Toronto | Traditional territories of the Mississaugas of the Credit, the Anishinaabeg, the Haudenosaunee, and the Wendat – Climate experts published a new report today outlining why including oil or gas in the federal government’s sustainable investment guidelines, known as a taxonomy, would be problematic. In the report, The Taxonomy Fossil Fuel Conflict: Why Oil and Gas Inclusion Would be Counterproductive, experts outline why including oil and gas in the taxonomy would be unworkable, misguided, and would risk creating ‘gameable’ loopholes. The report is published on credibletaxonomy.ca

This complements Environmental Defence’s past work explaining why fossil fuels should not be included under a sustainable finance label. The sustainable finance taxonomy will be a voluntary tool which can be used by private investors and governments to identify whether their investments align with climate action.

The new report outlines why the taxonomy is not the appropriate tool to confront oil and gas sector emissions. To have any credibility, the Canadian taxonomy must distinguish the projects that are truly aligned with limiting warming to below 1.5-degrees, and therefore must be fossil fuel free.

Moreover, global jurisdictions are moving away from fossil fuels. Countries including France and Brazil are transitioning their economies away from fossil fuels – not just mitigating emissions from their use, but rather moving towards an economy without fossil fuels.

The report argues that including fossil fuels in the taxonomy would be ‘gameable’, unworkable, and misguided. The downstream emissions from combusting oil and gas are the larger share of the sector’s emissions, and are the single largest cause of climate change. The production and combustion of fossil fuels must be reduced for a safer climate and more stable economy.

“Offering a gold star to an oil or gas-related investment would muddy the water rather than clarify it. A taxonomy’s purpose is for science to guide finance – not for today’s economy to constrain tomorrow’s”, says Julie Segal, Senior Manager of Climate Finance at Environmental Defence Canada.

Segal says, “after multiple iterations of a sustainable finance guideline for Canada, let’s get it right this time. The taxonomy is only useful if it is scientifically accurate. It should be clear and unbiased. Particularly given the federal government’s intention to use this taxonomy as a foundation for future government bond issuances, it is very important to ensure these categories point Canada in the right direction for a fast and stable energy transition.”

“A taxonomy that allows fossil fuels would be a taxonomy that investors cannot trust or rely on. Canadian investors are already very sensitive to greenwashing risks and are hoping for a gold-standard taxonomy that brings global credibility, like in Australia. As a voluntary tool, the taxonomy’s greatest value lies in its accuracy regarding net-zero pathways,” said Jessica Carradine, author of the report.

Background:

• Many countries have sustainable finance taxonomies to clarify which economic activities align with global climate commitments. The Canadian government launched the process for its own sustainable and transition taxonomy in  2025. Previous efforts to advance the taxonomy were impeded by concerns about greenwashing and fossil fuel inclusion.
• Public consultation on the taxonomy is scheduled beginning July 9, 2026. Today’s report, The Taxonomy Fossil Fuel Conflict: Why Oil and Gas Inclusion Would be Counterproductive, provides useful analysis for why oil and gas activities do not belong in the taxonomy.
• The federal government has indicated an intention to issue sovereign green and transition bonds based on the sustainable finance taxonomy.
• Other pieces of climate-related financial policy are essential to align Canada’s economy with our climate commitments and to protect the economy from climate damages. As recommended by the House of Common’s Environment Committee, these policies include mandatory climate transition plans from large private enterprises, and implementing the Climate-Aligned Finance Act which was introduced by Senator Rosa Galvez.

ABOUT ENVIRONMENTAL DEFENCE (environmentaldefence.ca): Environmental Defence is a leading Canadian environmental advocacy organization that works with government, industry and individuals to defend clean water, a safe climate and healthy communities.

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For more information or to request an interview, please contact:

Alex Ross, Environmental Defence, media@environmentaldefence.ca