Canada has moved to formalize its approach to sustainable finance, announcing that it will launch a national sustainable investment taxonomy by the end of 2026, led by the Canadian Climate Institute. The initiative is intended to provide clear, science-based criteria for identifying “green” and “transition” investments, as the federal government seeks to mobilize private capital at scale to support its net-zero and competitiveness objectives.
The decision, confirmed following commitments in Budget 2025, positions the sustainable investment taxonomy as a voluntary market tool designed to give investors, lenders, and issuers greater clarity on which economic activities align with Canada’s climate goals. The government has framed the move as essential infrastructure for sustainable finance, rather than a new regulatory requirement.
Building a common language for transition finance
According to the federal government, the sustainable investment taxonomy will establish consistent definitions that can be used by companies issuing green or transition bonds and by investors assessing the credibility of sustainable investment products. The framework is intended to reduce uncertainty in capital markets and support the flow of private finance into activities aligned with Canada’s transition pathway.
“To grow our economy and meet the 2050 net-zero target, Canada must mobilize more private capital to build the 21st century clean economy. Financial markets demand clear, common standards defining science-based ‘green’ or ‘transition’ investments,” said François-Philippe Champagne, Minister of Finance and National Revenue.
The sustainable investment taxonomy will distinguish between fully green activities and transition investments, reflecting the structure of Canada’s economy and the central role of emissions-intensive sectors that will need to decarbonize while remaining globally competitive.
Independent governance and expert leadership
The Canadian Climate Institute, an arm’s-length research organization established in 2020, has been appointed to lead the development of the taxonomy. It will work in partnership with Business Future Pathways, an investor-led initiative, to design the technical criteria and convene an independent Taxonomy Council.
That council will include representatives from academia, the financial sector, climate scientists, Indigenous communities, and civil society, supported by financial and technical advisory bodies and sector-specific working groups. The governance model is intended to ensure credibility, transparency, and insulation from short-term political pressures.
“The new sustainable investment guidelines will give Canada what investors have been asking for: a clear, credible, science-based system for identifying which activities in the economy are aligned with the country’s climate and competitiveness goals,” said Jonathan Arnold, Director of Sustainable Finance at the Canadian Climate Institute. “Crucially, Canada’s guidelines will not just focus on defining clean technologies and investments—they will be designed to help transform emissions-intensive sectors that are central to the national economy.”
A phased approach across priority sectors
Under the planned timeline, the Taxonomy Council is expected to finalize guidelines for three priority sectors by the end of 2026, establishing the initial framework. A further three sectors are to be added by fall 2027. Sector selection will be based on where taxonomy guidance has the greatest potential to deliver emissions reductions and promote low-carbon competitiveness.
The sustainable investment taxonomy will be voluntary and broadly compatible with international frameworks, including those developed in the European Union, China, and parts of Asia-Pacific. Canadian officials said alignment with global best practices is intended to facilitate cross-border investment and prevent fragmentation in sustainable finance markets.
Positioning Canada in a crowded global landscape
More than 60 sustainable finance taxonomies are already in use or under development worldwide, including in most of Canada’s major trading partners. While the United Kingdom recently decided not to proceed with its own green taxonomy, Canada’s approach signals an effort to keep pace with global capital markets as demand for low-carbon investment accelerates.
The federal government has also linked the taxonomy to its broader sustainable finance agenda, including ongoing green bond issuances and the potential development of a Sustainable Bond Framework aligned with the new guidelines. Budget 2025 further committed Ottawa to working with provinces and territories to improve climate disclosure across the economy, with an eye toward consistency with international standards.
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