Canada’s new Climate Investment Taxonomy to provide greater clarity

As ESG investing is becoming more mainstream, Canada has developed guidelines for better classifying and defining what’s behind those investments. The Canadian Green and Transition Financial Taxonomy Framework, released last week, is meant to provide clarity within the financial system on what it means for an investment to be “sustainable”.

This framework, which is voluntary, will provide projects with a science-based “green” or “transition” label, depending on the sector and impact. Green projects take place within low or zero emission sectors like renewables or EV charging, which provide a direct path towards net-zero emissions. Transition projects, on the other hand, help shift high-emitting sectors and activities onto a net-zero pathway by significantly reducing emissions where possible.

While similar to the EU’s own taxonomy, the Canadian framework goes further by including these transition projects, which may help drive innovation in these high-emitting sectors while allowing them to stay competitive. Ultimately, the country believes that laying out this framework will help drive international investments that help the country meet its climate goals, including net-zero.