Overview
Introduced: 2024
Effective from: Ongoing
Region(s): Canada
About
The Government of Canada has introduced voluntary Made-in-Canada Sustainable Investment Guidelines, aimed at categorizing investments based on scientifically determined criteria that align with achieving net-zero emissions by 2050 and keeping the global temperature increase below 1.5°C. This taxonomy provides a framework to mobilize private capital towards low-emission or transitioning activities.
The Made-in-Canada Sustainable Investment Guidelines aim to build credibility through a “Green” category for low- or zero-emitting activities, such as renewable energy projects, and a “Transition” category for activities in emission-intensive sectors that are essential to Canada’s net-zero transition, such as carbon capture and storage. The guidelines are designed to mobilize private capital, support sectoral decarbonization, and position Canada as a leader in transition finance globally.
Initially, the Canadian taxonomy will focus on sectors like electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractives. Two or three priority sector taxonomies are expected to be released within the next 12 months.
Criteria for compliance
Entities covered
The taxonomy is voluntary and available to all companies, including financial institutions, lenders, and public or private corporations.
Compliance timelines
A taxonomy for two to three priority sectors will be released within 12 months of the arm’s-length third-party organization(s) beginning its work.
Defining green and transition investments
- Green investments: These include activities with low or zero emissions, like green hydrogen production, solar and wind energy, or infrastructure like electricity transmission lines and hydrogen pipelines. To qualify, activities must not have material scope 1 and 2 emissions, have low or zero downstream scope 3 emissions, and align with growing demand in global net-zero markets.
- Transition investments: These cover activities within high-emitting sectors that are essential for sectoral decarbonization. Examples include electric furnaces for steel production or phased-out fossil fuel projects that align with 1.5°C goals. Transition activities must have material scope 1 and 2 emissions but demonstrate significant emission reductions, avoid carbon lock-in, and align with demand growth for net-zero transitions.
Application process
- Benchmarking: Use performance-based criteria to determine eligibility for green or transition labels.
- Verification: Verification will be carried out by licensed third-party entities to ensure alignment with taxonomy standards.
- Submission: Entities must submit required document through designated channels for review and potential classification.
Priority sectors
The initial rollout of the taxonomy will focus on the following priority sectors, with detailed eligibility guidelines:
- Electricity: Low- and zero-emitting generation, storage, and grid upgrades.
- Transportation: Emission-reducing activities across road, rail, marine, and enabling infrastructure.
- Buildings: High-performance construction, retrofitting, and equipment for emission reduction.
- Agriculture and forestry: Sustainable practices for decarbonizing agricultural activities and sustainable forestry management.
- Heavy industry: Emission-reducing activities in manufacturing and extractives, such as low-emission steel production and sustainable mineral extraction.
Reporting requirements
- Data sharing: Participants applying for taxonomy classification must share performance data with third-party verifiers to ensure accuracy and transparency.
- Documentation: Entities must provide documentation demonstrating emissions reductions, compliance with guiding principles, and transparency of activities.
- Verification: Verification will be carried out by licensed third-party entities, such as a Professional Engineer (PE) or Registered Architect (RA), who will evaluate all submitted data to ensure it meets the taxonomy standards.
Third-party auditing
All taxonomy labels (green or transition) must be verified by third-party auditors who will evaluate compliance with the guiding principles, including alignment with net-zero pathways.
Penalties for non-compliance
There are no direct penalties for non-compliance, as the taxonomy is voluntary. However, entities may lose their classification label if they fail to maintain standards, potentially affecting investment attractiveness.
Company-level expectations
Companies aiming to benefit from taxonomy labeling are encouraged to commit to:
- Net-zero targets: Commit to reaching net-zero emissions by 2050 or sooner.
- Credible transition plans: Develop a strategy outlining steps towards a low-carbon economy.
- Robust climate disclosures: Transparency about climate-related governance, risks, and performance metrics.
Governance and funding
The taxonomy will be developed and managed by arm’s-length third-party organizations to ensure transparency and scientific credibility. Development will require collaboration between financial market participants, industry experts, civil society, regulators, and Indigenous partners. The Government of Canada will provide funding for the technical work necessary to define eligibility criteria.
Examples of potentially eligible activities
Potential activities for green or transition labels, depending on sector-specific performance metrics, include:
- Electricity: Solar power generation, wind power, bioenergy, and grid infrastructure.
- Transportation: Electric vehicle infrastructure and low-emission public transportation modes.
- Buildings: Construction and retrofitting for energy efficiency.
- Agriculture and forestry: Afforestation and sustainable forest management.
- Heavy industry: Manufacturing of renewable energy technologies, low-emission steel, and sustainable mineral extraction.
