The Canadian Taxonomy and Transition Planning Council announced the release of final Methodology Report for Canada’s sustainable finance taxonomy, its upcoming categorization system aimed at helping investors to identify sustainable investments, and to drive capital into business and projects that reduce emissions in line with Canada’s net zero goals.

Among the key decisions announced with the release of the methodology report was a determination to include “green” and “transition” categories in the new taxonomy, while a controversial oil and gas sector-focused “abatement” category will require more research to determine if and how it will be added, following strong opposition from stakeholders.

Canada announced plans late last year to launch a new sustainable investment taxonomy by the end of 2026. At the time, the government indicated that the new taxonomy will provide a set of criteria for the identification of investments that are eligible for a “green” or “transition” investment label, enabling companies to issue green or transition bonds, and investors to evaluate the credibility of sustainable investment products.

The draft methodology, presented in July 2026, however, proposed three categories, including “Green,” which would apply to zero to near-zero emission climate solutions, “Transition,” for emissions-intensive activities that can achieve deep emissions reductions and have the potential to achieve the scale of decarbonization necessary to align with the green definition by mid-century, and “Abatement,” for activities that would drive significant, immediate-term emissions reductions in high-emitting sectors that are likely to experience a decline in demand on the path to net zero, such as upstream oil and gas production.

Feedback on the draft indicated, however, that a majority of stakeholders strongly opposed the proposed abatement measures category. Opposition to the category was driven by concerns that the category could support the extension of the life of fossil fuel assets, result in carbon lock-in or stranded-asset risk, and create interoperability challenges with other taxonomies.

Following the negative feedback, the new report said that the Council has determined that there was not yet sufficient information to either include or exclude the abatement category and has directed further research to understand whether or not it could support and align with the taxonomy’s mission, ambition, and principles. The new research, set to begin in 2027, will focus on the scope of activities that could potentially be included in an abatement category, and whether technical screening criteria and guardrails could be developed to reduce the risk of carbon lock-in, greenwashing, and stranded assets.

Additional changes in the final report included a more specific definition for the green category’s “green enabling” activities, which must either be zero to near-zero emissions or have a clear, demonstrable, and directly attributable link to an eligible green activity, and a clarification that the transition category will have key guardrails that will be explicitly defined in sectoral guidelines.

The report also indicated that the taxonomy will take a “disclose or explain” approach to the “Do No Significant Harm” and “Minimum Social Safeguard” social and environmental safeguards, meaning that to be taxonomy-aligned, users will be required to disclose whether their activities or projects meet the taxonomy’s set of safeguard criteria, and If users cannot disclose alignment, they must explain why. The Council said that the “disclose or explain” approach was aligned with most global taxonomies.

Additionally, the report clarifies that there will not be a “partial alignment” category in the taxonomy, with activities and projects instead considered either “taxonomy-aligned” or “not taxonomy-aligned.”

Going forward, the Council said that work is now underway on technical screening criteria and guardrails for major sectors, starting with electricity, buildings, and transportation, to be followed by the mining, manufacturing, and forestry/agriculture  sectors by the end of 2027.

Marlene Puffer, Chair of the Canadian Taxonomy and Transition Planning Council, said:

“While we still have a lot of work ahead of us, the Methodology Report marks a significant milestone for sustainable finance in Canada. This strong foundation sets us on course to deliver the credible, usable, interoperable taxonomy that investors need to confidently invest in Canada’s needs and opportunities, aligned with the path to net zero by mid-century.”

Click here to access the final Methodology Report.