What are the ESG Legal Requirements in Canada

Environmental, social, and governance (ESG) related risks and opportunities are playing a key role in companies’ functions across Canada. Board level directors are being tasked with overseeing ESG considerations when dealing with matters such as supply chains or investments. It is becoming a norm in Canada and across the globe, playing an important role in an organization’s functions.

ESG disclosure is becoming a norm in Canada

There is an obligation to provide “material” or relevant ESG information that can influence various stakeholders’ and investors’ decisions. The Canadian Securities Administrators (CSA) provided a guide that helps public companies in determining the kind of information that should be disclosed in their documents for shareholders. It is based on existing regulatory requirements and provides a comprehensive guide to addressing areas of disclosure. Some of the key takeaways from the guide include:

  • The context of information should be considered in consolidation – not in a silo.
  • Share any relevant information on timing impacts and if an early disclosure is required.
  • Any uncertainties, trends, or events that may impact ESG should be considered and outlined.
  • If you are unsure that the information is material, it is better to err on the side of disclosure.

Mandatory reporting obligations for Canadian public companies

Currently, under Canadian legislation, there are no specific requirements that mandate the disclosure of environmental and social-related activities. The requirements for disclosure of governance-related activities are well known and public. MLT Aikins states that ESG disclosure will become mandatory in Canada in 2024, with the rollout being gradual. This was discussed in the budget by the government in 2022. They outlined a plan for federally regulated financial institutions to begin reporting on climate-related financial risks.

Any financial institutions that are unable to comply with this mandate by 2024 may face potential regulatory and/or legal risks, but regardless of what industry you are in, mandatory ESG disclosure is something your organization should prepare for.

Canadian public companies’ voluntary ESG disclosure

Many companies at present, whether public or private, choose to share ESG information in various forms. Some use annual reports, while others publish this information on their company website. Voluntary ESG disclosure is considered a best practice as it gives various stakeholders, like investors, consumers, and communities, valuable information. It also helps keep your company’s reputation in good standing, as well as minimize the risk of any legal claims.

Enforcement of Canadian securities laws relating to ESG disclosure

It is possible for companies to face legal challenges regarding how they present any ESG information – whether voluntary or mandatory. ESG-related claims and complaints can be made against companies, which is why it is crucial that any information provided is accurate and factual. Facing any legal issues related to ESG disclosure not only increases the risk of losing a lawsuit but costs time and money to defend the claim. Additionally, it can cause reputational damage to the organization.

Therefore, when reporting any ESG information – voluntary or mandatory – it is important for the company board and management to have a meticulous review process in place to go over the ESG disclosures.

One of the key elements is to make sure the information provided is factual and backed by data or disclaimers, where required. Any opinion-based or aspirational information should be avoided.

As ESG disclosure is closer to becoming mandatory in Canada, it is vital for companies to prepare for this change. Investors are more interested than ever in how a company manages its risks related to environmental, social, and governance considerations. Therefore, having a robust review process in place with the board and leadership team is crucial. In addition, having all information provided backed up by facts and data is key in ensuring you are sharing useful and vital information with all stakeholders involved.

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