Submitted to Finance Canada by the government-appointed Sustainable Finance Action Council, the document could significantly shape global markets by serving as the most credible available protection against greenwashingJeff McIntosh/The Canadian Press
A federal advisory body is proposing to disqualify any new oil and gas projects from being classified as green, and award that designation only in a limited and qualified way to projects to reduce pollution from existing fossil-fuel production.
The recommendations are included in a framework for a rulebook to define sustainable investments in this country, known as a green taxonomy, a copy of which was obtained by The Globe and Mail.
Submitted to Finance Canada this fall by the government-appointed Sustainable Finance Action Council (SFAC), the 77-page document received sign-off from all of that group’s members – including representatives of most major Canadian financial institutions, insurers and pension funds.
But it has not yet been publicly released by Ottawa, even as the European Union and other jurisdictions have taken a lead in developing such guides for growing numbers of climate-conscious investors.
SFAC chair Kathy Bardswick declined to comment on the contents of the taxonomy roadmap before its formal release. The document’s authenticity was confirmed by two other sources who were engaged in its development, whom The Globe and Mail is not identifying because they were not authorized to speak publicly about it.
The finance ministry remains in collaboration with the council and financial-industry leaders on the taxonomy framework, said Adrienne Vaupshas, press secretary for Finance Minister Chrystia Freeland. “Our goal is to foster a sustainable finance market in Canada that will boost investor confidence, drive economic growth, and help fight climate change,” she said in an e-mail.
While taxonomies such as the one being proposed by SFAC do not prohibit financial institutions or anyone else from funding economic activities that are not deemed to be sustainable, they have the potential to significantly shape global markets by serving as the most credible available protection against greenwashing – false or exaggerated claims by companies seeking to prove their environmental bona fides.
SFAC’s effort to set the direction for a made-in-Canada approach, in recognition of this country’s resource-heavy economy, could prove contentious with both fossil-fuel companies and environmental groups, because of the way it seeks to limit but not completely exclude oil-and-gas investment from green-finance eligibility. Indeed, some activists had previously criticized the process for not bringing representatives from green groups to the table.
The proposed framework hinges on an attempt to separate the Canadian taxonomy into two categories – not just green projects, but also transitional ones – in a way that others have not done.
The more straightforward green label would be reserved for projects that have zero or low emissions both in their own operations and from the consumption of their products, and that are projected to be in high demand during the shift to a lower-carbon economy. Among the examples offered by the SFAC are green hydrogen projects, electric-vehicle manufacturing with low-emissions supply chains, clean-electricity infrastructure and tree-planting in areas where forests did not previously grow.
The transitional label is meant for projects that reduce emissions in carbon-intensive industries – including fossil-fuel production, as well as manufacturing sectors such as steel, cement and chemicals – without fully identifying them as green.
To qualify even for that category, oil-and-gas investments – such as the installation of methane-capture technology for natural gas production, and carbon-capture technology in the oil sands – would have to meet a set of criteria.
That would include the funded projects leading to “significant emissions reductions from existing assets,” and having “well-defined lifespans” that are in line with decreases in fossil-fuel consumption required to hit global climate-change mitigation targets.
The proposed requirements add up to an attempt to avoid giving any stamp of approval to investments that could either expand oil-and-gas production beyond existing levels, contribute to the lock-in of oil-and-gas infrastructure beyond the point it would otherwise cease to be viable, or create stranded assets.
And the document states that purported sustainability investments that involve “new oil and gas extraction projects” will be ineligible.
It broadly proposes a range of other criteria for investments to qualify as either green or transitional. Those include a requirement that any company issuing financial instruments under the taxonomy has a company-wide commitment to achieve net-zero emissions by 2050, and that projects meet a “do no significant harm” principle related to other environmental, social and governance (ESG) aspects such as Indigenous reconciliation.
Still, the framework leaves open to interpretation some key aspects of what might qualify for the transitional classification in particular.
One of those involves what is considered an existing fossil-fuel extraction site for which investment to minimize emissions could be eligible. The document suggests that beyond just sites already producing oil and gas, under-development sites could qualify if they have been granted production licences and significant capital expenditures have already been allocated.
Another is the proposed requirement that any qualifying investment be consistent with pathways to containing planetary warming to 1.5 Celsius above preindustrial levels – a Paris Climate Accord target currently in enough peril that many projects could be disqualified depending on how stringently it is interpreted.
The framework proposes that such decisions, on which specific projects qualify for the green and transitional labels, ultimately rest in the hands of a complex new governance structure. It would be overseen by a taxonomy council – including senior federal officials and representatives of institutional investors – who would be served by more technical staff and working groups.
Before that happens, the proposed framework, which was written by a technical experts group convened by SFAC, in partnership with the Canadian Climate Institute, is to be followed by a much more detailed document laying out greater specifics about thresholds and timelines for the green and transitional categories.
A source involved in the process said that SFAC – which plans to oversee that stage as well – had expected the next document to be released next summer, but the timeline is now unclear because of the framework’s delayed release.
For investors, SFAC’s taxonomy development has taken on extra importance since work began on it in 2021, because a pre-existing effort to develop a Canadian taxonomy by the CSA Group – the non-profit industry standards association – fell apart earlier this year amid disagreements about its contents.
Although that turn of events underscored the difficulty of settling on taxonomy principles in a resource-heavy economy, other countries with similar reliance on fossil-fuel sectors – notably Australia, which this month released a framework similar to the SFAC proposals – have recently been starting to outpace Canada in framing the discussion.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
