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Australia’s new taxonomy is another signal to Canada to get moving

Australia just took a significant step forward in its sustainable finance roadmap with the release of its sustainable finance taxonomy. To quote the Australian Sustainable Finance Institute, “The Australian sustainable finance taxonomy provides a common language for green and transition finance in Australia, supporting the allocation of capital towards activities that enable Australia’s net zero ambitions.” 

Global Momentum to Encourage Green Investment

The Australian taxonomy is the latest in a global movement to align the financial system with a sustainable future. In recent years, a growing number of countries have established sustainable finance taxonomies. While The European Union’s taxonomy is the most well known, the World Bank reports that over 40 taxonomies have been issued globally, with over 75% of advanced economies now covered by a national or regional sustainable finance taxonomy. 

Lack of Progress on Canada’s Taxonomy

Meanwhile in Canada, we are behind on developing our own taxonomy – creating confusion and frustration amongst the investment community that has requested and consulted on a Canadian sustainable finance framework for years. Despite announcements from the federal government that Canada would proceed with creating its own sustainable finance taxonomy in late 2024 after years of recommendations, expert consultations, and the release of a Taxonomy Roadmap Report in 2023, the process was stalled when Prime Minister Trudeau stepped down.

As part of his campaign platform, current Prime Minister Carney promised the creation of a credible Canadian green and transition taxonomy. While it is understandable that his government has been focused on dealing with the Trump tariffs, it is time to follow through on this commitment and to initiate an inclusive process to catch up. 

After all, proceeding with a taxonomy is in fact good for strengthening Canada’s economy. We have the potential to lead in the development of green industries such as critical minerals, renewable energy, and electric vehicle manufacturing. A robust taxonomy would signal to investors that Canada is a stable and predictable place for green investments, and position the country well to compete in the global transition to net zero.

How can the Australian taxonomy inform Canada’s process?

The Australian taxonomy offers crucial insights and a potential blueprint for Canada to follow in the development of our taxonomy that can help us catch up with our international peers. Here are six key takeaways for Canada from the Australian Taxonomy:

  1. Prioritize Paris Alignment and Science-Based Criteria: The Australian taxonomy is firmly grounded in climate science, aligning with the Paris Agreement goals of limiting global warming to 1.5°C and achieving net-zero greenhouse gas emissions by 2050. It is based on the IEA’s Net Zero Emissions by 2050 Scenario. This strong scientific grounding is a critical feature, ensuring the taxonomy is credible and genuinely supports decarbonization efforts.
  2. The Importance of Civil Society Engagement: The success of the Australian taxonomy highlights the importance of broad stakeholder engagement, including civil society and environmental non-governmental organizations (ENGOs) alongside financial sector leaders. This inclusive approach can build trust, enhance the taxonomy’s legitimacy, and prevent loopholes that could lead to greenwashing.
  3. Avoid Fossil Fuel “Transition” Labels: Crucially, the Australian taxonomy explicitly states that the fossil fuel industry and its related activities are not eligible to receive a transition label. This clear boundary is vital for any credible sustainable finance framework. Canada should adopt a similar stance to ensure capital flows towards genuinely sustainable activities.
  4. Learn from Transition Activity Definitions: The Australian taxonomy’s detailed approach to transition activities, differentiating between specific measures and whole economic activities, provides a valuable framework for Canada to consider when defining its own ‘transition’ criteria.
  5. Embrace Indigenous Engagement: The Australian taxonomy is the first in the world to set expectations for engagement with First Nations peoples and the management of cultural heritage. It sets a powerful precedent for Canada, with its significant Indigenous populations and commitment to reconciliation. 
  6. Consider Sectoral Nuances and Interoperability: Designed to be interoperable with the EU taxonomy, the Australian taxonomy is consistent with international best practices whilst also aligning with the landscape of the Australian market. The Australian taxonomy builds and expands on the EU taxonomy’s approach to cover key Australian sectors such as green mining, metals and minerals, and agriculture. Canada should assess which key sectors within its own economy require specific criteria within its taxonomy, similar to Australia’s inclusion of mining and agriculture. Given these resource-intensive sectors are also vital to the Canadian economy, the Australian taxonomy provides key learnings on how to label sustainable activities in these sectors. Additionally, ensuring interoperability with major international taxonomies, particularly the EU’s, will facilitate cross-border sustainable investment.

In conclusion, Australia’s new taxonomy is a significant step forward in the global sustainable finance landscape. Due to the similarities between the Australian and Canadian economies, Canada has a unique opportunity to apply the learnings generated by the successful Australian taxonomy to speed up the development of its own taxonomy. This will be crucial in directing much-needed capital towards achieving Canada’s net-zero aspirations and strengthening its future economic position.

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