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Canada needs to raise $115 billion by 2050 to meet its net-zero targets. Where will that money come from? Increasingly, the answer is private capital 鈥� pension funds, banks, and investors deciding where to put their money. But there's a problem: Right now, nothing stops a company from calling any investment "green" if it feels like it. As reports, that's what a sustainable finance taxonomy is meant to fix.

In August, the on Canada鈥檚 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 and , working with the newly formed .

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鈥檛 go to another.

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

Here鈥檚 the part that surprises most people: A taxonomy doesn鈥檛 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 , and for electricity, it didn鈥檛 just say 鈥渞enewables good, fossil fuels bad.鈥� It set an actual number: To count as green, a power plant must emit less than 100 grams of carbon dioxide per kilowatt-hour of electricity it produces.

Solar and wind pass easily; they emit close to zero. A coal plant fails badly, as it鈥檚 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鈥檚 process: Gas didn鈥檛 just miss the 鈥済reen鈥� label, it was left out of the 鈥渢ransition鈥� category as well, despite grid operators saying gas will likely still be needed to back up renewables for the foreseeable future.

It鈥檚 a preview of the kind of hard call Canada鈥檚 Council is now facing with oil and gas.

Australia鈥檚 limit isn鈥檛 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鈥檚 specific and measurable; while Canada will not copy this exact number, it is a reference point for the kind of precision some countries have chosen.

Every eligible project must also demonstrate that it won鈥檛 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 鈥淒o No Significant Harm鈥� and 鈥淢inimum Social Safeguards.鈥�

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鈥檚 a snag: The taxonomy rates individual activities, and investors don鈥檛 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 flagged this issue in its submission: Knowing that one project measures up doesn鈥檛 yet tell an investor how to add it up across a real portfolio, or a real company鈥檚 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鈥檛 count.

The abatement divide: who gets called 鈥渄eclining鈥�?

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 鈥渢ransition,鈥� a category built for industries expected to stick around.

The oil sands project gets shunted into a proposed third category, 鈥渁batement,鈥� reserved for sectors the taxonomy鈥檚 own scenarios expect to shrink.

The abatement category is the least developed of the three: Guidance for it isn鈥檛 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 Indigenous Outcomes, and the financial institution Desjardins , saying Canada should not dignify oil and gas with a taxonomy category.

Meanwhile, the , representing Canada鈥檚 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 the same 鈥渢ransition鈥� category as steel and cement, judged on the same test as everyone else.

So the sector the category was built for doesn鈥檛 want the category.

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

Aequo isn鈥檛 ready to hand out that membership, and its objection comes from the money-eye view. It鈥檚 a worry: An oil and gas company that issues an 鈥渁batement-aligned鈥� bond can attract climate-conscious investors who鈥檇 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鈥檚 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鈥檚 鈥渄o no significant harm鈥� requirements.

It isn鈥檛 about whether those rights matter; it鈥檚 about how much power they carry, and by extension, whether a project can be financed at all without a First Nation鈥檚 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.

pushes that further on the procedural front: It argues FPIC shouldn鈥檛 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鈥檛 carry the same weight when a project is being approved.

raises a related but more technical concern: The draft methodology currently bundles Indigenous rights in with the other four minimum social safeguards (human rights, labor 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 , 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鈥檚 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.

Who decides, and does it actually matter?

The Council has the final say over what the taxonomy actually says. There鈥檚 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鈥檚 taxonomy, like most in the world outside the European Union, will be voluntary, not law.

However, voluntary doesn鈥檛 mean toothless. Ottawa doesn鈥檛 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 , the government said it鈥檚 exploring a new sustainable bond framework built around the taxonomy once it鈥檚 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鈥檚 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: 鈥淚ncluding a sector means giving it a gold star鈥�

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鈥檚 own consultation questions asks whether the taxonomy should be 鈥渞egionally specific.鈥� How should people interpret that?

A: My understanding is that it鈥檚 about making sure capital flows to every part of the country, not just where it鈥檚 cheapest or easiest to invest 鈥� North and South, not just East and West. I hope the concept of regional disparity isn鈥檛 stretched to include oil and gas in ways that aren鈥檛 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鈥檛 mean it won鈥檛 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鈥檚 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 people expect from Canada鈥檚 Council on oil and gas?

A: I鈥檝e 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鈥檚 own recent posture on oil and gas.

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

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