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By Anik Islam, Dr. Colleen (Ollie) Kaiser and Caelan Welch

October 9, 2025

In recent weeks, Prime Minister Mark Carney, who previously served as UN Special Envoy on Climate Action and Finance, has hinted at a new strategy to link economic competitiveness with advancing climate mitigation and sustainability. The 2025 federal budget will be an important test of this vision as Canada looks to unlock more private investment by building on its climate policy foundation.

Laying the foundation for a competitive economy that supports well-paying jobs and is resilient to climate change will spur cleantech innovation, add value to our natural resources and diversify our exports.

Achieving this will require massive new investments, and Canada is lagging. Estimates suggest the country faces an annual financing gap of more than $115 billion. Since 2016, the public sector has provided around 80% of the funding for climate-related investments. These levels are not sustainable; we must mobilize private capital to fill this gap.

The Smart Prosperity Institute’s research suggests that Canada can catalyze private investment by focusing on three building blocks: 1) a policy and regulatory environment that guides the transition to cleaner, climate-resilient energy systems; 2) better climate information and data to inform decision-making, and 3) new financing approaches that stack different sources of capital to tackle financing challenges and leverage private investments.

The first block, a credible policy and regulatory environment, prepares the groundwork for unlocking private investment. The more credible and predictable government climate policies are, the more investors will finance climate-aligned projects and businesses, creating a “virtuous circle” of large-scale investments.

For example, the federal government could introduce robust and transparent criteria for determining which new clean technologies and investments qualify for existing investment tax credits. Currently, the process of including eligible investments remains ad hoc. Introducing a framework to determine eligibility would give businesses and investors the certainty to move forward with projects that strengthen Canada’s competitiveness in climate-resilient sectors. Conversely, when the future of a climate policy is uncertain, capital is delayed or directed elsewhere.

Policies and regulations must be paired with consumer incentives for adopting cleantech, which strengthens the business case for broader private investments. For example, consumer subsidies for heat pumps and EVs can spur larger investments in deep-energy building-retrofitting and zero-emission vehicle charging infrastructure.

The second building block, a national climate information architecture, would help organizations collect, manage, analyze and share climate-related financial information to make investment decisions. There are five tools in the architecture that help organizations and investors make better decisions: transition plans, scenario analysis, taxonomies, disclosures, and data and analytics.

Here is an illustration of one way in which the five tools work together: to protect their profitability, companies undertake scenario analysis to understand possible futures and create transition plans to guide their business strategy in the face of climate change. When this information is publicly disclosed, financial institutions like banks, insurance companies and pension funds can use it to compare emissions profiles, future expansion plans, etc., to direct capital to the companies best positioned to compete and win.

The climate transition is not just a cost to be managed. While its challenges are complex, it also presents the economic opportunity of our time.

Canada’s climate information landscape is fragmented, with uneven disclosure practices, data-related challenges and delays in implementation. However, there has been some progress. Last October, former Finance Minister Chrystia Freeland announced support for the development of a sustainable investment taxonomy and mandatory climate-related financial disclosures for large, federally regulated private companies. Coming a year later, the federal budget should follow through on these existing commitments.

To realize the full potential of these tools, sustainability standard-setters, securities and financial regulators, supervisory authorities and other related stakeholders need to coordinate on implementation. As the word ‘architecture’ implies, these tools depend on and reinforce one another. For example, without high-quality data, inaccurate assessments of climate-related financial risks will increase the cost of capital. Canada’s interjurisdictional makeup means that responsibilities and authorities are divided across multiple organizations, and the federal government has a role in incentivizing and leading on aligning the climate information architecture.

The third building block is an approach, known as blended finance, that uses public and philanthropic dollars to attract private investors to projects and companies that might not otherwise receive private financing. Applying blended finance can help cleantech companies and energy-infrastructure projects address barriers, such as technological risks and long project payback times, which deter private financiers from investing in otherwise viable projects. In turn, by financing projects with positive environmental and socio-economic outcomes, public and philanthropic organizations achieve their objectives while maximizing the impact of taxpayer and donor funds.

In Canada, the Canada Infrastructure Bank (CIB) and the Canada Growth Fund (CGF) use instruments such as grants, performance-based loans and carbon contracts for difference (CCFDs) to balance risks and returns, bridge market gaps and build stakeholders’ technical capacity to advance projects or companies. While both use blended finance, they do so to address different, but complementary, aspects of the climate-aligned investment gap. The CIB focuses on revenue-generating infrastructure projects, while the CGF supports emerging and new cleantech firms and projects that face high project risks and uncertain returns.

Differentiation amongst organizations is partially a product of the high level of expertise required to structure bespoke financing solutions for each project and company. A complex process, blended finance often requires significant time commitment from companies and investors. The expected development of scalable blended-finance approaches will help simplify the process and enhance participation by private investors.

Blended finance has a successful track record internationally. Canada could emulate the U.K. and other countries by coordinating the mandates and objectives of different public institutions, such as the CIB and CGF. The federal budget could clarify how existing government grants and other financing or policy instruments, such as low-cost loans and carbon contracts for difference could be strategically stacked together to meet Canada’s economic objectives. Doing so would clarify how the government plans to attract private investment for projects of national interest, such as clean energy generation, energy-efficient housing development, and green shipping corridors and ports.

The climate transition is not just a cost to be managed. While its challenges are complex, it also presents the economic opportunity of our time. Countries that align policy certainty, data and innovative financing are poised to attract greater investment, create high-quality jobs and secure global market share in the climate-resilient industries of the future. By strengthening these three building blocks, Canada can lower transition costs, mobilize capital at scale and build a competitive, climate-resilient economy.

Anik Islam is a Senior Research Associate, Sustainable Finance at the Smart Prosperity Institute, University of Ottawa. He holds a MSc in Finance from Queen Mary University of London and a MA in Economics from the University of Ottawa.

Dr. Colleen (Ollie) Kaiser is Director, Policy and Research and Sustainable Finance Lead at the Smart Prosperity Institute, University of Ottawa. They hold a PhD in Environmental Studies from York University. 

Caelan Welch is a Research Associate, Sustainable Finance at the Smart Prosperity Institute, University of Ottawa. He holds an MA in International Development and Globalization from the University of Ottawa.