Sustainability labels could solve Bay Street's greenwashing problem, but some disagree
Faced with accusations of greenwashing, a group comprising Canada's big banks and financial institutions is working on a new set of labels to clearly identify "green" financial products for investors.
The federal government, technical experts and 25 banks, insurance companies and pension funds holding $10 trillion in assets are at work on what they call science-based "sustainability labels" that could help investors navigate market claims about so-called "green" investments.
The label would act as a kind of investment version of the energy efficiency stickers on appliances.
Investors need to know whether their money is fighting climate change or making it worse, said a spokesperson for a climate activist group.
"It's frustrating because you have to really dig (to find sustainable investments)," said Kathleen Moleski, a former TD Bank employee who is part of the group Grandmothers Act to Save the Planet.
"If you are looking at investing in the stocks of a company, you've got to look at what that company does. A lot of times, when you look at their website, it's a lot of greenwashing."
"Greenwashing" refers to efforts by companies or governments to make businesses or commercial activities look less damaging to the planet than they really are. Moleski said she was considering investing in a company that claimed to be sustainable — even though it held interests in fossil fuel pipelines.
Acknowledging greenwashing is a "real problem," the chair of a national technical group leading the development of a new sustainable finance rule book said she hopes their work brings clarity to investors, big and small.
"Everybody wants to make sure that where their money goes is really to solutions that we need (to reduce emissions)," said Barbara Zvan, CEO of the University Pension Plan Ontario. She leads a working group within the Sustainable Finance Action Council.
'Green' and 'transition' labels
The federal government established the council in 2021 to ensure the financial sector does its part to help Canada achieve its climate goals.
Finance Canada and Environment and Climate Change Canada are expected to release the results of the council's work to date on Thursday. CBC obtained a copy of the council's "Taxonomy Roadmap Report" before its official release.
It recommends labelling investments as "green" if they are aligned with achieving low or net-zero emissions by 2050. Examples include solar and wind projects, heat pumps, electric vehicles and their charging infrastructure, and green hydrogen.
The council recommends a second label — "transition" — for investments in high-emitting sectors like steel manufacturing, cement production and oil and gas that have contributed to the climate crisis but likely will be part of the economy for decades to come.
The council recommends that investments in these sectors receive the "transition" label if they can demonstrate that they're using technology like carbon capture or methane leak detection to cut emissions, and if they can show that those emissions are trending downward.
The proposed new labels are under attack already from environmental groups.
Environmental Defence's senior manager of climate finance Julie Segal said it makes no sense to describe oil and gas as a sustainable investment at any level.
"There are incentives to reduce the emissions from the oil and gas sector. We do not need to give them that fake sustainable label," said Julie Segal.
Canadian banks routinely rank among the top sources of capital for fossil fuel projects. RBC, Scotiabank and TD have been been singled out for their involvement in the sector by the annual Banking on Climate Chaos report.
The council says its criteria for the investment labels were developed with the help of independent experts who understand climate science. Outside organizations like the Canadian Climate Institute and the Institute for Sustainable Finance also worked on developing the labels.
The Sustainable Finance Action Council said fossil fuel projects or other heavy emitters would only fall under the "transition" label if they can demonstrate significant emissions reductions without the use of carbon offsets.
"We're not going to turn off everything today. We're dependent on oil and gas today," said Kathy Bardswick, chair of the Sustainable Finance Action Council.
"What this transition label is trying to do is say we know there are transition investments required. [But] we can't go from A to B overnight."
Environment Minister Steven Guilbeault said the council's work was informed by the latest climate science.
"This was done by experts throughout the country," he said. "We will be coming up with our response."
Shortly before his interview with CBC, Guilbeault suggested at a net-zero conference that Canadian financial institutions have an obligation and an opportunity to finance what many consider a green industrial boom.
"Climate change means business," Guilbeault told his Bay Street audience Tuesday.
The Canadian Bankers Association declined to comment about the report, and the Canadian Association of Petroleum Producers said it would comment after it's read the report.