TMX POV - ‘Made-in-Canada’ investment taxonomy an important step forward
The federal government recently announced a plan to deliver "Made-in-Canada" sustainable investment guidelines, as well as mandatory climate-related financial disclosures for large, federally incorporated private companies. These voluntary sustainable investment guidelines, or taxonomy, would categorize investments based on eligibility criteria that are consistent with reaching Canada's emissions reduction goals.
TMX has advocated in favour of the development of a Canadian sustainable investment taxonomy that defines both green and transition activities – an important component of what will be required for Canada to compete globally for capital. Natural resources are a significant part of the Canadian economy, and the sector includes hard-to-abate industries such as energy generation, oil and gas extraction, steel and cement production, and mining. To ensure these industries can continue to contribute to Canada's prosperity, we must make their decarbonization a priority.
Achieving a net-zero economy by 2050 will require annual investment levels of between $100 and $140 billion, according to various estimates — as much as ten times higher than current levels1. Investment loves certainty: money will flow down the path of least resistance and where risk can be best mitigated. To unlock the unprecedented levels of investment required for Canada to get ahead in the global race to raise transition capital, investors need to have their foundational decision-making criteria addressed. This is why clear definitions around transition activities are so critical to investors to enable them to invest in Canada without fears of greenwashing accusations.
The government's announcement represents a positive step forward; however, there remain several open questions that must be addressed. The most critical of these is the approach toward the extractive sectors, including oilsands, critical minerals mining and nuclear powered electricity generation. The longer the eligibility of decarbonization projects in these sectors remains unclear, the more it will contribute to investment uncertainty and may even disincentivize these sectors from engaging in transition activities.
The taxonomy can essentially be used to create a "cheat sheet" for comparing the climate attributes of investment opportunities, as well as for the creation and labeling of new investment vehicles. Ensuring alignment of an investment project or a corporation's activities with green or transition criteria will require companies to voluntarily disclose on these attributes.
Along with the taxonomy, the government also announced mandatory climate-related financial disclosures for large federally incorporated private companies. These disclosure requirements should be aligned with the standards that are being developed by the CSA, a move that would go toward the establishment of a global baseline for sustainability and climate disclosure and would help ensure a level-playing field between private and public companies. It will be important to ensure the adoption of these disclosures is calibrated for Canadian companies, recognizing that we should not impose additional regulatory burden without added value.
We hope that the government, in consultation with industry, will address these questions and provide the certainty that businesses and investors need to raise capital and drive economic growth.
Footnote
1 Business Council of Canada, Innovate, Compete and Win: A Roadmap for Canada's Energy Transition, p.12.
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