Green and transition categories go forward, abatement measures head to feasibility research
Canada’s sustainable finance taxonomy, finalized on October 20, will classify activities and projects as either taxonomy-aligned or not taxonomy-aligned, with no partial alignment designation.
The Canadian Taxonomy and Transition Planning Council released the final Methodology Report for Canada’s Sustainable Finance Taxonomy that day, confirming the green and transition categories and sending a proposed third abatement measures category to feasibility research.
The taxonomy is a voluntary tool that evaluates investments at the activity level.
Its first phase focuses on climate mitigation, anchored in the ambition of the Paris Agreement and operationalized using net-zero-by-2050 decarbonization pathways, with subsequent phases recommended to focus on adaptation and biodiversity.
The green category applies to climate solutions with zero to near-zero greenhouse gas emissions and to activities that directly enable their production, with examples including renewable energy, batteries and storage, and electric vehicles.
According to Business Future Pathways’ media backgrounder, green enabling activities must either produce zero to near-zero emissions or have a clear, demonstrable and directly attributable link to an eligible green activity.
The transition category applies to emissions-intensive activities that can achieve deep emissions reductions and that have stable or growing demand in Paris-aligned pathways, such as the production of steel, cement, chemicals, and agricultural products.
The report sets out two eligible pathways within it: whole-of-activity, covering entire activities that meet technical screening criteria, and transition measures, covering technologies, practices, processes, materials, or services applied to an activity to improve its performance.
Council determined there was not yet sufficient information to either include or exclude the abatement measures category, the backgrounder states.
That research begins in 2027 and will examine the scope of activities that could be included and whether criteria and guardrails could be developed to reduce the risk of carbon lock-in, greenwashing, and stranded assets.
Users will be required to disclose whether their activities and projects meet the taxonomy’s Do No Significant Harm and Minimum Social Safeguard criteria, and to explain why if they cannot disclose alignment.
Climate Bonds Initiative research cited in the backgrounder found that global taxonomies with more stringent or mandatory safeguards had lower adoption rates.
The final report directs a reconsideration of the decision in the next three to five years.
Minimum Social Safeguards will include Indigenous rights-based criteria developed through dialogue with Indigenous Peoples, to align with Section 35 of the Constitution Act and the 2021 United Nations Declaration on the Rights of Indigenous Peoples Act.
Both safeguard frameworks will be published for public comment in late 2026, the report states.
Technical screening criteria and guardrails for Canada’s electricity, buildings, transportation, mining, manufacturing, and forestry/agriculture sectors are due by the end of 2027.
The Canadian Climate Institute, the taxonomy’s research custodian, has established technical working groups for the first three sectors.
Business Future Pathways said in its October 20 media release that it will publish draft sectoral criteria for public feedback later this winter, and that the criteria will specify what counts as a near-zero activity, what constitutes a dead-end pathway, and whether activities including nuclear, data centres, and carbon removals will be included.
Business Future Pathways opened public comment on the draft methodology on July 9.
The final decisions drew on input from the Council and approximately 70 expert advisors, close to 200 public feedback submissions, and perspectives offered by representatives of over 30 Indigenous organizations.
In the media release, Marlene Puffer, chair of the Canadian Taxonomy and Transition Planning Council, said the Methodology Report “marks a significant milestone for sustainable finance in Canada” with “a lot of work ahead of us.”
Puffer said the report sets up a taxonomy that is “credible, usable, interoperable” and aligned with reaching net zero by mid-century, according to the release.
