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Canada needs a climate investment taxonomy to help investors and financial institutions determine the effects of their economic activities and prevent instances of greenwashing, experts said at the Bloomberg Sustainable Finance Forum on Tuesday.

A climate investment taxonomy would provide a standardized approach for evaluating which investments can be certified as “green,” or environmentally friendly, and/or consistent with Canada’s goal of achieving net-zero emissions.

Other jurisdictions such as the European Union, China, Colombia and South Africa have issued their own taxonomies, but Canada’s efforts have lagged.

“We really want to see the taxonomy in Canada being adopted,” said Geneviève Morin, CEO with Quebec-based investment fund Fondaction. “The whole confusion about terms and what people are talking about is a problem.”

Last year, the Sustainable Finance Action Council, a federal government-established council, released its Taxonomy Roadmap Report. The report outlined 10 recommendations for establishing a green and transition taxonomy.

Having the taxonomy led by the federal government and the financial sector, with strong provincial and Indigenous participation, and establishing an independent governance structure to create and maintain the taxonomy were among the recommendations.

However, there is no clear timeline for the implementation of such a taxonomy, which experts say would help attract the capital to make up for an estimated $115-billion annual shortfall in spending required for Canada to get to net zero by 2050.

When asked about the delays surrounding implementing the system, Finance Minister Chrystia Freeland said at a press conference last month that the government is “working hard to complete the process as quickly as possible.”

In the absence of such a taxonomy, the financial sector is vulnerable to greenwashing, said John Cook, senior vice-president and portfolio manager with Mackenzie Investments in Toronto.

For example, investment managers don’t have definitions for which of a company’s activities are considered sustainable, which is especially important for conglomerates with diverse business lines.

“I really think it’s a big problem right now, even if you get to what the company does, what gets included in that bucket,” Cook said.

A climate investment taxonomy is also crucial for assessing climate-related risks, which are constantly evolving, said Javinder Sidhu, director of the advanced climate analytics and disclosures team with the Office of the Superintendent of Financial Institutions.

“Taxonomy is a tool that will help our financial institutions interact with the real economy and ensure that we have a science-based approach to identify some of the risk characteristics of loans and investment vehicles moving forward,” Sidhu said.

Canada also needs to move more swiftly to establish its own sustainability standards for financial reporting, drawing on the standards laid out by the International Sustainability Standards Board, Morin said.

The Canadian Sustainability Standards Board released its draft standards — Canadian Sustainability Disclosure Standards 1 and 2 — earlier this year. The standards are out for comment until June 10.

“Standards are important — not just for us, but for the companies themselves. Otherwise, they get asked a question in five different ways from five different institutions, and they lose a lot of time and money reporting,” Morin said.