Natural Gas Threatens Canadian Taxonomy

ESG Investor

Despite warnings on its climate impact, demand for Canadian liquefied natural gas continues to grow.

Industry experts have expressed concern on the potential inclusion of natural gas in Canada’s proposed taxonomy and the way it could undermine its domestic and international credibility.

Launched in 2021, the Canadian Sustainable Finance Action Council delivered a roadmap report detailing the taxonomy’s approach and governance structure the following year – setting the path for further progress. The council completed its three-year mandate on 31 March.

But progress on the taxonomy has been slow. Research from Canadian environmental advocacy organisation Environmental Defence pointed to reports suggesting that internal government conflicts around the place of natural gas in the taxonomy had stalled its release.

“There was significant pressure for the taxonomy to specifically allow liquefied natural gas (LNG) exports as a ‘transition’-labelled activity, even though there is scientific consensus that averting the worst impacts of climate change requires the rapid phase-out of fossil gas,” Adam Scott, Executive Director at Shift: Action for Pension Wealth and Planet Health, told ESG Investor.

He added that the inclusion of gas in the Canadian taxonomy was “entirely unworkable” and a “recipe for additional greenwashing”.

“Institutional investors should listen to experts [and] be sceptical of any claims made by the LNG industry about its role in our future energy system,” said Scott.

Crushing credibility

The environmental impacts of natural gas, particularly LNG, are high. Methane, the primary component of LNG, has a global warming potential around 82 times higher than CO2 when burned as a fuel.

“Wrongfully labelling gas as ‘sustainable’ under this taxonomy would entirely squash its international credibility,” warned Julie Segal, Senior Manager for Climate Finance at Environmental Defence, adding that the inclusion of fossil fuels that do not align with climate goals would also defeat its purpose.

“If Canada diverts further from science it will not only be embarrassing, but will invalidate all of the work that has gone into creating a tool that helps clean up and align our financial system with climate action.”

Ahead of the publication of the UK’s own taxonomy, the CEOs of three major sustainable investment organisations echoed similar concerns on the inclusion of natural gas –

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