Desjardins, Vancity, and Schroders disagree, and want oil and gas left out entirely
Canada's pension funds, insurers, and asset managers have divided over a proposed third taxonomy category that would let select oil and gas emissions-reduction investments count as climate-aligned.
The draft Canadian Sustainable Finance Taxonomy: Methodology Report, produced by the Canadian Climate Institute with Business Future Pathways, closed to public comment on August 13 after a five-week consultation.
The report sets out three categories of eligible economic activity: green, transition, and abatement measures.
Abatement measures would apply narrowly to investments cutting near-term emissions in activities facing declining global demand in Paris-aligned pathways, chiefly upstream oil and gas production, refining, and distribution.
Eligibility would be limited to a whitelist of pre-approved technologies, processes, practices, materials, or services, ring-fenced so capital cannot flow to the underlying activity itself.
Potential guardrails listed in the report include restricting investment to existing assets, barring measures that extend asset lifetimes, requiring significant cuts to Scope 1, Scope 2, and upstream Scope 3 emissions, setting decommissioning timeframes, and requiring issuers to adopt entity-level transition plans.
OMERS, British Columbia Investment Management, Canada Life, Co-operators, the Pension Investment Association of Canada, the Climate Bonds Initiative, and Ceres all agreed with the category in principle, Responsible Investor reported.
Addenda Capital took a neutral position.
Canada Life called the approach "a pragmatic and balanced approach" in comments to the consultation reported by Responsible Investor, arguing the category reflects the realities of a resource-based economy.
OMERS backed further consideration of the category "provided it is supported by clear safeguards" that keep the taxonomy scientifically credible, according to Responsible Investor.
Co-operators told the consultation that a separate category usefully recognises credible near-term reductions in activities that cannot decarbonise over the long term, while cautioning that substantial further research would be needed on guardrails and disclosure.
Opposition came from Vancity, Schroders, Genus Capital Management, and Clear Skies Investment Management.
Desjardins Group and Fiera Capital raised concerns without opposing outright.
Desjardins, which manages $510.2bn, said the category presents "significant risks to the credibility, clarity and usability of the taxonomy," per Responsible Investor, and pointed to carbon pricing, emissions caps, and environmental regulation as more effective decarbonisation levers.
The credit union Vancity warned that labelling fossil fuel abatement as sustainable finance risks market confusion and diverts capital from building retrofits, clean energy, and electrification.
Fiera Capital argued guardrails should tighten progressively so abatement stays eligible only where no viable lower-emission alternative exists, Responsible Investor reported.
Desjardins proposed that the category, if created, carry a sunset clause subject to periodic review against evolving science and technology.
TMX Group, the Canadian Association of Petroleum Producers, and the Oil Sands Alliance all pushed for emissions-reduction projects to sit within the broader transition category instead.
Environmental Defence and pensions campaign group Shift opposed the category outright, with Shift arguing no taxonomy steward can credibly assess carbon lock-in or stranded asset risk case by case.
"Leaving the abatement category out would leave a black hole in the Canadian marketplace," said Marlene Puffer, chair of the Canadian Taxonomy and Transition Planning Council, in an interview with Corporate Knights.
Jonathan Arnold, head of sustainable finance at the Canadian Climate Institute, told the same publication the category's real test is whether short-term reductions can be achieved without locking in long-term emissions.
On safeguards, the report proposes a partial alignment approach modelled on Australia, under which entities disclose which Do No Significant Harm and Minimum Social Safeguards criteria they meet rather than having to satisfy all of them.
Addenda Capital supported that model as a way to phase in best practices and improve market disclosure over time.
Desjardins, PIAC, and the Principles for Responsible Investment each argued that human rights and Indigenous rights criteria should instead require full compliance, according to Responsible Investor.
Technical screening criteria for electricity, buildings, and transportation will go out for public comment by the end of 2026 and be finalised in early 2027, the report says.
Mining, manufacturing, and agriculture and forestry follow by the end of 2027.
Research on abatement guardrails begins in 2027, with criteria for that category deferred to a later phase.
