Canada’s Clean50
Evidence shows that climate taxonomies, which many of Canada's competitors already have in place, help to inspire investor confidence. supplied
Unlocking access to capital with climate taxonomy
Global capital is widely recognized as an important tool for mobilizing climate action, yet in the race to attract funding to finance the net-zero transition, experts say Canada lacks an essential tool: a climate investment taxonomy.
“A delay in implementing regulations – around what qualifies as sustainable investment and what does not – is blocking access to capital for Canadian companies,” says Gavin Pitchford, CEO of Delta Management Group and executive director of Canada’s Clean50 Awards, which recognize leaders in sustainability.
“This affects all Canadian organizations seeking international and institutional investors, whether they are emerging cleantech companies, sustainability leaders or even laggards looking to finance green bonds to fund their transition to net zero.”
Mr. Pitchford is working with leading experts, including Clean50 member Barbara Zvan, president and CEO at University Pension Plan Ontario (UPP), to raise awareness and urge government to take action.
“When you don’t have a taxonomy where a company can credibly articulate its sustainability performance and transition plan, this makes decision-making very difficult from an investment perspective,” says Ms. Zvan.
UPP’s climate action plan, for example, envisions achieving “net-zero portfolio emissions by 2040 or sooner, with an emphasis on decarbonizing the real economy,” she explains. “If we want to stay invested, we need companies to get their transition underway. And we’re not alone. There are clear recommendations from the financial sector that government implements a framework that provides clarity for investors.”
There is considerable support for a climate taxonomy across Canada, where the 25 largest financial institutions, through the Government of Canada’s Sustainable Finance Action Council (SFAC), partnered with the Canadian Climate Institute and the Institute for Sustainable Finance to develop a taxonomy framework.
“Investors want to contribute to a roadmap for transitioning to a clean economy,” says Ms. Zvan, who acted as lead for the SFAC taxonomy technical expert group. “We want to support organizations in their efforts to chart a course to net zero, because our outcomes are dependent on their outcomes.”
The example of Energy Star ratings can help illustrate the benefits of a taxonomy. “When you shop for appliances, the Energy Star label gives you a good indication of the environmental performance of any given products. It’s a standard you can trust – and you know it’s been designed and vetted by experts,” she says. “Offering a standardized and science-based way to gauge whether specific projects or organizations are aligned with climate goals helps to provide clarity on metrics that are important to the investment community.”
Last year, the International Sustainability Standards Board (ISSB), an international body tasked with developing a global baseline of sustainability disclosures, issued global sustainability performance standards, the IFRS, where sustainability-related information is provided alongside financial information. At COP28, the ISSB stated that the standards had the support of almost 400 organizations globally and of a group representing investors with more than US$120-trillion assets under management.
“It proves that the people who provide capital welcome this,” says Ms. Zvan, who sees a standardized approach to labelling “green” and “transition” investments key to boosting Canada’s competitiveness. “We know that we need to attract investments into Canada,” she says. “But to do that, we need to provide clarity around sustainability performance measured against a framework that is grounded in climate science.”
Mr. Pitchford says, “Putting these regulations in place would provide much-needed transparency as well as help expose misinformation and greenwashing. It would also encourage companies to prioritize improving their sustainability performance.
“But in the meantime, Canadian companies are at a disadvantage. We’re obviously competing for investments on the global stage, and our main competitors have already implemented guidelines, including all G7 countries, the U.S. with the Inflation Reduction Act, and even natural-resource-based economies such as Australia and Brazil,” he says. “We are an outlier, and this makes us a riskier place to invest.”
Evidence shows growing investor confidence in response to developed or developing climate taxonomies, according to a recent report by the Platform on Sustainable Finance, an advisory body to the European Commission, notes Ms. Zvan. “The Climate Bond Initiative tracks taxonomies in 40 countries and regions across the world. These countries are laying the groundwork for their transitions while we’re not getting the necessary movement in Canada.”
Mr. Pitchford adds, “When we’re putting ourselves at a disadvantage, it not only hurts our net-zero ambitions but the overall Canadian economy. It’s time to act – and that’s why the Clean50 has spearheaded an open letter released today to the Minister of Finance, signed by numerous leaders and businesses from across the country. We’re hopeful that action will follow.”
To view this report on The Globe's website, visit globeandmail.com
To view the full report as it appeared in The Globe's print edition Canada’s Clean50