A YEAR IN REVIEW
By Conor Chell, Partner, National Leader ESG Legal Risk & Disclosure, KPMG
The landscape of environmental, social, and governance (ESG) regulations in Canada has undergone a significant transformation over the past year. What was once primarily viewed as a compliance checkbox has evolved into a legal imperative, with significant litigation risks and penalties for false, misleading, or unsubstantiated claims. As stakeholders demand greater transparency and accountability, Canadian companies are entering a new era where ESG reporting is a critical business obligation, not just a best practice.
ESG disclosures are not new to Canadian companies. For years, public companies have been required to report annually on board and senior management diversity, executive compensation, and material environmental risks. As businesses responded to growing stakeholder demand for transparency, voluntary ESG disclosures – through sustainability reports, ESG surveys/questionnaires, or investor presentations – have become increasingly common.
However, mandatory reporting requirements and regulations requiring public disclosure of ESG information are increasing. Several new mandatory reporting requirements were introduced this year:
• Forced and Child Labour: companies must now report annually on steps being taken to prevent forced and child labour within their supply chains;
• Plastic Use: companies are required to annually report on the quantity and types of plastics and associated materials companies manufacture, import, place, and manage in Canada, with 2024 information forming the first report due on September 29, 2025; and
• Forever Chemicals: companies must report on their manufacture, import, and use of per- and polyfluoroalkyl substances (“PFAS”), with a compliance deadline of January 29, 2025.
Moreover, the Canadian Securities Administrators (CSA) have signaled rules for mandatory climate-related disclosures for issuers are forthcoming and will consider the final Canadian Sustainability Standard Disclosure standards.
The growing volume of ESG information that companies must report today, and in the near future, is met with heightened expectations on both the quality and accuracy of this information. Regulators are now focusing their investigation and enforcement efforts on greenwashing. In March 2022, the CSA published guidance concerning ESG or sustainability-related disclosures to guide issuers in improving their continuous disclosures. The guidance states that issuers should avoid misleading, unsubstantiated, or otherwise incomplete claims about ESG and sustainability-related aspects of their business that convey false impressions. Two years later, in March 2024, the CSA published similar guidance discouraging greenwashing and unsubstantiated claims of ESG-related investment funds, stating that all such ESG claims and disclosures in offering documents, continuous disclosure materials, and sales communications should be factual, balanced, and substantiated.
Three months later, Parliament amended the Competition Act via Bill C-59 introducing new anti-greenwashing provisions, placing the burden of proof onto companies to prove their environmental and social claims made to the public are substantiated. Those that cannot back up their claims will face stiff penalties.
Companies are divided on the impact of these new greenwashing provisions. Some believe companies will now hesitate to voluntarily disclose environmental information, including efforts to reduce their environmental impact, while others argue these provisions are modest amendments which do not go far enough. Importantly, the Commissioner of Competition, Matthew Boswell, referred to these recent amendments as part of a “new era of competition enforcement” best thought of as a “generational change” to Canadian competition law.
While we expect the Bureau will soon publish guidelines, informing companies on how it intends to enforce the new greenwashing provisions, companies should proactively take steps today to start aligning with the new provisions such as assessing their public disclosures from a legal risk perspective and enhancing their internal controls and compliance systems. A proactive and constructive approach can help avoid litigation, regulatory, and reputational harm.As more legislative changes, such as Bill C-372 (Fossil Fuels Advertising Act) and Bill S243 (Climate Aligned Finance Act) advance through Parliament, companies should only expect more regulatory oversight to follow.
It is no longer optional for companies to not take accountability for, or provide further transparency into, their public ESG commitments. Companies that fail to adapt will not only risk legal repercussions but also lose the trust of the public and the investment community.
Originally published in IGNITE V9.