Federal budget announces key policies to guide climate investments

With today’s Budget, Canada’s federal government has announced the launch or resumption of key policies and programs that will continue to build Canada’s sustainable finance infrastructure and move the country in the right direction to compete for global climate capital.

Key announcements

Taxonomy: The much-delayed implementation of a green and transition “taxonomy,” or commonly accepted guidelines for climate investments, will begin again with the establishment of a governance body by the end of this year. We will expect to see guidelines for key sectors quickly established in the coming year. Numerous global jurisdictions, particularly in Europe and Asia, are well ahead of Canada in taxonomy development.

For more information see ISF’s taxonomy resources page.

Climate-related disclosures: The government has committed to working with the provinces to improve corporate climate-related disclosures. The current voluntary framework is fragmented, depriving investors of critical information needed to invest in climate action and decarbonize portfolios. Key to success will be the revival of the Canadian Securities Administrators' proposed climate disclosures rule, and alignment with standards established by the Canadian Sustainability Standards Board.

For ISF’s assessment of corporate Canada’s disclosure practices, check out our recent report.

Transition bonds: The development of a federal transition bond framework, aligned with the taxonomy, has the potential to boost investment in greenhouse gas emissions reductions in heavy emitting industrial sectors of the economy. A federal transition bond could generate a halo effect, attracting private actors to issue transition bonds.

See ISF’s Canadian Sustainable Bond Market Report. And stay tuned for this year's report to learn more about transition bonds. 

Anti-greenwashing reforms: The budget commits the government to reforming its anti-greenwashing legislation which has created uncertainty in the market and inhibited reporting that investors rely on. Implementing safe harbour provisions, improving guidance and aligning requirements with mandatory disclosure standards would be more effective to combat harmful market practices while encouraging sustainable investing.

See ISF’s recent analysis and recommendations for more.

Tax credits: The development of targeted tax credits will help stimulate investment in key elements of the clean economy. This includes exploration for minerals critical to EV batteries and other low-carbon technologies, clean manufacturing, and carbon capture and storage. Critically, tax credits for CCUS do not extend to carbon capture used to enhance oil extraction.

Quotes from ISF leadership

“Canadians are feeling every day the impacts of climate change, whether from natural disasters affecting their homes and livelihoods, or from rising food prices as crops fail due to drought,” said ISF Director Maya Saryyeva. “It’s good to see the sustainable finance solutions that we’ve been developing with industry and government have been given priority position in this budget."

“While we would like to see more ambitious timelines for industrial carbon pricing, the budget acknowledges the need for harmonization across provinces. This is important,” said ISF Director of Research, Yrjö Koskinen. “If we’re going to be competitive globally, we urgently need to establish the right conditions for investors. Adopting a green and transition taxonomy by the end of 2026 is one of those conditions. It is also imperative that we improve and standardize our climate disclosures.”

“The focus on AI is encouraging in this budget given the enormous promise for AI to help us guide capital to the most impactful climate investments,” said ISF Executive Director (Academic) Thomas Walker. “Look for upcoming research from ISF that will advance this important field.”