ESG 2024 Comparisons

Key ESG Developments in 2024

2024 continued the trends of hard law on ESG coming into force, more legal frameworks being developed and greater scrutiny on previously unregulated ESG-related disclosures.

Two significant ESG-related laws came into force in 2024. First, the passing of Bill C-59 amended the Competition Act, among other objectives, explicitly targeting greenwashing. Second, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Modern Slavery Act”) implemented requirements for certain entities to report on their efforts to prevent and reduce the risk of child or forced labour in the entity’s supply chain. These developments are delved into in the Trends and Developments article.

There continues to be development in voluntary reporting standards. On 13 March 2024, the Canadian Sustainability Standards Board (CSSB) released exposure drafts of its first Canadian Sustainability Disclosure Standards, comprised of the General Requirements for Disclosure of Sustainability-related Disclosure Standard (CSDS 1) and the Climate-related Disclosures (CSDS 2 and, together with CSDS1, the CSDS).

These standards are based on the International Sustainability Standards Board’s (ISSB) International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, released on 26 June 2023, but updated for the Canadian context. This is discussed further in 3.1 Progress in Green Financing.

Voluntary action by companies is also driving ESG developments in Canada. For example, companies are addressing board diversity in response to voting guidelines published by Institutional Shareholder Services (ISS) and Glass Lewis, who publish voting policies for securityholder meetings. For companies listed on the S&P/TSX Composite Index, ISS recommends voting against or withholding support from the chair of the nominating committee or the board of directors if no racially or ethnically diverse members are present and no formal commitment to add such diversity has been publicly disclosed. Glass Lewis generally recommends voting against the chair of the nominating committee if the board of a TSX listed company is not at least 30% gender diverse, or the entire nominating committee if there are no gender diverse directors. Changes adopted according to the ISS and Glass Lewis are done so on a voluntary basis. 

ESG and Indigenous Communities

As part of the Canadian government’s 2024 budget, the government provided details on the federal Indigenous Loan Guarantee Program (the “ILG Program”), which was first announced in the government’s 2023 Fall Economic Statement. The federal government will provide up to CAD5 billion in loan guarantees to Indigenous communities as part of the ILG Program. This means that loans provided to Indigenous communities by financial institutions and other lenders will be guaranteed by the Canadian government, which will allow these communities to benefit from the government’s AAA credit ratings and consequently receive lower interest rates than they may otherwise have received. This is intended to create economic opportunities and to support Indigenous communities in developing their own economic priorities.

Under the ILG Program, applicant eligibility would recognise Indigenous governments and their wholly owned subsidiaries. The ILG Program will also be sector-agnostic for natural resource and energy projects, which means that oil and gas and mining projects are eligible under the Program.

The federal government still must provide further details on the ILG Program. For example, when it will become effective, how long it will run for, its requirements and regulations, its specific rules, the term of the guarantees, and how exactly it will be administered. That said, this year’s update shows a strong commitment by the government to provide increased opportunities for the economic development of Indigenous communities.

It is important to note that the ILG Program comes on the heels of various existing and proposed provincial Indigenous loan guarantee programmes, such as Ontario’s Aboriginal Loan Guarantee Program, the Alberta Indigenous Opportunities Corporation, British Columbia’s First Nations Equity Financing Framework, and the Saskatchewan Indigenous Investment Finance Corporation. Although there are important differences between these provincial programmes and the ILG Program, they show how Canada, both federally and provincially, is using equity loan guarantees as a tool for economic reconciliation with Indigenous communities.

AI Code

In 2023, Canada launched the Code of Conduct on the Responsible Development and Management of Advanced Generative AI Systems (the “AI Code”) to achieve accountability, safety, fairness and equality, transparency, human oversight and monitoring, and validity and robustness in the development of AI. This is intended to help address risks associated with AI such as spreading bias, compromising health and safety, and crafting large-scale fraud. To mitigate these risks, companies (particularly developers and managers of AI systems) that sign the AI Code commit to working towards achieving the goals noted above by following measures to be undertaken pursuant to the AI Code, such as implementing a comprehensive risk management framework proportionate to the nature and risk profile of activities being undertaken, and implementing proportionate measures to mitigate risks of harm, such as by creating safeguards against malicious use. The AI Code is voluntary. As of 27 May 2024, 30 companies, including Lenovo, Mastercard, Blackberry and Telus, have signed the AI Code.

The AI Code is not the only governmental initiative to promote safe use and development of AI. The Artificial Intelligence and Data Act (AIDA) was proposed under Bill C-27 and is currently in consideration in committee in the House of Commons. AIDA has similar goals to those of the AI Code and, if passed, would codify AI regulation in Canada.

There were developments in the E of ESG in a variety of areas, including regulation of plastics, clean electricity and the right to repair.

Plastic and “Forever Chemicals” Regulations

Plastic regulations

On 4 July 2024, the government of Canada launched a consultation process for its Draft Roadmap aimed at addressing plastic waste and pollution in the textile and apparel industry, which is the fifth largest contributor to plastic waste in the country. The Draft Roadmap seeks to develop solutions for managing plastic waste, enhancing recycling efforts, extending product life and reducing microfiber pollution. The consultation process, which concluded on 1 September 2024, aims to gather industry insights to inform government action, with the finalised roadmap expected by the end of the year.

Of note, the federal government already has a Federal Plastics Registry that mandates annual reporting on plastic production, importation, diversion and disposal, which, unlike the Draft Roadmap, applies to all plastic producers and is not limited to the textile sector.

Forever chemicals regulations

On 12 July 2024, the government of Canada announced new measures to address concerns about per- and polyfluoroalkyl substances (PFAS), commonly known as “forever chemicals,” including the publication of the Updated Draft Report on the state of PFAS (the “Updated PFAS Report”) and the Revised Risk Management Scope for PFAS (the “Revised Risk Management Report”). The Updated PFAS Report concluded that PFAS (excluding fluoropolymers) may cause harm to human health and the environment and proposed that all substances in the defined PFAS class (excluding fluoropolymers) meet the “toxic substance” criteria set out in Section 64 of the Canadian Environmental Protection Act (CEPA). Fluoropolymers would be moved to a “Watch List.” A timeline for a final version of the Updated PFAS Report has not yet been set.

The Revised Risk Management Report sets out risk management options to address PFAS. It proposes a phased approach, beginning with restricting PFAS not currently regulated in firefighting foams. Next, the PFAS class would be recommended for addition to the List of Toxic Substances in Schedule 1 of CEPA, which would empower the federal government to create regulations that restrict the use, manufacture, import and release of the listed substances. Together with the Updated PFAS Report this constitutes a class-based approach to the regulation of PFAS that would apply to all substances within that class. This is different from the current federal regulation that regulates specific varieties of PFAS.

The federal government also requested mandatory survey under CEPA that requires certain manufacturers and importers to report their use of PFAS by 29 January 2025. The information gathered from the survey will be used to assess whether a substance is or can become toxic and how it should be controlled.

PFAS is currently regulated federally by the Prohibition of Certain Toxic Substances Regulations, 2012, under CEPA. These Regulations prohibit the manufacturing, use, sale and importation of some PFAS and their precursors. In 2022, the federal government proposed replacing the 2012 Regulations with the draft Prohibition of Certain Toxic Substances Regulations, 2022, which would remove existing PFAS exemptions for certain uses. The government of Canada is expected to publish a final version of this draft regulation in the autumn of 2024 that will significantly tighten the existing regulations.

PFAS is regulated both federally and provincially. Businesses are advised to be aware of both federal and provincial regulations impacting their operations related to PFAS, as these changes may heighten litigation risks and public scrutiny.

Clean Energy Regulations

The Clean Energy Regulations are a key component of Canada’s 2030 Emissions Reduction Plan, aimed at achieving net-zero emissions by 2050. In February 2024, the government released an update (the “CER Update”) based on stakeholder feedback, revising the Draft Clean Energy Regulations initially published in August 2023. The proposed changes aim to enhance flexibility for provinces and electricity providers while ensuring significant emission reductions. Key modifications include shifting from a fixed emissions intensity standard to an annual emissions limit tailored to each unit’s capacity, introducing a new formula for calculating emission limits, allowing pooling of limits for operators with multiple units, and permitting limited excess emissions if offset by greenhouse gas credits. Additionally, the CER Update narrows exemptions for generating units with no net exports to the grid. How these changes will be implemented in the final Clean Energy Regulations is yet to be determined.

Right to Repair

In Budget 2024, the government of Canada committed to launch consultations on a right to repair (RTR) policy for home appliances and consumer electronics. The goal of this policy is to improve product durability and repairability so that devices work longer and harmful electronic waste is reduced. There is no specific RTR policy proposal yet because of the complex and interconnected nature of repairability and the vast array of consumer products and stakeholder considerations related to it. Instead, this consultation period is one part of a process to develop a fulsome federal approach to the RTR.

The federal government intends the RTR policy be based on the principles of repairability, interoperability and durability. While a specific RTR regulatory framework has yet to be developed, some legislative steps have already been taken to ensure Canadians have a RTR. The Copyright Act was amended to remove a barrier to repair by allowing the circumvention of technological protection measures to diagnose, maintain or repair a product. The Competition Act was also amended to expand the refusal to deal provisions to include a “right to repair,” meaning a supplier may be ordered to provide a means of diagnosis or repair to a person.

The public consultation period on the RTR policy ended on 26 September 2024. Further consultation with representatives from consumer and industry stakeholders will take place this autumn. It is unclear when a complete RTR policy framework proposal will be presented, but it will likely take some time given the complex nature of RTR.

Modern Slavery Act

A key development in the social aspect of ESG stems from Bill S-211, which brought about the Modern Slavery Act and amends the Customs Tariff Act. Although the Bill received royal assent in 2023, its provisions took effect on 1 January 2024.

The Modern Slavery Act targets forced labour and child labour by mandating certain entities to report on the measures they are taking to prevent and mitigate the risks of forced and child labour in their supply chains.

Bill S-211, which introduced the Modern Slavery Act, also introduced changes to the Customs Tariff Act prohibiting the import of “goods that are mined, manufactured or produced wholly or in part by forced labour or child labour as those terms are defined in Section 2 of the [Modern Slavery Act].” This prohibition along with the reporting obligations imposed by the Modern Slavery Act show a concerted effort on the part of the Canadian government to address the persistent problem of forced and child labour in supply chains.

For a more in-depth discussion of the Modern Slavery Act, the takeaways from its first reporting period, the import prohibition and potential issues with Canada’s approach to tackling modern slavery, please refer to our analysis of these matters in the Trends and Developments article.

Human Rights Due Diligence

In addition to the Modern Slavery Act, the federal government is considering developing human rights due diligence (HRDD) legislation. The intention to introduce such legislation was first announced in Budget 2023 and was reiterated in Budget 2024. The federal government is currently consulting on how to develop HRDD legislation.

Generally, HRDD legislation tackles human rights abuses by creating a legislative framework that requires business to take proactive steps to identify, prevent, mitigate and address their impacts on human rights. HRDD legislation usually only applies to entities that meet the legislative requirements in the relevant jurisdiction, but it can have trickle down effects as those entities request HRDD in contracts. Examples of this can be seen in increasingly common supply chain codes of conduct that require some HRDD.

Canada has not yet announced its timeline for HRDD legislation and what approach it intends to take.

Federal UNDRIP Action Plan

In 2023, the federal government launched the 2023-2028 Action Plan (the “Action Plan”) to implement the United Nations Declaration of the Rights of Indigenous Peoples (UNDRIP). The Action Plan “outlines a whole government roadmap for advancing reconciliation with Indigenous Peoples through a renewed, nation-to-nation, government-to-government, and Inuit-Crown relationship based on recognition of rights, respect, cooperation, and partnership as the foundation for transformative change.” Importantly, the plan is not a static document but must continue to develop in consultation with First Nations, Inuit and Métis.

Developed over two years of consultation with First Nations, Inuit, and Métis, the Action Plan outlines 181 measures organised into five chapters that address shared and specific priorities of Canada’s Indigenous Peoples. The Action Plan stems from the UNDRIP Act, which mandates alignment of Canadian laws with UNDRIP and requires annual progress reports. The federal government is considering using a variety of new and existing mechanisms to achieve the priorities set out in the Action Plan, such as permanent bilateral mechanisms, national and regional committees to co-develop implementation plans, and possible federal-provincial-territorial-Indigenous fora.

The first of the annual reports, released on 18 June 2024, indicated that actions have been taken on 178 measures, with some funding allocated to 128 of them. However, many departments faced challenges due to limited funding.

How the federal government continues to collaborate with Indigenous communities to achieve the goals of the Action Plan remains to be seen. The annual progress reports are valuable documents that show what progress is being made and what roadblocks remain. Given the importance of Indigenous matters to ESG in the Canadian context, readers should review how the federal government is working towards reconciliation through the Action Plan and the annual progress reports.

A key development in terms of governance started in 2022, when Corporations Canada updated requirements for businesses incorporated under the Canada Business Corporations Act (CBCA) to disclose information to shareholders and Corporations Canada on the diversity of their boards of directors and senior management teams. Corporations must specifically report on the four designated groups defined in the Employment Equity Act, which includes:

• women;
• Indigenous Peoples;
• persons with disabilities; and
• members of visible minorities.

The introduction of new guidelines around climate risk management published by the Office of the Superintendent of Financial Institutions (OSFI) enhance the governance aspect of ESG. As of 2024, Canadian banks, insurance companies and federally regulated financial institutions (FRFI) are required to disclose climate-related risks and opportunities. Board members are now also charged with ensuring that management’s approach to climate-related risks is both precise and effective.

In addition to disclosure obligations already in place, the federal government announced on 9 October 2024 that it intends to amend the CBCA to mandate climate-related financial disclosure for large, federally incorporated private companies. A regulatory process will be launched to determine the substance of these disclosure requirements and the size of corporations that will be subject to them. The federal government is also considering ways to encourage small- and medium-sized businesses to voluntarily disclose climate-related information. It further indicated its readiness to work with provincial and territorial governments to ensure consistent disclosure obligations across Canada.

The ESG transition in Canada is propelled by all levels of government, as well as various regulatory bodies. The Canadian Securities Administrators (CSA) is the umbrella organisation of Canada’s provincial and territorial securities regulators whose objective is to improve, co-ordinate and harmonise regulation of the Canadian capital markets. To date, the CSA has been primarily responsible for the development of ESG regulations applicable to reporting issuers wishing to access the Canadian capital markets.

The CSA has established several regulations for reporting issuers related to ESG disclosures and practices, including:

• National Instrument 51-102, which mandates disclosure of environmental risks which are material to an issuer;
• National Instrument 52-110, which sets independence requirements for audit committees; and
• National Instrument 58-101, which requires disclosure of corporate governance practices, including diversity metrics.

The CSA has also previously published for comment proposed National Instrument 51-107 – Disclosure of Climate-related Matters (NI 51-107), which sets out a proposed framework for Canada’s first mandatory climate-related disclosure rules. The CSA released a statement on 13 March 2024, indicating that the feedback provided to the CSSB in connection with the consultation on the CSDS may help inform potential revisions to NI 51-107 and the CSA reaffirmed its commitment to developing “disclosure requirements that support the assessment of material climate-related risks.” It is expected that the CSA will publish a revised version of NI 51-107 for comment shortly after the review process is completed.

The CSA has also issued guidance to reporting issuers over the years regarding ESG disclosure obligations. This includes guidance on environmental reporting (CSA Staff Notice 51-333), climate-related risks (CSA Staff Notice 51-358), and on the concerns of overly promotional ESG disclosure (CSA Staff Notice 51-364). Importantly, the guidance provided by the CSA did not impose any new standards with respect to ESG disclosure but were published to clarify existing disclosure obligations of issuers in the context of a growing focus on ESG-related issues.

Further, in March 2024, the CSA released Revised ESG-Related Investment Fund Disclosure Staff Notice (originally published in January 2022), which sets out guidance for investment funds on disclosure practices as they relate to ESG. The guidance does not modify existing disclosure requirements, but sets out best practices regarding investment objectives, fund names, investment strategies, risk disclosure, continuous disclosure and sales communications. It also covers the types of investment funds that may market themselves as focusing on ESG or as considering ESG factors as part of their investment process.

Stock exchanges in Canada may also impose additional ESG requirements with respect to listed issuers. See 2.2 Differences Between Listed and Unlisted Entities for further discussion.

Other regulatory bodies, such as OSFI, which oversees and regulates federally registered banks, insurers, pensions plans, and trust and loan companies, play an important role in regulating ESG in Canada. OSFI’s climate reporting regulations require FRFIs to report GHG emissions, including Scope 3 emissions.

Additionally, a variety of recommendations, guidelines and standards have been or are being developed by government agencies, such as the Competition Bureau, which is in the process or preparing guidelines regarding environmental representations to mitigate the risk of greenwashing. These guidelines and standards are being implemented to ensure transparency and accountability in environmental claims made by companies, protect consumers from misleading information and promote genuine sustainability practices across industries and compliance with these evolving regulatory regimes. These guidelines are discussed further in the Trends and Developments article.

Lastly, supervisory authorities, such as the Canadian Association of Pension Supervisory Authorities’ (CAPSA) play a significant role in this transition. CAPSA is a national organisation of pension regulators dedicated to promoting an efficient and effective pension regulatory framework in Canada.

On 9 September 2024, the CAPSA sub-committee on Integrating ESG in Pension Plan Supervision published a general Guideline for Risk Management for Plan Administrators (the “Risk Management Guidelines”) that incorporates ESG considerations. A draft of these ESG considerations was first developed in 2022 and, following a comment period, have been incorporated into the Risk Management Guidelines. The Risk Management Guidelines establish three principles related to ESG in pension plan administration.

First, administrators should assess how ESG factors may impact the financial risk-return profile of their funds. Second, they must integrate ESG risks and opportunities into their investment decision-making and risk management processes as part of their standard of care. Third, they are required to publicly disclose how they consider material ESG information in their plan designs and investment policies.

The Risk Management Guidelines are guidance and are not binding.

All sectors and industries will be affected by ESG laws and regulations, as they are wide ranging and incorporated in many legal and regulatory frameworks federally and provincially. This section will focus on the sectors and industries that will be most affected by ESG laws and regulations in the coming years, including:

• energy;
• financial services;
• mining; and
• real estate.

Energy

The energy sector is likely to be significantly impacted by new ESG regulations, with Canada’s commitment to a future free from carbon emissions by 2050. For example, the federal government carbon tax scheme significantly impacts the energy sector. This scheme was established through the Greenhouse Gas Pollution Pricing Act (GGPA), which came into force in 2018. The initial price on carbon was set at CAD20 per tonne in 2019. This price has steadily increased to CAD80 per tonne this year and is expected to continue to increase by CAD15 per year until 2030 when it reaches CAD170 per tonne. The goal of the carbon tax scheme is to reduce GHG emissions by creating a financial incentive for people and businesses to pollute less.

An important part of the carbon tax scheme is the Output-Based Pricing System (OBPS) for industries. This was established through the Output-Based Pricing System Regulations under the GGPA. The OBPS creates a price incentive for industrial emitters (such as those in the energy sector) to reduce their GHG emissions, spur innovation, maintain competitiveness within the industry and protect against the risk of industrial facilities moving from one region to another to avoid paying a price on carbon pollution.

In addition to the OBPS, there is the OBPS Proceeds Fund, which is a programme that assists Canada in returning proceeds from the OBPS strain of the carbon tax scheme to their jurisdiction of origin.

Notably, the federal carbon tax does not apply in provinces like British Columbia and Quebec that have their own carbon pricing systems. Further, some provinces and territories have their own industry pricing systems (ie, schemes like the OBPS), which means that the OBPS applies in Manitoba, Nunavut, Prince Edward Island, Yukon, unless other provinces and territories wish to voluntarily ascribe to it.

The carbon tax scheme has been very controversial and this year the leader of the federal opposition along with seven provincial premiers called for this year’s tax increase to be cancelled. It was not cancelled, but a potential change in the federal government could impact the continued development of the carbon tax scheme.

Canada’s Methane Strategy is a key initiative aimed at significantly reducing methane emissions in the energy sector, originally introduced in the 2030 Emissions Reduction Plan and updated in 2023 with a regulatory framework. The draft Enhanced Oil and Gas Methane Regulations, released in December 2023, target a 75% reduction in methane emissions from oil and gas operations compared to 2012 levels by 2030. These Regulations propose stricter emissions monitoring, risk-based inspection schedules and mandatory annual third-party audits, with the first requirements set to take effect in January 2027. Additionally, the Investment Tax Credit (ITC) for Carbon Capture, Utilization and Storage (CCUS), revised in Budget 2023, offers significant tax incentives for carbon capture technologies, further promoting investment in emissions-reducing technologies. While the carbon tax serves as a regulatory “stick,” the ITC acts as a “carrot,” collectively encouraging the energy sector to align with Canada’s net-zero emissions goals.

Financial Services

The Financial Services industry will also face considerable changes. Proposed legislation, including the Act to Enact the Climate-Aligned Finance Act, would mandate large companies to disclose climate-related risks, compelling financial institutions to incorporate considerations of environmental risk into their investment strategies and risk assessment processes. The Bill for this Act is currently in consideration in committee in the House of Commons.

Mining

The mining industry is expected to face significant challenges as companies are charged with enhancing their sustainability practices and minimising their carbon footprints to align with the government’s net-zero targets. Some of these challenges include limiting emissions, minimising impacts on water and biodiversity, and impacts on Indigenous rights.

That said, there is also an opportunity for the Canadian mining industry to be a leader in sustainably developing the critical minerals required to meet the transition to a low carbon economy. The mining industry also has an opportunity to collaborate with Indigenous communities to ensure that not only their rights are respected, but even to enter equity ownership partnerships that can further economic reconciliation.

The Canadian Critical Minerals Strategy (the “Critical Minerals Strategy”), released in December 2022, is highly relevant for the mining industry, aiming to promote climate action, environmental protection and reconciliation with Indigenous Peoples. Recognising Canada’s unique abundance of critical minerals like aluminium, lithium and zinc, the Critical Minerals Strategy highlights the mining sector’s essential role in providing materials necessary for clean energy technologies, electric vehicles and batteries, which are vital for achieving net-zero emissions by 2050. It also notes the applications of other critical minerals, such as niobium and indium, in sectors like aerospace and IT.

In response to growing scrutiny over the environmental and social impacts of mining, particularly on Indigenous communities, the Mining Association of Canada has implemented the Towards Sustainable Mining initiative, which focuses on key performance indicators to ensure compliance with ESG initiatives and strengthen Indigenous and community relationships.

Real Estate

Building retrofits and energy efficiency will prove to have a great impact on the real estate sector. Both historic and contemporary properties are expected to undergo a series of improvements, signalling a shift towards more environmentally sustainable buildings. This change is driven in part by the government of Canada through the Canada Greener Homes Affordability Program announced in Budget 2024.

The progression of Canada’s ESG movement is significantly influenced by the country’s political landscape and geopolitical considerations. For example, national political considerations like energy security, developing a green economy (as shown by major governmental investments in electric vehicles and battery plants) and Indigenous reconciliation are driving both the development of mandatory ESG regulation and voluntary ESG progress.

Acts like the Modern Slavery Act, amendments to the environmental claims provisions in the Competition Act, Bills like the proposed Act to Enact the Climate-Aligned Finance Act and commitments to develop HRDD show that ESG is being considered by a variety of political actors throughout Canada. As regulatory frameworks continue to evolve, a further integration of ESG considerations within Canada’s legislative framework can be expected.

Geopolitics is increasingly influencing the landscape of ESG initiatives in Canada, particularly in the context of investment decisions related to international conflicts, such as those in Ukraine and the Middle East. Despite the absence of legislative or regulatory transformations, major financial institutions are currently facing reputational risks due to accusations of unethical practices related to these conflicts. For example, in response to public pressure from the Boycott, Divestment and Sanctions movement for Palestine, one major financial institution halved its stakes in an Israel-based weapons manufacturer.

In response to Canadian sanctions policies, major financial institutions have developed their own sanctions policies to ensure that they do not facilitate or conduct business activity or transactions with sanctioned countries or individuals. For example, one major financial institution has specific sanctions policies to avoid doing business with the Russian government and sanctioned Russian individuals, as well as the Iranian government and companies at least 50% owned by the Iranian government.

These efforts reflect a recognition by financial institutions that responding to public pressure on geopolitical issues is important for maintaining public trust and investor confidence.

Given the expansive nature of ESG and the interconnected reality of geopolitics, the Canadian government and Canadian business can be expected to adapt their practices and policies in accordance with national political developments and geopolitical considerations.

The CBCA added a new requirement to increase transparency to fight money laundering and tax evasion. As of 22 January 2024, corporations created under the CBCA are required to provide information regarding Individuals with Significant Control (ISC) over the business to Corporations Canada. This disclosure is mandatory upon the inception of the company and must be updated annually in conjunction with the submission of annual reports. Certain other corporate statutes in various provinces and territories have also implemented requirements to produce transparency registers, subject to varying disclosure requirements.

These developments are in addition to the previously enforced requirements under Section 172.1 of the CBCA that promote accountability regarding diversity of boards of directors and senior management, which have been in effect since 2020. These previously existing requirements are further discussed in 1.4 Governance Trends and 5.1 Key Requirements.

Bill S-285

Bill S-285 – an Act to amend the CBCA (“Bill S-285”) – aims to amend the purpose of modern corporations by requiring them to operate in a manner that benefits society and the environment, while minimising any harm resulting from running their business. In addition to this, directors’ and officers’ fiduciary duty and duty of care would include a requirement to act in the best interests of society and the environment. If enacted, Bill S-285 would also introduce disclosure requirements to highlight the actions taken by companies to positively impact society and the environment.

Bill S-285 has the potential to significantly reshape corporate governance in Canada by embedding double materiality into corporate mandates. While this legislative shift could position Canada as a leader in corporate responsibility, it may also generate resistance from businesses due to the additional fiduciary duties placed on directors. There is no timeline for Bill S-285’s potential implementation as it has only completed its first reading at the Senate.

Corporate governance requirements in Canada differ for listed and unlisted companies. Many unlisted companies are not “reporting issuers” in Canada and are not subject to the corporate governance requirements imposed by the CSA for listed entities and other reporting issuers. For example, listed entities are required under NI 58-101 to make diversity-related disclosure in their annual disclosure documents on a comply or explain basis and are also subject to certain independence requirements imposed by the CSA.

Further, listed entities are subject to the policies and rules of the applicable stock exchange in which they are listed and may be subject to different corporate governance rules and standards depending on the stock exchange in which they are listed. For example, NI 58-101 imposes different reporting standards for companies listed in senior stock exchanges (such as the TSX and Cboe Canada) than those listed on junior exchanges (such as the TSX-V and the CSE).

Stock exchanges can also impose additional disclosure requirements. For example, the TSX and TSX-V policies require the timely disclosure of material information, which encompasses both material facts and material changes relating to a company, which (as noted above in 1.5 Government and Supervision) can include ESG considerations such as environmental matters and climate-change-related risks. The timely disclosure obligations in the exchanges’ policies exceed those found in securities legislation.

Directors have an obligation to consider any issue that may impact the best interests of a corporation. ESG developments in corporate law are expanding what constitutes the best interest of a corporation beyond simple financial considerations. For example, Section 122(1.1) of the CBCA, which has been in place since 21 June 2019, states that directors and officers may consider the interests of stakeholders, such as employees, consumers and the environment, when exercising their powers and performing their duties. This builds on significant Supreme Court of Canada decisions, BCE Inc. v 1976 Debentureholders from 2008 and Peoples Department Stores (Trustee of) v Wise from 2004 that affirmed the notion that, “although directors must consider the best interests of the corporation, it may also be appropriate, although not mandatory, to consider the impact of corporate decisions on shareholders or particular groups of stakeholders,” including “the interests of shareholders, employees, suppliers, creditors, consumers, governments and the environment.”

Bill S-285, discussed in 2.1 Developments in Corporate Governance, would significantly expand the fiduciary duty and duty of care of directors and officers, so that they would be obliged to consider the best interests of society and the environment as part of their duties. This would expand their duties well beyond their current state, which only holds that directors and officers may make these types of considerations.

Under Canadian securities laws, directors and officers of a reporting issuer are responsible for the issuer’s compliance with timely and continuous disclosure rules and must approve certain documents filed with the securities regulator(s). Attention must be paid the preparation of issuer disclosure documents, including the ESG-related disclosures therein, as Canadian securities laws in certain provinces and territories provide a right of damages or rescission against directors and certain officers, among others, for misrepresentations in certain disclosure documents.

Under CEPA and the federal Fisheries Act, directors have positive obligations to take reasonable steps to ensure compliance with environmental standards by reporting to relevant authorities and informing the public about measures taken to minimise environmental damage.

The Modern Slavery Act, as discussed in 1.3 Social Trends, mandates specific Canadian entities to report their efforts to eliminate forced and child labour within their corporate structure and supply chains. It also requires that a director or officer approve these reports. The Modern Slavery Act also provides for severe monetary penalties for failure to file, including possible personal liability on the directors of the entity.

Canadian companies can be incorporated both federally and provincially (or territorially). British Columbia is the only Canadian jurisdiction that has adopted the business form of a “benefit company,” which was created in June 2020 through an amendment to the British Columbia Business Corporations Act. Benefit companies are for-profit companies that must include a “benefit statement” and a “benefit provision” in its incorporation documents. In these documents, the company must specify the public benefits the company will promote, as well as declare its commitments to conduct its business in a “responsible and sustainable manner” and to promote the specified public benefits it has committed to. Benefit companies in British Columbia must submit benefit reports that measures the company’s performance in implementing their social responsibility commitments against a third-party standard of its choice.

Bill S-285, discussed in 2.1 Developments in Corporate Governance and 2.3 Role of Directors and Officers, would not specifically turn Canadian businesses into benefit companies per se, but it would mandate that corporations federally incorporated under the CBCA have a purpose to benefit society and the environment.

Each province has its own legislation governing the incorporation and regulation of not-for-profit corporations. A not-for-profit may also be incorporated federally under the Canada Not-for-profit Corporations Act.

The law concerning charities and not-for-profits has not often been considered by Canadian courts. However, it is generally accepted that a not-for-profit must fall into one of the four “heads” of charitable purposes to benefit from certain tax advantages. Those heads were originally set out in Tax v Pemsel, an 1891 House of Lords case, and confirmed by the Supreme Court of Canada in Vancouver Society of Immigrant and Visible Minority Women v M.N.R., [1999] 1 S.C.R. Those four heads are:

• the relief of poverty;
• the advancement of education;
• the advancement of religion; and
• other purposes beneficial to the community and not falling under any of the preceding heads.

There is increasing expectations for directors of corporations to consider a broader group of stakeholders, rather than focusing only on value maximisation for shareholders.

At the same time, the increase in ESG-focused shareholder activism shows that some shareholders are pushing for further ESG action by companies. For example, in 2022, 88% of shareholder proposals were concentrated on ESG matters (environmental and social matters, in particular). Further, average support for such shareholder proposals increased from 15.8% in 2022 to 16.4% in 2023 indicating shareholder support for ESG initiatives, showing growing support for voluntary development of ESG within companies by shareholders.

As briefly noted in 1.1 General ESG Trends, in March 2024 the CSSB released a draft of the first Canada-specific ESG reporting standards – the CSDS. The proposed CSDS 1 and CSDS 2 mirror the disclosure standards released by the ISSB, with minor modifications relating to implementation timelines. Specifically, the CSDS 1 mirrors IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, which requires disclosure about sustainability-related risks and opportunities that could reasonably be expected to affect an issuer’s cash flows, access to finance or cost of capital over the short, medium or long term. CSDS 2 mirrors IFRS S2 Climate-related Disclosures, which requires disclosure of material information about an issuer’s climate-related risks and opportunities that could reasonably be expected to affect issuer’s cash flows, access to finance, or cost of capital over the short, medium or long term.

The CSDS were developed as a way to implement the ISSB standards with modifications appropriate to the Canadian context. The primary modification at this point relates to the implementation timeline. The ISSB standards have an implementation date of 1 January 2024, while the CSDS implementation date is 1 January 2025. The CSDS also have a two-year transition period, compared to the ISSB’s one-year transition period. This gives companies more time to adjust to the voluntary reporting requirements of the CSDS.

Importantly, the ISSB standards require Scope 3 GHG disclosure and scenario analysis. The CSDS also requires Scope 3 disclosure, but the CSDS provides certain relief related to this disclosure for the first two annual reporting periods that an organisation applies the CSDS, as opposed to the ISSB standards, which only provide certain relief for the first annual reporting period. The CSDS does not vary from the ISSB standards in that CSDS 2 requires scenario analysis to assess climate resilience and provide quantitative disclosure on this matter.

The CSSB also recognises the importance of Indigenous Peoples in Canada by acknowledging that they have inherent rights, which must be respected and considered in the development of the CSDS.

The CSDS are not mandatory. The CSSB is a standard setting organisation that works to advance the adoption of its disclosure standards in Canada, but which does not have the authority to mandate disclosure requirements. The CSA has yet to incorporate the CSDS into its rules and are monitoring the CSSB consultation process before determining any proposed changes to the regulatory framework for climate-related disclosures. The CSA issued a statement in March 2024, stating that it expects to adopt only the CSDS provisions that “are necessary to support climate-related disclosures.”

The comment period for the CSDS drafts closed on 10 June 2024, and the CSSB is currently deliberating feedback on the CSDS drafts. A release date for the final version of the CSDS has not yet been set, though the CSSB states that they are proposed to be effective for annual periods beginning on or after 1 January 2025.

Once the CSSB consultation process is completed, it is expected that the CSA will publish a proposed regulatory framework for comment, which framework may also be guided by international developments, including the United States’ Securities and Exchange Commission’s (SEC) final climate-related disclosure rules released in March 2024 and discussed further in 5.6 Expected Progress.

In addition to the CSSB, the federal government announced on 9 October 2024, its plan to establish a sustainable investment taxonomy (the “Taxonomy”). At a high level, the Taxonomy will be a set of guidelines that categorise sustainable economic activities with the goal of facilitating sustainable financing and investment. This “made-in-Canada” Taxonomy will be an important voluntary tool for investors, lenders and other stakeholders to credibly identify sustainable economic activities, and it is intended to help Canada reach its sustainability targets of net-zero emissions by 2050 and limiting global temperature rise to 1.5°C.

To access the Canadian capital markets and raise capital in Canada, Canadian public companies who are not “venture issuers” are required to disclose matters such as the composition of the board (including the number of independent directors), any ethical business mandates on the board and matters related to the number of women on the board of directors in executive positions under Form 58-101F1 ‒ Corporate Governance Disclosure. Lesser standards are applicable to those companies who are “venture issuers” under Canadian securities laws.

In April 2023, the CSA published two variations of proposed amendments to Form 58-101F1. Both proposals aim to include diversity metrics beyond gender. The first proposed approach requires disclosure metrics of “identifiable groups,” where companies would be given flexibility in choosing the marginalised group metrics they would like to disclose. The second proposed approach requires companies to disclose diversity metrics on enumerated groups, such as racialised persons, Indigenous Peoples, persons with disabilities, and LGBTS2SI+ persons. The comment period for these proposals closed in September 2023. No further updates on the status of these proposals have been provided by the CSA.

Access to green financing is still limited in Canada. One method of green financing is Canada’s Green Bond programme, which began in March 2022 to mobilise capital in support of its climate and environmental objectives. In its initial release, the programme saw extensive demand, which led to a final book order of over CAD11 billion.

In November 2023, the government updated its Green Bond Framework to align with Canada’s 2030 Emissions Reduction Plan, with updated priorities in terms of expenditures. Despite government green bonds being popular, corporate green bonds have yet to make as significant an appearance in Canada, as they have in other major financial jurisdictions.

The evolving ESG landscape provides significant challenges but also significant opportunities to the Canadian oil and gas sector, noting that the Canadian oil and gas sector has in recent years made significant investments and taken action to meet these challenges. The recent greenwashing amendments to the Competition Act and the political landscape, however, have created an uncertain regulatory standard.

The Canadian oil and gas sector is a global leader in investments and action in respect of the transition towards ESG goals, including investing in methane reduction, carbon capture technology and other technologies. For example, businesses are engaged in Canada’s Hydrogen Strategy (announced in 2020), which is one of the ways in which the country aims to achieve net zero by 2050. The strategy includes a vision of growing the hydrogen sector up to a revenue over CAD50 billion. According to the federal government, low-carbon hydrogen has attracted over CAD100 billion in potential investments as of May 2024.

The uncertainty about the scope and enforcement of the amendments to the Competition Act to combat greenwashing (as discussed further in the Trends and Developments article) raise significant challenges to the oil and gas industry’s ability to communicate publicly about ESG plans, objectives and initiatives. In June 2024, Pathways Alliance, a consortium of Canada’s largest oil sands producers with a goal of achieving “net zero by 2050,” (among other oil and gas companies) removed statements about environmental goals and plans from its website and social media pages. Pathways cited concerns over the amendments to the Competition Act, which it said makes it difficult for all Canadian companies who “want to communicate publicly about the work they are doing to improve their environmental performance,” due to the “significant uncertainties” around the requisite methodology that must be used to substantiate public statements regarding actions that improve the environment or mitigate the effects of climate change, as it is not a defence that the claim is in fact true.

The federal government’s evolving policy has supported the oil and gas sector’s active participation in achieving ESG goals (eg, Canada’s Hydrogen Strategy) but significant challenges remain including a lack of certainty with respect to a holistic regulatory regime to support such innovation and transparency (eg, the greenwashing amendments to the Competition Act). What will prevail remains to be seen.

As ESG policy increasingly becomes regulated, businesses face new challenges in keeping pace with both mandatory and other standards. Similarly, reputational pressures are forcing businesses to address ESG concerns.

Greenwashing and ESG Messaging

For example, as discussed in 3.4 Stranded Assets and Non-bankables, the uncertainty as to scope and enforcement of the recent “greenwashing” amendments to the Competition Act has made it difficult for businesses to communicate their environmental efforts and programmes without risking scrutiny from the Competition Bureau and private parties who will have the right (effective June 2025) to seek leave to challenge conduct under the new greenwashing provisions.

Scope 3 Emissions

Albeit voluntary, the emergence of the new CSDS standards (as discussed at 1.1 General ESG Trends and 3.1 Progress in Green Financing) also creates challenges. Even when businesses are willing to ascribe to the voluntary standards, the broad scope and frequency of disclosure, which includes Scope 3 emissions would require technical expertise and data collection which could impose major cost concerns.

Anti-ESG Movements

Canada has not seen aggressive anti-ESG movements that has occurred in other jurisdictions, such as the USA. As a result, anti-ESG sentiment is not a major consideration for businesses in Canada. According to a recent study published in September 2024, 94% of institutional investors surveyed replied that they had not changed their investment process as a result of ESG pushback in the USA. However, almost a third replied that the ESG pushback had contributed to changes in their public communications. This pushback, along with the greenwashing amendments, may lead to more limited ESG communications moving forward. It is unclear how this may affect ESG initiatives by investors and companies.

There is an increase in soft law becoming hard law in Canada. Namely, the greenwashing amendments to the Competition Act, the coming into force of the Modern Slavery Act and developments in plastics regulations were major examples in which soft law became hard law.

Moving forward, this trend can be expected to continue. For example, the potential publication of a revised draft of NI 51-107 and its mandatory climate-related disclosure rules for reporting issuers would be a major introduction of hard ESG law in Canada. The CSA has consistently indicated its commitment to developing such rules but has not yet indicated a formal timeline for the introduction and adoption of such rules.

The Modern Slavery Act’s reporting requirements have led to businesses implementing supply chain codes of conduct that are increasing due diligence requirements throughout the value chain. Similarly, the potential development of mandatory human rights due diligence legislation in Canada would create hard law due diligence requirements throughout the value chain. This indicates that due diligence requirements are likely to continue to increase moving forward.

The combination of recent supply chain disruptions and regulatory ESG developments have likely placed ESG considerations at a higher priority when companies review supply chain partners.

It is likely that recent supply chain disruptions, some of which are caused by geopolitical tensions, have caused businesses to turn their minds to human rights and geopolitics when working with their supply chain partners. This is especially the case when enforcement actions against human rights violations in the supply chain are becoming prevalent. For example, in March 2024 the Canadian Ombudsperson for Responsible Enterprise released its final report on its investigation into a Canadian mining company’s operation in Xinjiang, China. The report, which found that the company was involved in forced labour, recommended that the government of Canada not provide support for the company in its trade initiatives. Similar enforcement actions can be expected in the future as Canada increases enforcement of human rights within supply chains. In response to such actions, it can be expected that companies will increasingly choose supply chain partners that protect human rights and therefore do not open the companies up to enforcement actions.

Looking ahead, the emergence of voluntary Scope 3 GHG emission reporting requirements in the CSDS may make businesses further consider the amount of emissions of their supply chain partners and whether these partners engage in any carbon capturing activities. Businesses may also consider whether their supply chain partners are able to provide data of their own GHG emissions in the first place.

Specific ESG considerations that simultaneously carry legal liability risks are increasingly included in the M&A due diligence process. Consequently, ESG considerations are often addressed in representation and warranty clauses. However, this does not necessarily extend to all ESG considerations, especially not to those that do not create a material risk.

In Canada, representations and due diligence analyses regarding the existence of disputes with Indigenous groups or First Nations is particularly prevalent in the natural resource sector, specifically with respect to Indigenous land and rights claims associated with land.

Matters related to data and privacy considerations, which were considered one of the more “traditional” ESG considerations in M&A due diligence, continue to be prevalent. Social considerations, such as workplace-related representations, also face scrutiny in M&A due diligence.

On the other hand, a recent review of M&A circulars in Canadian public companies suggests that ESG considerations only appear in a small minority of circulars, suggesting that broader ESG considerations are not yet considered material risks for shareholders.

Companies can be incorporated in Canada either federally through the CBCA or provincially through the province’s (or territory’s) business corporation act. Different jurisdictions have different requirements, including ESG requirements. Companies incorporated federally under the CBCA have important ESG obligations that not all provincially or territorial incorporated companies have.

There are a variety of disclosure obligations applicable to reporting issuers (generally, public companies/entities) in Canada. There are various ways to become a reporting issuer and having securities listed on a Canadian exchange is one method. There is no national securities regulator in Canada; rather, each province and territory has its own securities laws. Certain disclosure requirements are harmonised across jurisdictions in the form of National Instruments.

The CSA’s current regulatory framework is largely silent on environmental and social disclosure. However, National Instrument 51-102-Continuous Disclosure Obligations requires reporting issuers to disclose any “material” information in their continuous disclosure documents. Material information includes information that, if omitted or misstated, would influence a reasonable investor’s decision to buy, sell or hold a security. ESG-related information, to the extent that it is “material,” must be disclosed. This sort of disclosure often includes disclosure concerning environmental liabilities that might have a financial impact on the issuer.

In November 2022, the CSA published Staff Notice 51-364 (see 1.5 Government and Supervision), which discussed the results of the CSA’s review respecting continuous disclosure of ESG-related information. The CSA noted an increase in issuers making potentially misleading ESG-related claims and expressed their view that issuers must be careful to avoid misleading promotional language in both voluntary and required public disclosure documents: a failure to do so could breach the deceptive marketing (including greenwashing) provisions set out in the Competition Act.

NI 58-101, which is discussed above in 2.2 Differences Between Listed and Unlisted Entities, and National Policy 58-201 Corporate Governance Guidelines (together with NI 58-101, the “Corporate Governance Disclosure Rules”) impose certain corporate governance disclosure obligations on reporting issuers. The Corporate Governance Disclosure Rules require reporting issuers to disclose certain information about various corporate governance principles. Since their inception, the Corporate Governance Disclosure Rules have expanded for issuers that are not “venture issuers” to require disclosure of the number and proportion of directors and executive officers of the issuer who are women. Though disclosure for such issuers is required, issuers are not required to place a particular number of women in board or management positions. This approach is often characterised as a “comply or explain” model, which allows entities and their shareholders to satisfy themselves that their company has adopted an appropriate governance approach.

As indicated in 3.1 Progress in Green Financing, the CSSB’s development of the CSDS is a significant step forward in terms of Canada-specific voluntary disclosure, while also closely aligning such disclosures with the ISSB’s disclosures that are intended to be a global baseline for voluntary reporting.

The CSA is ultimately responsible for deciding whether the CSDS (or another standard) will be mandatory in Canada and, if so, which entities will need to comply with the standards and over what time period.

Lastly, as noted in 1.4 Governance Trends, the federal government has indicated an intention to amend the CBCA to mandate climate-related financial disclosure for large, federally incorporated private companies. It is expected that these obligations will be harmonious with disclosure obligations required from public companies by securities regulators.

There is currently no obligation for Canadian companies to publish transition plans or commit to targets. However, there are frameworks in place to encourage voluntary actions in this respect. For example, any business operating in Canada may voluntarily join the government of Canada’s Net-Zero Challenge (the “Net-Zero Challenge”), which has the following objectives:

• normalising net-zero planning so that this becomes the default business practice;
• building momentum by providing net-zero planning guidance to both the public and private sectors; and
• reducing GHG emission from industry and other sectors on the journey to net-zero emissions by 2025.

Net-Zero Challenge participants agree to set a target of net-zero emissions by 2050 for their Scope 1, Scope 2 and, if applicable, Scope 3 emissions. Participants further agree to establish two sets of sequential interim targets (eg, 2035 and 2045). Participants are required to report on progress annually. This annual progress reporting is meant to ensure that participants remain in compliance with the Net-Zero Challenge, to provide transparency and to assess progress in net-zero planning and implementation. As the programme is voluntary, the only penalty for a participant’s failure to meet minimum requirements or timelines is removal from the programme.

Both the Competition Act and the Consumer Packaging and Labelling Act play a role in restricting certain sustainability claims and imposing certain conditions on ESG labels.

Recent amendments to the Competition Act, which came into force on 20 June 2024, expressly tackle greenwashing in addition to the Competition Act’s existing, more general deceptive marketing provisions regarding false or misleading representations. A representation can take the form of a statement or claim regarding a product, business or business interests and can be made in written, oral, electronic or other form of media. This is discussed further in the Trends and Developments article.

The Consumer Packaging and Labelling Act does not specifically set out any conditions to ESG labels but does prohibit the sale, import or advertisement of any prepackaged product that has a label containing and false or misleading representation.

As there are a variety of laws that require ESG disclosure in Canada, there are a variety of regulators in this regard. These regulators include, but are not limited to:

• each provincial and territorial securities regulator, which are responsible for the administration and enforcement of securities laws in their respective jurisdiction and may bring enforcement proceedings against an issuer in breach of securities laws, including a breach resulting from failing to disclose material ESG-related information or making misleading ESG-related claims;
• the Minister of Public Safety and Emergency Preparedness, who is responsible for the administration and enforcement of the Modern Slavery Act;
• OSFI, which regulates FRFIs and monitors climate-related disclosures that are required by such institutions; and
• the Competition Bureau, which is responsible for the administration and enforcement of both the Competition Act (in addition to private rights of actions in respect of greenwashing claims) and the Consumer Packaging and Labelling Act.

Penalties for non-compliance with disclosure obligations are as broad and varied as the obligations themselves.

Enforcement action for a failure to make disclosure of material information in the manner and time required under relevant securities laws, or providing disclosure that contains a misrepresentation, can potentially be brought against the responsible issuer or any director or officer who authorised, permitted or acquiesced in the breach. Again, penalties are broad, but a monetary penalty is the most typical remedy.

An entity or individual that fails to submit and publish a satisfactory report as required under the Modern Slavery Act is guilty of a summary offence and liable to a fine of up to CAD250,000. Any director or officer who directed, authorised, assented to, acquiesced or participated in any of these offences may also be held personally liable.

Distributing corporations who fail to comply with diversity disclosure obligations under the CBCA, or who make false or misleading statements in these reports may be liable to pay a fine not exceeding CAD5,000. Any person who participates in making such a report may be held personally liable and ordered to pay a fine not exceeding CAD5,000, to imprisonment for a term not exceeding six months or both.

The Competition Act sets out the remedies for a breach of deceptive marketing practices, which include greenwashing claims. These remedies include that a court may order a business to pay an administrative monetary penalty (AMP) in an amount up to:

• CAD10 million, and for each subsequent order, CAD15 million; and
• three times the value of the benefit derived by the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenues.

Canada can expect the trend in increasing voluntary ESG reporting to continue. Similarly, increased mandatory reporting requirements mean that more and more companies will be reporting on ESG matters. Nonetheless, challenges remain for both voluntary and mandatory reporting.

The proposed CSDS, if adopted, have the potential to pose significant challenges to Canadian companies. The proposed standards are somewhat burdensome, especially in comparison to the SEC’s climate disclosure rules.

Though the SEC has stayed implementation of its rules pending completion of judicial review, its position continues to be that the rules are consistent with applicable law and within its authority. The CSDS contemplates more stringent requirements than the SEC rules. In particular, the SEC rules provide a safe harbour for certain forward-looking disclosures, namely protection from civil liability for transition plans, scenario analysis, internal carbon pricing, and targets and goals. Further, the SEC rules do not propose to require companies to disclose Scope 3 GHG emissions. In contrast, the CSDS does not provide any such safe harbours, and it proposes to impose Scope 3 disclosure obligations.

The cost of implementing these more stringent standards may be a barrier to Canadian entities in comparison to those operating in the US market. Given the interconnected markets in these regions, differences in reporting standards could lead to difficulties for businesses with operations in both countries.

It is important to note that the CSDS is voluntary and, unless it is adopted by the CSA and made mandatory, any differences between these standards and the SEC rules can be avoided by not reporting according to the CSDS. However, the CSA is expected to revise its proposed regulatory framework in response to the final CSDS, adopting those provisions of the sustainability standards that are necessary to support-climate related disclosures. Canadian reporting companies should pay particular attention to the revised framework to be published by the CSA.

What constitutes “adequate and proper testing” or “internationally recognised methodology” for the purposes of substantiating environmental claims has not yet been considered by any Canadian court. The Competition Bureau has issued some general guidance on what testing is considered “adequate and proper,” but at this time any guidance relevant to environmental claims remains limited, and industry best practices vary widely. Companies will face challenges in determining what testing is required to substantiate environmental claims until further guidance either from the Competition Bureau or a relevant court decision is available.

There are several tools in Canada that can be used to start ESG-related cases against companies, with a range of ease of access to parties who wish to rely on them.

The recent amendments to the Competition Act expand access to private parties seeking to bring deceptive marketing (including greenwashing) claims against businesses by allowing private parties to apply (with leave, based on a public interest test) for an order from the Competition Tribunal (the “Tribunal”), which right of access will be effective in June 2025.

Previously, only the Competition Bureau was permitted to bring an application for an order from the Tribunal and courts with respect to deceptive marketing practices. Effective 20 June 2025, private parties will also be permitted to bring an application to the Tribunal for an order, provided the Tribunal may grant leave where it is satisfied that it is in the public interest to do so.

Beyond use of the Competition Act, parties may commence civil suits, including class actions and derivate actions by shareholders to bring ESG-related claims. The scope of these potential claims is vast and could include claims concerning the environment, human rights, supply chains or workplace safety. A claim may also arise from a company’s perceived failure to meet its ESG-related commitments.

Canadian companies may also face civil actions for their ESG-related actions in foreign jurisdictions. In 2020, the Supreme Court of Canada held in Nevsun Resources Ltd. v Araya that Canadian companies who operate abroad may be held liable for breach of customary international law. What exactly constitutes a breach of customary international law is not always clear, and bringing a claim rooted in this cause of action is not an easy process.

Derivative actions brought by shareholders are also a concern in this context. In Canada, a derivative action is a legal mechanism that allows shareholders to bring an action on behalf of a corporation against its officers or directors for an alleged wrongdoing. This sort of action addresses a harm done to the company rather than one particular shareholder.

As further discussed in 6.4 A Turbulent Future Ahead, NGOs and activists are an important party to consider in Canada. For example, as it relates to environmental claims by businesses, environmental organisations in Canada have relied on the mechanisms in the Competition Act that compels the Competition Bureau to commence an investigation into deceptive marketing. The initial complaint in 2019 focused on recyclability claims of a coffee business, which resulted in a settlement agreement providing for monetary penalties and corrective orders. Since that initial application, NGOs and activists have filed many other applications, most of which focus on the oil and gas sector, including claims in respect of:

• a certain carbon-neutral programme;
• a large financial institution claims of supporting net-zero emissions in light of its investments in the oil and gas industry; and
• claims by an oil and gas coalition that it is actively reducing emissions and helping Canada meet its climate targets.

In addition to regulatory action and litigation commenced by NGOs and activists, ESG-related shareholder activism appears to be on the rise in Canada. In 2023, a 145% rise in board activism and a 71% rise in transactional activism was reported in comparison to 2022.

Greenwashing is understood in Canada to be the process of making false or misleading positive claims or downplaying negative qualities about the sustainability attributes of a product, service or business. In contrast, greenbleaching is used to describe an entity choosing not to make claims respecting the ESG features of its products or business to avoid regulatory scrutiny or other legal risks.

Greenwashing has been the subject of many investigations by the Competition Bureau, but with limited enforcement action under the Competition Act currently. Recent amendments to the Competition Act and statements by the Competition Bureau that greenwashing is a priority are expected to result in increased enforcement of claims of deceptive marketing as it relates to environmental claims, as explained in the Trends and Developments article.

In contrast, greenbleaching has not yet been addressed by Canadian regulatory authorities. Canadian companies may move towards greenbleaching to avoid regulatory action and penalties related to greenwashing, which have become stricter. Canadian regulatory bodies may have to create a framework to respond to this potential rise in greenbleaching.

The amendments to the Competition Act to permit private parties (with leave, if found to be of public interest) to apply for order from the Tribunal in respect of deceptive marketing (including greenwashing), which will be in effect in June 2025, are expected to have a significant impact on the number of proceedings in Canada regarding deceptive marketing related to ESG claims, particularly greenwashing. Environmental activists in Canada have already used the Competition Act as a tool to compel the Competition Bureau to investigate environmental claims by businesses and the expanded access created by new amendments further reduces barriers to challenge greenwashing claims by businesses. In addition to activists, consumers and competitors may also apply to the Tribunal for orders to combat greenwashing under the Competition Act.

As noted above, ESG-related civil claims may arise from a company’s perceived failure to meet its ESG-related commitments. To the extent that climate-related disclosure becomes mandatory in Canada, companies may run the risk of facing civil actions based on perceived failure to live up to commitments that have been set out in disclosure documents.

Shareholder activism is, to some extent, shaped by political trends. For example, the war in Ukraine and resulting energy crisis appears to have inspired a shift towards energy security related shareholder proposals. As the political landscape in Canada and abroad continues to shift in 2024 and beyond, companies across all sectors must be vigilant in assessing how shifts in political climate might affect trends in shareholder activism.

Overall, it is expected that ESG-related proceedings will grow with the increase in ESG disclosure (both mandatory and voluntary) and the creation of new avenues for proceedings.