Two weeks ago, on Aug. 13, the public consultation on Canada’s draft sustainable finance taxonomy closed. More than 175 submissions came in from banks, pension funds, oil and gas companies, environmental groups, Indigenous financial institutions, credit unions, and Canadians.

The submissions responded to a draft released on July 9 by the Canadian Climate Institute and Business Future Pathways, working with the newly formed Taxonomy and Transition Planning Council.

The Climate Institute does the research and technical work, Business Future Pathways convenes the process, and the Council, made up of leaders from finance, sustainable investment, and policy, has the final word on what the taxonomy actually says.

The Council chose six priority sectors for applying the taxonomy: electricity, buildings, transportation, mining, manufacturing, and agriculture and forestry. The picks were based on where emissions are highest, where decarbonization is most achievable, and where the potential to unlock further investment is greatest.

What is a taxonomy, and how granular is it?

A sustainable finance taxonomy is a classification system that tells investors and lenders which economic activities credibly count as climate-aligned, using standardized, science-based definitions rather than each institution making up its own criteria.

Getting those definitions right matters because capital is finite; money that goes to one project doesn’t go to another.

Aequo, a shareholder engagement firm, flagged a real risk of this in its submission: the presence of a weaker category inside the taxonomy can pull investment away from stronger ones.

Here’s the part that surprises most people: a taxonomy doesn’t rate a sector as a whole. It rates specific activities within it, one by one.

Take electricity, one of the first three sectors to be subject to detailed criteria by the end of 2026.

Australia already finished its own taxonomy, and for electricity, it didn’t just say “renewables good, fossil fuels bad.” It set an actual number: to count as green, a power plant must emit less than 100 grams of CO₂ per kilowatt-hour of electricity it produces.

Solar and wind pass easily; they emit close to zero. A coal plant fails badly, as it’s way over the threshold.

Natural gas fails too; even a modern, efficient gas plant typically emits three to four times that limit. 

That turned out to be one of the more contested outcomes of Australia’s process: gas didn’t just miss the “green” label, it was left out of the “transition” category as well, despite grid operators saying gas will likely still be needed to back up renewables for the foreseeable future.

It’s a preview of the kind of hard call Canada’s Council is now facing with oil and gas, which we’ll get to.

Australia’s limit isn’t frozen. After 2030, the rules will become stricter, so plants that qualify today may not qualify in 10 years unless they clean up further.

This is what a taxonomy can look like when it’s specific and measurable, not a claim that Canada will copy this exact number, just a reference point for the kind of precision some countries have chosen.

Every eligible project must also demonstrate that it won’t significantly harm nearby biodiversity or water resources and that it meets minimum standards for how it treats workers and communities. 

The taxonomy groups these criteria together as “Do No Significant Harm” and “Minimum Social Safeguards.”

Multiply that level of detail across dozens of activities and six sectors, and you get a sense of the scale of the exercise.

But there’s a snag: the taxonomy rates individual activities, and investors don’t buy activities. They buy shares in companies, units in bonds, stakes in funds that might run ten different operations at once. Some are clean, some are not.

Quebec-based sustainable finance consultancy Rose des vents flagged this in its submission: knowing that one project measures up, doesn’t yet tell an investor how to add it up across a real portfolio, or a real company’s balance sheet.

It comes down to one question: where does the money actually go? 

That unresolved question is one thread in a larger set of disputes over what this taxonomy should and shouldn’t count.

The abatement divide: who gets called “declining”?

Picture two nearly identical decarbonization projects.

One retrofits a steel plant, sharply cutting its emissions. The other captures carbon at an oil sands facility, cutting emissions by a comparable amount. But under the draft taxonomy, only the steel project gets to call itself “transition,” a category built for industries expected to stick around.

The oil sands project gets shunted into a proposed third category, “abatement,” reserved for sectors the taxonomy’s own scenarios expect to shrink.

The abatement category is the least developed of the three: guidance for it isn’t expected to be finalized until a later phase of the process, well after the green and transition criteria are locked in.

That distinction is the most contested design choice in the draft.

Stakeholders such as the NGO Environmental Defence Canada, the fund manager Raven Indigenous Outcomes, and the financial institution Desjardins all object, saying Canada should not dignify oil and gas with a taxonomy category.

Meanwhile, the Oil Sands Alliance, representing Canada’s largest oil sands producers, agrees the abatement category should disappear for the opposite reason.

They want carbon capture and other emissions-cutting projects in the oil sands folded into the same “transition” category as steel and cement, judged on the same test as everyone else.

So the sector the category was built for doesn’t want the category. 

Why? It wants full membership in the room next door, because that’s where the capital is.

Aequo isn’t ready to hand out that membership, and its objection comes from the money-eye view. It’s a worry: an oil and gas company that issues an “abatement-aligned” bond can attract climate-conscious investors who’d otherwise skip the sector entirely, freeing up its own cash. 

Without a credible plan to wind down the business, that freed-up cash likely flows right back into production.

So how do the taxonomy’s authors solve this unusual problem: a category that manages to unite its intended beneficiaries, its fiercest critics, and the investors meant to fund it, who all want to scrap it for different reasons?

Indigenous rights: consultation, or the final word?

Indigenous rights surface in nearly every submission that touches the taxonomy’s “do no significant harm” requirements.

It isn’t about whether those rights matter; it’s about how much power they carry, and by extension, whether a project can be financed at all without a First Nation’s sign-off.

Several organizations, in their submissions, want free, prior, and informed consent (FPIC) written as a precondition for eligibility, not as a single disclosure item among many.

Vancity pushes that further on the procedural front: it argues FPIC shouldn’t be a one-off checkpoint before a project breaks ground, but an ongoing obligation throughout the life of a project.

The submission also pushes back on treating all Indigenous entities as interchangeable, noting that a corporation, a business, and a rightsholder don’t carry the same weight when a project is being approved.

The First Nations Financial Management Board raises a related but more technical concern: the draft methodology currently bundles Indigenous rights in with the other four minimum social safeguards (human rights, labour standards, anti-corruption, tax integrity) under a single due diligence approach.

FMB wants Indigenous rights carved out as their own legal category in the drafting itself, warning that without that explicit split, the assessment of Indigenous rights risks being written using boilerplate built for the other four domains.

Raven Indigenous Outcomes Funds go furthest, drawing a sharp line between businesses that happen to be Indigenous-owned, which it says warrant no special status beyond normal corporate rules, and Indigenous Nations themselves, which it holds should be recognized as independent, self-determining bodies with final say over what happens on their own territory.

For a lender or investor, that’s not a philosophical distinction; it determines whether a signed consultation record is enough to finance a project, or whether the Nation itself holds a veto that no amount of process can substitute for.

Does the taxonomy’s language describe what actually happened on the ground, or does it let a project claim more than it’s earned?

Who decides, and does it actually matter?

The Council has the final say over what the taxonomy actually says. There’s no further step where the document goes to Ottawa or Parliament for sign-off. The federal government mandated the process and helped fund it, then deliberately stepped back.

Canada’s taxonomy, like most in the world outside the European Union, will be voluntary, not law.

However, voluntary doesn’t mean toothless. Ottawa doesn’t need to legislate the taxonomy for it to be consequential; it only needs to use it as the eligibility bar for its own borrowing.

Ottawa has issued green bonds since 2022, and in its Spring 2026 economic update, the government said it’s exploring a new sustainable bond framework built around the taxonomy once it’s finalized, which would open the door to transition bonds alongside green ones.

Once federal borrowing starts requiring taxonomy-aligned criteria, provinces, Crown corporations, and private issuers seeking the same investor confidence will have a strong market incentive to follow suit.

Rose des vents made a version of this same argument to the Council: the state’s own use of the taxonomy, in public investment decisions, infrastructure spending, and how Crown corporations finance their operations, would do more than anything else to build the critical mass of users a voluntary framework needs to actually work.

Interview: “Including a sector means giving it a gold star”

Future of Good spoke with Julie Segal, Senior Manager, Climate Finance at Environmental Defence Canada, one of the organizations that filed a submission on the draft taxonomy.

Q: What is the most critical criterion for a sustainable finance taxonomy?

A: That it is scientifically accurate. Including activities that are not aligned with net-zero goals is more harmful than not having a taxonomy at all.

Q: One of the Council’s own consultation questions asks whether the taxonomy should be “regionally specific.” How should people interpret that?

A: My understanding is that it’s about making sure capital flows to every part of the country, not just where it’s cheapest or easiest to invest — North and South, not just East and West. I hope the concept of regional disparity isn’t stretched to include oil and gas in ways that aren’t aligned with climate science.

Q: Canada is an oil and gas producer. It creates jobs and wealth in many communities, and the world still needs it until the transition to clean energy is complete. Should it be considered a transition activity?

A: Including a sector in the taxonomy means giving it a gold star as contributing to getting Canada to net-zero emissions. Not including it doesn’t mean it won’t get financed. 

Oil and gas producers can still access capital without the gold-star label because investors believe they will generate good returns.

Q: Australia’s taxonomy excluded the oil and gas sector; what about Europe?

A: Europe, which has one of the foundational, world-leading taxonomies, made a political compromise to include gas at the eleventh hour. They allowed very limited use of gas for electricity and utilities, but set an emissions threshold so restrictive that, to my knowledge, no project has yet met it. The EU was actually sued by countries and environmental experts over that inclusion, because it was clearly a political call, not a technical one.

Q: At this point, what can we expect from Canada’s Council on oil and gas?

A: I’ve seen a number of submissions recommending that oil and gas be included. The mandate of this taxonomy is to identify what gets Canada to its net-zero commitments. To be scientifically accurate and avoid misuse of the label, it would be very important that oil and gas not be included.

Q: That would put the taxonomy at odds with the federal government’s own recent posture on oil and gas.

A: The taxonomy isn’t supposed to be a political document; it’s a technical one. If it’s not technically accurate that oil and gas get us to net zero, it wouldn’t make sense to give it the gold star. This is an independent body, and that’s what its conclusions should reflect.