Sustainable finance in Canada is entering a new phase that is defined less by voluntary commitments and more by market forces and Canadian competitiveness.

During Toronto Climate Week, the BMO Climate Institute convened government, corporate, and investment leaders to explore how sustainable finance is evolving in practice. We also participated in conversations about how organizations are navigating regulatory expectations, risk and disclosure. What emerged from the discussions is evidence of a shift: we are entering an era of pragmatism, where progress depends on aligning climate ambition with technology, risk mitigation strategies and long-term business performance.

For Canada, this moment carries added significance. As capital is deployed across infrastructure, housing, and energy systems, the choices made today will shape the country’s long-term competitiveness in a lower-carbon economy.

Across the discussion, we heard a consistent message: sustainable finance is maturing.

Our clients are navigating competing pressures such as balancing climate commitments with cost considerations, evolving policy signals, and the need to deliver financial returns. As a result, there is a growing emphasis on solutions that are not only lower carbon, but also cost-effective, scalable, and aligned with business priorities.

To support greater integration of sustainability strategies and business goals, the field of sustainable finance is evolving. For example, we are seeing increasing use of blended finance structures that bring together the best features of both public and private capital; or the growth of clean technology specific financing instruments such as solar tax leases.

The global backdrop for sustainable finance is becoming more complex.

What was once a broadly aligned international approach, today’s sustainable finance market is uneven, shaped by geopolitical tensions, evolving – and in some ways competing – policy priorities, and different regional trajectories. Europe continues to advance regulation, China pushes forward as arguably the world’s leading “electrostate”, while the U.S. presents a more mixed picture.

Within this environment, Canada’s approach has been characterized by pragmatism and from our perspective, sustainable finance remains closely tied to Canada’s broader economic objectives. The ability to deploy capital into future-ready infrastructure, energy systems, and housing will be critical to maintain competitiveness and attract investment over the long term. These broader economic trends also represent a climate investment theme – “hard” technologies such renewables, battery storage and heat pumps, complemented by advanced software and AI – present a once-in-a-generation opportunity for Canada to lower energy costs, advance social equity and green our energy system.

A key theme we heard, which is particularly relevant for our clients, is the importance of market demand.

In several sectors, demand for lower-carbon assets and products remains uneven. In global energy markets, renewables and storage routinely compete with other forms of energy production, and are receiving the bulk of investment. Whereas in real estate, developing assets to a net-zero standard may at times cost more than the alternative. This reinforces a critical point: progress depends on meeting clients where they are.

At the Climate Institute, we see this play out across industries. Organizations are increasingly focused on identifying solutions that address immediate business challenges—such as energy cost volatility or physical risk—while also delivering emissions reductions. In many cases, we see that solutions incorporating renewables or efficiency improvements can deliver both economic and climate benefits, strengthening the business case for action.

Indeed, the latest BMO Climate Institute Business Leaders Survey found rising confidence that actions taken to reduce climate risks are making a difference in business performance. That trend coincided with a view among some companies that taking climate action has a positive commercial impact on their business.

Another clear takeaway is that climate considerations are becoming more deeply embedded in how businesses operate.

Rather than being treated as a separate initiative, climate strategy is increasingly integrated into core business planning, risk management, and capital allocation. This reflects a growing recognition that climate action can support resilience, improve efficiency, and enhance long-term value.

This aligns with what we see more broadly. Business leaders are increasingly viewing climate action not only as a responsibility, but as a driver of competitiveness and performance.

For Canadian businesses and investors, the path forward will be shaped by pragmatic decision-making and a sharper focus on execution. The discussions at Toronto Climate Week reinforced that while challenges remain, there is also significant opportunity to align capital with outcomes that support both economic growth and the transition to a lower-carbon future.