climate investment taxonomy would provide a standardized approach for evaluating which investments can be certified as “green,” or environmentally friendly, and/or consistent with national goals of achieving net-zero emissions.
Many jurisdictions such as the European Union, China, Colombia and South Africa have issued their own taxonomies, but Canada’s efforts have lagged. “We really want to see the taxonomy in Canada being adopted,” said Geneviève Morin, CEO of Quebec-based investment fund Fondaction. “The whole confusion about terms and what people are talking about is a problem.”
Last year, the Sustainable Finance Action Council, a Canadian government-established council, released its Taxonomy Roadmap Report. The report outlined 10 recommendations for establishing a green and transition taxonomy. Having the taxonomy led by the federal government and the financial sector, with strong provincial and Indigenous participation, and establishing an independent governance structure to create and maintain the taxonomy were among the recommendations.
However, there is no clear timeline for the implementation of such a taxonomy, which experts say would help attract the capital to make up for an estimated $115-billion annual shortfall in spending required for Canada to get to net zero by 2050. In the absence of such a taxonomy, the financial sector is vulnerable to greenwashing.
For example, investment managers don’t have definitions for which of a company’s activities are considered sustainable, which is especially important for conglomerates with diverse business lines. A climate investment taxonomy is also crucial for assessing climate-related risks, which are constantly evolving, said Javinder Sidhu, director of the advanced climate analytics and disclosures team with the Office of the Superintendent of Financial Institutions.
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