Taxonomy Foundations
Please feel free to answer only the questions that are of the most interest and relevance to you.
1a. The first phase of taxonomy development will focus on climate mitigation. In subsequent phases of the Canadian taxonomy, which objectives should be prioritized? Please select your top choices.
- Protection of biodiversity and healthy ecosystems
It is proposed that the design and implementation of the Canadian taxonomy be informed by the following six principles: Credible; usable; interoperable; dynamic; regionally specific; and prioritized.
2a. Do you agree or disagree with these proposed principles as the foundation for the taxonomy?
Strongly agree
2b. Please share the reason for your answer in the space provided
Credibility is crucial to identify the most important opportunities for climate aligned activities and investments. Usability is required for market adoption and for the taxonomy to be impactful in allocating capital to the right activities. There should be a recognition that technology pathways may not yet be cost-effective and that the taxonomy aims to contribute to making such pathways less costly. Interoperability especially with credible taxonomies, such as that of the EU.
3. Please rate each of the principles below on a scale from “very important” to “not at all important.”
- Credible
- Very important
- Usable
- Important
- Interoperable
- Important
- Dynamic
- Important
- Regionally Specific
- Not that important
- Prioritized
- Important
Do No Significant Harm and Minimum Social Safeguards
Please feel free to answer only the questions that are of the most interest and relevance to you.
The proposed taxonomy framework for Canada includes a set of Do No Significant Harm (DNSH) criteria and Minimum Social Safeguards (MSS), which will be designed to ensure that climate mitigation objectives do not adversely impact other environmental and social values, or legal rights. It is proposed that issuers must disclose the extent to which they meet specific criteria for both DNSH and MSS in order to claim taxonomy alignment.
4a. Do you agree or disagree with the proposed partial alignment approach, which would require entities to disclose the extent to which DNSH/MSS criteria are or are not met rather than requiring full alignment with all DNSH/MSS criteria?
Agree
5a. Do you agree or disagree with the proposed scope of objectives to be covered under the DNSH and MSS frameworks?
Select
6a. Do you agree or disagree with the proposed approach to grounding the DNSH/MSS frameworks in Canadian legislation and going beyond existing laws and standards where necessary?
Select
7. In which areas, if any, is it necessary to go beyond existing laws and standards for the DNSH/MSS framework?
We agree that that universal standards such as the International Finance Corporation’s Performance Standards be used to assess project-level environmental and social impacts. We would encourage MSS to include best practice sectoral standards (e.g. IRMA for mining, EO100 for oil and gas) for activity level assessment regarding the respect of indigenous right to FPIC.
8a. Do you agree or disagree that different DNSH/MSS standards should apply to projects or entities of different sizes? E.g. more comprehensive disclosures required for larger projects and/or entities, with more streamlined disclosures for smaller projects and/or entities?
Select
Section 3: Activity Classification Framework
Please feel free to answer only the questions that are of the most interest and relevance to you.
The activity classification framework proposes that the green category should be limited to activities with zero or near-zero emissions that make a substantial contribution to climate change mitigation or to activities that directly enable zero to near-zero emissions climate solutions (e.g., electric vehicle manufacturing facilities)
12a. Do you agree or disagree with this approach?
Strongly agree
The framework proposes that the transition category should include activities that have materially high emissions today but have the potential to decarbonize sufficiently to align with the green definition (i.e., zero to near-zero emissions) by 2050. These activities are likely to experience stable or growing demand in Paris-aligned representative pathways due to a lack of technically feasible low-carbon substitutes (e.g., major decarbonization investments in steel, cement, and chemicals manufacturing).
13a. Do you agree or disagree with this approach?
Agree
13b. Please explain your answer in the space below
While we agree with the overall approach, we view various hard to decarbonise sectors as having subsecetoral substituion
14a. Do you agree or disagree that the proposed guardrails for the transition category (both for the whole-of-activity and measures pathways) are sufficient to protect the science-based credibility of the category and reduce the risk of carbon lock-in, while supporting usability?
Agree
14b. Please explain your answer in the space below
We agree with whole-of-activity guardrail ''no technically feasible zero to near-zero emissions substitutes available today'' but would point out that this implies that each subsector. But there may be substitute outside that provides similar service. For example, within the transport sector, long haul rail transport for freight being inherently more carbon efficient than trucking. If rail and trucking are considered as separate subsectors, it is difficult to imagine the taxonomy providing a signal to encourage substitutions.
We agree with guardrail 2, we support the objective of requiring Scope 1 emissions to align with pathways to net zero by 2050. However, the reference to addressing Scope 2 and Scope 3 emissions "where feasible" should be clarified or removed, at least for Scope 2. The concept of feasibility is inherently subjective and could result in inconsistent interpretation. For example, a remote mining facility that relies on electricity supplied by a coal-powered plant may have substantial Scope 2 emissions but no practical ability to access a lower-carbon electricity source. In some jurisdictions, there may be no feasible alternative connection available and no plan coal-to-gas conversion or renewable energy deployment. In such cases, the lack of feasibility should not be used to justify eligibility.
To promote usability and market adoption, it has been decided that the taxonomy will not require entity-level commitments for either the green or transition categories. While we recognize the rationale for this decision, the taxonomy should seek to balance usability with credibility.
The fact that Canada lags many jurisdictions in the adoption of climate transition plans (CTPs) should not deter the taxonomy from encouraging their development and implementation. Instead, the taxonomy presents an opportunity to accelerate the adoption of credible transition planning practices. And as noted in the draft, the Singapore-Asia Taxonomy for Sustainable Finance requires entity-level climate transition plans for certain activities in sectors such as chemicals, cement, and steel.
To help Canada catch up with emerging international practices while maintaining usability, the taxonomy could introduce a time-bound entity-level guardrail for activities classified under the transition category. For example, companies could be required to adopt a credible climate transition plan within three years of the finalization of transition-plan guidance by Business Future Pathways (BFP). Such an approach would avoid creating an immediate barrier to participation while establishing a clear expectation that transition-labelled activities ultimately be supported by robust entity-level transition planning.
The report proposes that initial research on the abatement measures category should be conducted in 2027 and include select emissions-reduction measures for activities that have high Scope 1 emissions today and are unable to achieve the life cycle emissions reductions necessary to align with Paris-aligned pathways (e.g. major decarbonization investments in the upstream production, refining, and distribution of oil and gas). These are activities that are highly likely to experience declining demand as the world transitions to clean energy and alternative technologies.
15a. Do you agree or disagree that the taxonomy should include a third “abatement” category, as proposed, that covers demand-decline activities?
Disagree (i.e., disagree because of how category is designed)
15b. Please explain your answer in the space below
Even if eligibility for greenhouse gas (GHG) reduction activities is limited to existing assets and supported by robust guardrails, the risks associated with including oil and gas activities in the taxonomy may outweigh the potential benefits.
An oil and gas company issuing a bond to finance abatement measures could attract capital from investors who might not otherwise invest in the company. This raises the question of whether the abatement category could provide new sources of capital for activities that would otherwise have been funded through retained earnings. Unless a company has a credible diversification or managed-decline strategy, capital freed through external financing would likely be reallocated to existing or future production activities. This may slow the pace of the energy transition by supporting continued oil and gas supply and potentially delaying the adoption of lower-carbon alternatives.
A related concern is that investors seeking climate-aligned investment opportunities may allocate capital to abatement activities that would otherwise have been directed toward green or transition activities, where the climate benefits are more directly aligned with the taxonomy's objectives.
That said, as shareholder engagement service providers engaging with several Canadian oil and gas companies on behalf of our clients, we would welcome further guidance on what constitutes credible abatement measures in the sector. Such guidance would support more consistent and harmonized disclosure of capital expenditures dedicated to decarbonization activities.
The report proposes an illustrative list of guardrails for the abatement measures category that, if formally developed and finalized, would be designed to prevent carbon lock-in and ensure the abatement measures category remains credible within a Paris-aligned framework. When thinking about the taxonomy’s credibility and usability, please provide feedback on this illustrative list of guardrails.
16. Should any additional guardrails be considered?
If an abatement measures category is included, we generally agree with the proposed guardrails, particularly the first two: restricting eligible investments to the abatement of existing assets and limiting activities to those that do not extend the operational life of those assets. Distinguishing between existing and new assets is inherently complex, and the ongoing and future research being conducted by CCI should provide valuable guidance. However, given the often-blurred boundary between what is an existing and new asset, we remain very cautious about the practical implementation and verification of these guardrails.
In our view, the most important safeguard would be a requirement for issuers to adopt credible entity-level climate transition plans. Such plans would address many of the other proposed guardrails, including investment in low-carbon alternatives, requiring the decommissioning of assets within a certain timeframe, and reductions in Scope 1, Scope 2, and material Scope 3 emissions. In our view, credible transition plans for oil and gas companies include a strategy for the gradual and managed decline of capital expenditures related to oil and gas infrastructure, exploration, and production.
As Business Future Pathways (BFP) is expected to provide further guidance on credible transition plans for the oil and gas sector, consideration should be given to postponing the finalization of the abatement measures category until this work has been completed. This would help ensure robust and credible guardrails.
Section 4: Technical Screening Criteria
Please feel free to answer only the questions that are of the most interest and relevance to you.
18a. Do you agree or disagree with the proposed approach for developing technical screening criteria?
Neutral
18b. Please explain your answer in the space below
Focus should be on Scope 1 and Scope 2 emissions if material. Testing for feasibility is ambiguous and likely to difficult to assesss.
19. Please rate each of the proposed elements for the screening criteria on a scale from “very important” to “not at all important.”
- Forward-looking wherever possible
- Very important
- Include sunset and/or sunrise dates where relevant
- Very important
- Revise as necessary during regular review periods
- Important
- Primarily use quantitative metrics
- Very important
- Primarily focus on Scope 1 emissions but address Scope 2 and 3 emissions where feasible and/or material
- Important
- Informed by a range of robust methods
- Not that important
21. Do you agree or disagree with the proposed approach of focusing primarily on Scope 1 emissions, and addressing Scope 2 and 3 emissions where feasible and/or material?
Focus should be on Scope 1 and Scope 2 emissions if material. Testing for feasibility is ambiguous and likely to difficult to assesss.
Final questions
22. Overall, how satisfied are you with the proposed sustainable finance taxonomy framework?
Satisfied