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The CSA Transition Taxonomy Has Stalled Out – Now What?

Word on the street is that the CSA Group’s transition taxonomy process has stalled out due to lack of consensus. (For background, see our earlier blog).

This is just as well, since it was tracking towards a shockingly weak product that would have provoked surprise and probably a bit of outrage in ESG circles in London, Brussels, and New York.

You can see a leaked copy of the draft here. Even a cursory read reveals that, contrary to the EU sustainable finance taxonomy, the CSA version would have permitted all kinds of fossil fuel activity – even in the oil sands – to get a green stamp of approval so long as incremental gains are made in pollution abatement and the recipient company has promised to get to net zero (as all the oil and gas companies are now claiming, so long as you don’t pay attention to Scope 3 emissions or their expansion plans).

In fact, that approach leads to carbon lock-in, something the EU explicitly rules out. Transition financing is intended to apply to activities for which there are no alternatives, and there are indeed alternatives to oil and gas. In fact, transition is hindered by propping up fossil fuel assets instead of investing in renewables to replace them. This point is lost on those promoting carbon capture for the oil sands – even if that worked perfectly after billions in subsidies (unlikely), it would only abate 20-30% of emissions, since most occur when the oil is burned. To use a sports metaphor, it’s like throwing an end-of-game Hail Mary pass to your own 30-yard line.

But wait, you say, the EU is considering allowing gas in its taxonomy! Surely that validates the CSA approach? Yes, there’s currently a fierce debate about allowing some gas in the EU taxonomy, but that’s nothing like throwing open the doors to oil and gas like in the CSA version. Plus, let’s see what happens in the EU, since actors like the Institutional Investors Group on Climate Change (which includes BlackRock, the world’s largest asset manager) have taken a position against it. Imagine what they’d say about the CSA version?

What happens now? Some modified version of the CSA draft may still get sent to the Sustainable Finance Action Council (SFAC) for consideration. But the SFAC suffers from the same fundamental flaws that the CSA does – it’s not a representative body, nor does it have the ability to sanction a result.

That role falls to governments. So far the Canadian government has shown no signs of taking responsibility, but now that the CSA process has stalled out, and with growing claims of “greenwashing,” it’s a matter of time before we’ll see that change. The credibility of sustainable finance in Canada depends on it.

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