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Climate finance advocates are welcoming news that the federal government plans to look at options to mandate climate disclosures from private companies and create a taxonomy on sustainable practices in the financial sectors.
In their fall fiscal update, released Tuesday, the federal Liberals said they want to keep their advantage as a “world leader in climate finance” by “moving towards mandatory reporting of climate-related financial risks across a broad spectrum of the Canadian economy.”
A section of the document on sustainable finance said the departments of finance and environment will work to develop a framework for making climate disclosures mandatory for all private companies.
Climate disclosures are documents that companies and other organizations publish about the carbon footprint of their activities as well as their exposures to climate risks.
The CEO of SHARE, a Canadian non-profit responsible investment organization, told BNNBloomberg.ca that it’s a positive step in the transition to a sustainable economy, as many private companies are currently “operating in the dark.”
“It means we're not imposing burdens on publicly listed companies that we don't also put on others,” Kevin Thomas said in a Wednesday phone interview.
“The more of the economy exempted from these regulations, the harder it is to make accurate benchmarks and to track your progress as a country as a whole.”
Julie Segal, senior manager of climate finance at Environmental Defence, told BNN Bloomberg.ca that these promised sustainable finance policies are “a result of a lot of hard work, and are a long-time coming.”
“Climate finance policy is a missing piece of Canada's climate plan,” Segal said in a Wednesday phone interview.
“This is an area where (the government) has been lagging … moving forward with these sustainable finance policies are super important for meeting climate action and for maintaining a competitive, stable economy.”
The fiscal update also noted that the government received a “taxonomy roadmap” report from the Sustainable Finance Action Council (SFAC), which was established by the Liberals in 2021 with a mandate to provide advice on how to lead the financial sector towards integrating sustainable finance into its practices.
In the fiscal update, the government said it is taking “next steps… to develop a taxonomy that is aligned with reaching net zero by 2050.”
“It’s a roadmap of sorts on how we hope to get to the transition; what kind of investments we need to see more of, and making sure the financial sector knows how and where to allocate capital to address the climate challenge,” Thomas explained.
The taxonomy will be developed in consultation with regulators, financial sector and industry stakeholders and experts, the government said, along with a proposed $1.5 million in government funding in the 2024 to 2025 fiscal year.
Segal said that when done right, a taxonomy can act as “a classification tool for green investments,” likening it to an Energy Star rating to classify high efficiency appliances, or an Ocean Wise rating to classify sustainably caught or farmed seafood.
She added that a taxonomy could also help to eliminate the practice of greenwashing, the deceptive use of advertising or marketing to persuade the public that an organization's products or policies are environmentally friendly.
“It has to be linked to other pieces of financial policy to be effective, but a taxonomy with other disclosure-related financial regulations can help clear up greenwashing from the financial sector and from companies.”
‘GETTING IT DONE RIGHT’
Both Thomas and Segal said that any new climate finance regulations will need to include input from independent climate experts if they’re going to work as intended.
“They do need to make sure that it isn't just in the hands of industry, and that they include climate environmental experts in the process to make sure they get it right,” Thomas said, adding that he would have liked more details about how the taxonomy and disclosures rules will be implemented.
“I would have hoped for more specifics and a clear timeline about this because there's a lot of capital riding on getting this done right, getting it done credibly and getting it done now.”
Segal said she’s “not confident” that the government will ensure the process of creating climate finance policies includes the right voices, and she is opposed to industries with larger carbon footprints influencing the process in their favour.
“In terms of both the content and process of the taxonomy we need to see quick next steps to assure it will be done right,” she said.