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Canada is at risk of losing out in the race to attract tens of billions of dollars for retooling its economy to meet climate targets as a new green investing guidebook remains stuck in limbo in Ottawa, the head of the industry group charged with developing it says.

The federal government has said it wants Canada to be a force in global climate finance and two years ago appointed an industry panel to develop a taxonomy spelling out which investments can be certified as green and which ones fit into a transition category. That group, the Sustainable Finance Action Council, completed the first phase of the document last fall, but Ottawa has yet to formalize it, preventing the next stage to start. This has led to frustration within the council and in the country’s finance sector.

Canada had a head start working to develop a taxonomy that reflects the country’s resource-heavy economy, but is now being overtaken by other jurisdictions, some having modelled their work on the council’s, said Kathy Bardswick, chair of SFAC. Ms. Bardswick said the government has given her no indication of a timeline to formalize the taxonomy.

“Other regions are moving now and we’re going to lose that opportunity, and it’s such a shame because we are in such good stead, such a good place, to influence positive outcomes for us, but outcomes globally as well,” Ms. Bardswick said in an interview.

SFAC officials say the taxonomy is important for attracting the capital to make up for a $115-billion annual shortfall in spending needed to help Canada get to net-zero emissions by 2050. Moving forward would also provide credibility for the country to initiate discussions around the world to promote a common definition of “transition.”

The Australian Sustainable Finance Institute has used the first phase of the Canadian taxonomy, called the roadmap, as a guide for a framing document for that country’s taxonomy. In May, Australia’s government announced its support, as well as funding, for its next stage. That work is due to start in July and includes screening criteria for three of the priority industrial sectors.

Ottawa, led by the Finance Department, has said little about the taxonomy or why it has not signalled its intention or a timeline. Finance has said for months only that it is studying the recommendations and reviewing stakeholder feedback, and had no new details to add on Thursday.

Its next steps would be to announce it has accepted the document, set up governance to enforce the rules and to provide funding for the second phase, which includes coming up with technical specifications for green and transition investments in various industries. Ottawa must also set up the legal structure and a date for the taxonomy to come into force.

Ms. Bardswick, whose council comprises 25 members from the banking, pension and insurance industries, said the taxonomy roadmap has broad support across Canadian finance, and the sector is frustrated.

“How can they not be, right? This thing was signed off last fall, didn’t get published until March and we’re now sitting in the last part of June,” she said.

Finance Minister Chrystia Freeland created SFAC to guide the country’s efforts to bolster its sustainable finance market. The taxonomy roadmap recommends two categories to direct sustainable investments: green, for those that are known to have the least environmental impact, and transitional, for those designed to advance the shift to low-carbon energy from fossil fuels.

That structure has been greeted by members of the investment community as the way to make sure their money is directed at effective climate-related technology. But it’s also been criticized by environmental activists, who say the transition category gives cover to the oil and gas industry rather than helping wean the country off fossil fuels.

Two of the council’s members had expressed concern that expansion of natural gas exploration would not be among eligible transition investments, Ms. Bardswick said. Pro-oil-and-gas factions frequently tout the potential for liquefied natural gas exports to displace emissions from coal in other countries, such as China. However, its exclusion from the taxonomy does not preclude investors from funding those activities as they always have, she said.

Investors see the delay as another hurdle in competition for climate-focused capital that was made more difficult by the United States, which has offered US$369-billion in green incentives as part the Inflation Reduction Act, said Patricia Fletcher, chief executive officer of the Responsible Investment Association.

She said the taxonomy is a frequent topic of discussion among the group’s members, which include asset owners, asset managers, pension funds, service providers and others that oversee $42-trillion in assets.

“There’s a general concern of, ‘Why are we not moving?’ We know that this is a fundamental puzzle piece, a piece of architecture, for us to mobilize the capital for our transition. SFAC was struck by this government, and we’d like to see the progress in it,” Ms. Fletcher said.

Despite its focus on climate policy, which includes controversial moves such as a cap on oil and gas emissions and discussion about a just transition, the government could be wagering that there is little political downside to taking its time with the taxonomy, said Ryan Riordan, director of research for the Institute of Sustainable Finance at Queen’s University’s Smith School of Business. The institute supported SFAC’s work on the document.

“There’s no real alternative on the climate file to the Liberals, so they can go as slow and fast as they want, and they’re probably just going through some political calculus,” he said.

Janis Sarra, a University of British Columbia law professor and member of the Canada Climate Law Initiative, said it is critical that the taxonomy proceed as Canada’s makes the shift toward net-zero emissions.

“We need a credible means of assessing whether financing is “green” or “transition” – in order to attract investment and to reduce greenwashing in financial markets,” she said.

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