Canada has provided more clarity on what it considers to be homegrown green investments — with new natural gas projects unlikely to make the cut.
On Wednesday, Finance Minister Chrystia Freeland announced guiding principles for a Canadian taxonomy that would define and categorize investments that will advance the goal of reaching net zero emissions by 2050.
The taxonomy will include both low-emitting “green” activities and “transition” activities that enable decarbonisation — definitions that banks, insurers, pension plans and asset managers have asked for, the Finance Department said in a backgrounder.
“The government does not anticipate new natural gas production to be eligible” for either category, the backgrounder stated. Activities that “significantly reduce the emissions of existing natural gas production and/or the emissions associated with a limited buildout of existing production sites” may qualify.
Nuclear activities were not mentioned in the backgrounder.
“In the 21st century, a competitive economy is a net-zero economy,” Freeland said in a release. “We are seizing Canada’s economic advantages to attract investment and ensure Canadian workers benefit their fair share in the global race to net zero.”
The Canadian taxonomy will be developed and governed by a third-party organization. A taxonomy for two or three priority sectors is planned to be released within 12 months of that organization beginning its work.
Examples of green activities provided in the backgrounder include hydrogen, solar and wind energy generation, as well as electricity transmission lines.
Installing a lower-emitting electric furnace to produce steel, meanwhile, was given as an example of a transition activity. Mining of so-called critical minerals, such as copper and lithium, could also be considered a transition activity.
The third-party organization will have the final say on eligible activities.
Priority sectors for the taxonomy are electricity, transportation, buildings, agriculture and forestry, as well as manufacturing, mining and natural gas.
The government would like the taxonomy to be credible and usable, it said, and include “Do-No-Significant-Harm criteria addressing environmental, social and Indigenous objectives.”
MANDATED DISCLOSURE
The government also announced it will require large, federally incorporated private companies to disclose climate-related financial risks.
The substance of these disclosure requirements, as well as the size threshold for affected corporations, will be determined as part of a regulatory process.
The disclosures are necessary to “to attract more private capital into Canada’s largest corporations and ensure Canadian businesses can continue to effectively compete as the world races towards net zero,” the Finance Department said in the release.
The government plans to release more information on how it will harmonize its requirements with those of provincial securities regulators.
A consultation on Canadian sustainability disclosure standards closed in June, and the resulting standards are set to take effect on a voluntary basis beginning Jan. 1.
The government launched a council of banks, insurers, pensions and asset managers in May 2021 to inform the taxonomy development.
As of June 30, some 21 green taxonomies have been published worldwide, with another 21 under development or announced globally, according to BloombergNEF research.