Canada is preparing to launch a sustainable investment taxonomy in 2026. The federal government announced it will develop a national system to classify economic activities that are environmentally and climate-aligned. This system will serve as a guide for investors, lenders, and companies to identify what counts as “green” and “transition” activity.
The taxonomy is part of Ottawa’s strategy to support private investment in climate action and speed up the shift to a net-zero economy. The government selected the Canadian Climate Institute to take charge of building the framework.
The initiative follows earlier promises in Canada’s 2023 Fall Economic Statement and Budget 2024. It aims to create sustainable finance guidelines. It also seeks to boost climate investment, attract funds for clean tech, and enhance financial disclosure rules for large companies.
Jonathan Arnold, Director of Sustainable Finance, Canadian Climate Institute, remarked:
“The new sustainable investment guidelines will give Canada what investors have been asking for: a clear, credible, science-based system for identifying which activities in the economy are aligned with the country’s climate and competitiveness goals. Crucially, Canada’s guidelines will not just focus on defining clean technologies and investments—they will be designed to help transform emissions-intensive sectors that are central to the national economy, and guide credible pathways for them to compete in a low-carbon world.”
Defining Green and Transition Finance: How Taxonomies Work
A sustainable investment taxonomy is a system that classifies economic activities. It shows which activities are considered environmentally meaningful. It also provides clear, science-based criteria. This helps investors tell the difference between climate-aligned activities and less sustainable ones.
The system lowers uncertainty in financial markets. It also boosts private investment in activities that help meet climate goals.
Taxonomies typically cover two broad categories:
- Green activities: Clear environmental benefits, such as renewable energy and energy efficiency.
- Transition activities: High-emission sectors that are shifting toward lower emissions, like cleaner industrial processes.
The Canadian taxonomy will start as voluntary. Its goal is to build transparency and trust for investors in climate-aligned projects. It will standardize how investments are labeled.
Similar frameworks already exist in other jurisdictions. The European Union’s taxonomy serves as a model for many countries. It helps investors compare opportunities consistently.
Over 40 places around the world are creating or using sustainable finance taxonomies. They help guide investment choices.
Why Canada Is Developing Its Own System
Canada’s government says the taxonomy will help channel private funds into activities that support the country’s climate goals. Ottawa has committed to reaching net-zero greenhouse gas emissions by 2050, with a 2030 target of 45-50% lower than 2005 levels.
- To achieve that, experts estimate Canada needs between CAD 125 billion and CAD 140 billion in investment every year. A strong taxonomy helps boost investment by showing what qualifies as climate-aligned.
Without clear definitions, investors may face uncertainty. For example, without a taxonomy, some activities marketed as “green” may not actually reduce emissions. This can cause greenwashing. That’s when investments are marked as eco-friendly, but they aren’t. A taxonomy helps make investment claims more credible.
Canada’s taxonomy is being designed to reflect both national priorities and global best practices. The government appointed the Canadian Climate Institute. This independent research body will lead the development.
The Institute will work with financial institutions, technical experts, civil society groups, and Indigenous representatives. Together, they will shape the criteria and governance of the taxonomy.
How the Taxonomy Will Be Developed
The taxonomy project has entered an operational phase, with the Climate Institute selected to guide its design. This step moves Canada from planning to execution. The system will follow these broad steps:
- Governance setup: Establish independent oversight to ensure transparency and scientific rigor.
- Sector prioritization: Identify key economic sectors where taxonomy guidance is most needed.
- Criteria development: Define what qualifies as green and transition activities.
- Public consultation: Seek input from investors, companies, experts, and the public.
- Finalization: Release the first set of taxonomy guidelines by the end of 2026.
The government expects to finalize taxonomy guidance for three priority sectors by late 2026. Additional sectors will be addressed by fall 2027. Priority sectors will focus on areas vital for cutting emissions and transforming the economy. These include clean energy, transportation, and heavy industry.
This phased approach allows Canada to focus first on areas where taxonomy guidance can have the greatest impact. It also gives market participants time to adjust and provide feedback.
What the New Framework Means for Investors and Markets
A sustainable investment taxonomy can influence markets in several ways, including:
- Standardization: It helps investors evaluate climate-aligned opportunities.
- Transparency: Clear definitions reduce ambiguity and greenwashing risks.
- Capital flows: Reliable criteria can shift capital toward sustainable and transitional investments.
- Risk management: Investors can better assess climate risks in their portfolios.
Financial institutions, pension funds, asset managers, and insurance companies often use taxonomies to screen investments. They may also use them to structure green bonds or sustainability-linked debt instruments. A Canadian taxonomy could make these tools more credible and attractive domestically.
Connecting Investment Labels With Climate Disclosure
Canada’s sustainable investment taxonomy links closely to a key policy: climate-related financial disclosure. Ottawa plans mandatory climate disclosure rules for large private corporations. These rules help companies show how climate risks impact their business. They also detail how companies plan to tackle those risks.
Mandatory disclosures help investors see how companies are getting ready for a low-carbon economy. Clear sustainability data allows investors to compare companies and investment opportunities with more confidence. When combined with a taxonomy, these disclosures can create a clearer picture of sustainability performance across the economy.
In December 2025, new plans require large private companies to disclose climate information under the Canada Business Corporations Act. The government may encourage smaller firms to make voluntary disclosures, but it will not require them to report.
Aligning Capital Markets With Canada’s Net-Zero Path
Canada intends its sustainable investment taxonomy to support the country’s broader climate strategy and reach net-zero emissions by 2050. The country aims to bring in significant private investment. This funding will support clean energy, clean technology, energy efficiency, and decarbonization efforts across various sectors.
Taxonomy guidance can help investors focus on economic activities that contribute to those goals. Setting science-based standards reduces uncertainty and risk for private capital providers. This, in turn, encourages more investment in low-carbon sectors. This could boost Canada’s clean economy and create jobs. Emerging industries like renewable energy, electric vehicle supply chains, and low-emission technologies will benefit.
In the global context, taxonomies are becoming common policy tools to manage the transition to a sustainable economy. Canada’s taxonomy will move the country closer to global best practices. It helps Canadian companies and investors stay competitive in global markets. These markets now want more environmental transparency and accountability.
Canada’s plan to introduce a sustainable investment taxonomy in 2026 represents a major step in aligning financial markets with climate goals. The taxonomy, developed with independent oversight and input from many stakeholders, seeks to boost investor confidence. It also aims to speed up capital flow into sustainable and transitional economic activities.