A changing climate requires climate solutions; thus, the term “Climate Solutions” is an appealing name for financial products that support these solutions. Globally, the Net Zero Investment Framework (NZIF) defines a climate solution as an activity, good, or service that demonstrably contributes to reducing emissions and achieving net-zero targets.i
However, in Canada’s asset management industry, climate solution lacks a regulatory definition, creating challenges for investors and asset managers in identifying and labeling climate-focused investment products. This gap underscores the need for a standardized definition that aligns with Canada’s investment landscape and adheres to anti-greenwashing regulations.
Climate solutions can be supported through both bank financing and asset management. Financing typically involves instruments like green bonds, which follow standards such as those from the International Capital Market Association (ICMA), ensuring funds are directed toward climate-positive initiatives. However, while these instruments guide activity-level investments, there is no framework to identify whether a company or investment fund qualifies as a climate solution based on its activities.
BMO Financial Group (BMO FG) addresses the financing partly through its Sustainable & Climate Finance Framework, which provides guidance for business activities eligible for sustainable financing.ii Notable achievements in 2024 include advising Canada Growth Fund on its investment in carbon capture and sequestration and acting as a co-sustainability structuring agent and joint bookrunner on Ontario Power Generation’s (OPG) $1 billion green bond issuance. iii
In the asset management space, BMO Asset Management Inc. (BMO GAM), acting in its capacity as portfolio manager of certain funds, works with its Responsible Investing team to conduct research and analysis, and to support the development of BMO GAM’s publicly available Corporate Governance Guidelines (CGG) and Expectations on Environmental, Social and Governance Practices.iv
These policies rely on a company's public disclosures, internal subject-matter expertise, industry-specific guidance, and international frameworks such as the UN Global Compact and International Financial Reporting Standards Foundation Sustainability Disclosure Standards.v
The use of these resources guides BMO GAM’s integration of ESG considerations alongside other financial factors for relevant mandates. Specifically, these resources help determine investment eligibility for funds, such as the BMO Global Climate Transition Fund, that explicitly states in its investment objectives that it invests primarily in companies that may focus on the global transition to a low-carbon economy. A definition of climate solution would assist in eligibility criteria, research and analysis regarding environmental considerations to further support such funds.
Definitions of climate solutions vary across global frameworks, creating challenges for Canadian investors. The Institutional Investors Group on Climate Change (IIGCC) defines climate solutions as activities, goods or services that contribute substantially to, and/or enable, emissions reductions to support decarbonisation in line with credible 1.5°C pathways towards net zero.vi Their guidance complements the Net Zero Investment Framework (NZIF). The Glasgow Financial Alliance for Net Zero (GFANZ) expands the definition to include technologies, services, and behavioral changes that reduce or eliminate greenhouse gas emissions, including nature-based solutions and carbon removal technologies. GFANZ acknowledges that a broader use of the term may include solutions that are aimed at developing adaptation. vii
The Sustainable Finance Action Council (SFAC) has also proposed a taxonomy to differentiate green and transition finance which is important in Canada given its large oil and gas sector with investments in transition activities. The Canadian Sustainability Standards Board (CSSB) has introduced climate disclosure standards which require companies to disclose their climate scenario analysis, such disclosures help investors and asset managers assess company activities and how well they contribute to providing climate solutions. However, only 15% of S&P/TSX Composite Index companies meet these standards according to a BMO GAM study. viii
In the absence of these climate-scenario disclosures, a definition for what constitutes a climate solution can help investors and asset managers determine what public company actions are to be considered to qualify as a climate solution. We propose the following definition:
‘Climate Solution’ is a term that an organization uses to describe its eligible transitional or green activities, goods and/or services, or alternatively, its activities, goods and/or services that substantially support low-carbon, transitional, green or environmental initiatives, or a combination of these.
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References:
i https://www.iigcc.org/our-work/framework-tools/net-zero-investment-framework/implementation-guidance-for-objectives-and-targets/allocation-to-climate-solutions-objective#:~:text=Objective%20setting%20can%20support%20investors,related%20links%20for%20all%20sections
ii https://our-impact.bmo.com/wp-content/uploads/2024/11/24-2272-Sustainable-Finance-Methodology-Framework_E_FNL_ACC.pdf
iii https://www.bmo.com/ir/archive/en/bmo_ar2024.pdf?msockid=1d0daa3b78ee66dc2e4fbfc8792f672b
iv https://bmo.bynder.com/m/474bb53488c94f72/original/bmo-mf-prospectus-2025-en.pdf
v https://bmogam.com/ca-en/about/responsible-investment/#resources
vi https://139838633.fs1.hubspotusercontent-eu1.net/hubfs/139838633/2023%20resource%20uploads/IIGCC_Investing%20in%20Climate%20Solutions_Listed%20Equity%20Fixed%20Income_Nov2023.pdf
vii https://www.gfanzero.com/
viii https://bmo.bynder.com/m/4f996bb2318d3eca/original/Canadian-Sustainability-Disclosure-Standards-CSDS-2.pdf