This October, Toronto played host to more than 2,000 leaders in sustainable finance from around the world for the PRI in Person conference (PRI is short for Principles for Responsible Investment). The event presented a unique opportunity for the Canadian government to make up for years of foot-dragging and take a leadership position on climate finance policy on an international stage. Unfortunately, Canada decided to play catch-up, rather than genuinely step up to the opportunity.
When Finance Minister Chrystia Freeland took the main stage to announce long-anticipated policy measures, expectations were high. New financial rules are desperately needed, as Canada is already listed by the United Nations as a “low-regulation jurisdiction” on sustainable finance while providing cover for financial institutions with the highest levels of financing for oil, gas and coal.
What we heard was a welcome, yet inadequate, attempt to draw level with global climate finance leaders.
The speech – accompanied by an official backgrounder on the new sustainable investing guidelines – included two main themes: progress on a green labelling taxonomy and movement to formalize corporate climate disclosures for major companies in federal law. These are important and positive steps, but they amount to meeting the basic standard, not climate leadership.
The first piece provides a path for finally rolling out a voluntary, made-in-Canada sustainable investment taxonomy, focused on setting detailed science-aligned climate labelling standards for electricity, transportation, buildings, agriculture, forestry, manufacturing and extractive industries, including mineral extraction and processing and natural gas.
That last category raises a major red flag for climate experts, as scientifically credible transition pathways require, by definition, the replacement of fossil fuels in our energy system, not merely marginal emission reductions. Gas cannot be transitioned.
The long, difficult process to develop taxonomy rules has been continually undermined by aggressive oil and gas industry lobbying to distort the rules to keep the finance taps open. Canada might have simply adopted EU taxonomy rules, which exclude most fossil fuel activities. This threat sparked an industry push to create a made-in-Canada approach, on the flawed premise that a pathway for science-based 1.5°C alignment could somehow be changed in consideration of “Canada’s economic makeup.”
This distortion of reality is very much in evidence in the backgrounder, albeit in coded terms. The text describes "a broad range of eligibility criteria for existing natural gas production," so long as companies align with "limiting global temperature rise to 1.5°C above pre-industrial levels.”
The government provides an example of such an eligibility criterion: "displacing more polluting fuels internationally." This is just an oblique and perverse reference to industry attempts to force the exporting of liquefied natural gas into the transition label against the advice of experts.
Natural gas is a major cause of the climate crisis and cannot, regardless of Canada’s current economic makeup, align with limiting temperature rise to 1.5°C on any reasonable time scale. LNG export is an expansion of fossil fuels – the literal opposite of a transition investment.
The backgrounder also contained an important acknowledgement that new oil or gas projects are inconsistent with a safe climate. Clearly, given the contradictions on display, the hard work on labelling is not over.
Ensuring that these rules earn global credibility and adhere to climate science in a politicized environment will require committed follow-through. The next step in the process is for detailed labels to be ironed out by an independent stakeholder working group over 12 months, the makeup of which has yet to be announced.
Canada needs these labelling rules, and many well-intentioned people have worked hard for years to make them a reality. The government must deliver on promises to ensure that civil-society representatives, climate experts and Indigenous rights-holders are all part of the decision-making process.
At the event, the government also promised to codify climate disclosure rules for Canada’s largest federally regulated corporations. This is an equally important, but also incomplete, policy.
Once adopted, these disclosure rules will form a foundation for future rules to require credible climate transition plans across the financial sector, but a clear policy direction for where we need to end up is still lacking. The EU is already much further ahead with such policies, like the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.
Aligning Canada’s financial sector with a science-based climate transition pathway isn’t optional. The work to achieve this necessary calibration needs to pick up the pace. The international community wants to see Canada leading, not catching up.
Adam Scott is the executive director of Shift: Action for Pension Wealth and Planet Health, a charitable project working to align Canada’s financial sector with climate goals.
