TerraLex Cross-Border Guide to Cross-Border Guide to ESG and Sustainable Finance

ESG disclosure obligations in Canada are evolving, and new requirements, including those discussed in this guide, are likely to emerge in the near future. As of the date hereof, there are several key ESG disclosure obligations many of which are applicable to companies that are “reporting issuers” in at least one jurisdiction of Canada (public companies) and private entities. Some of these key obligations include:

Mandatory ESG Reporting for Certain Public Companies:

Securities legislation in Canada requires reporting issuers to disclose the material, financial and operational trends and risks affecting their business, including environmental risks. The general guidance is contained in National Instrument 51-102 Continuous Disclosure Obligations, National Instrument 52-110 Audit Committees and National Policy 58-201 Corporate Governance Guidelines. However, unlike the instruments policies are not binding.

There are also specific disclosure requirements regarding environmental risk factors for the annual information form (“AIF”) and management’s discussion and analysis (“MD&A”). For instance, as part of its AIF, a reporting issuer must disclose the financial and operational effects of environmental protection requirements on its capital expenditures, profit or loss and competitive position in the current financial year and in future years. Reporting issuers are also required to disclose any social or environmental policies that are fundamental to their operations. These include policies regarding relationship with the environment or with the communities in which the relevant reporting issuer conducts business, or policies regarding human rights and implementation. Similarly, reporting issuers must also disclose environmental and health risks that would likely influence an investor’s decision to purchase securities of the reporting issuer. Additionally, as part of the discussion of operations in the MD&A of a reporting issuer for its most recently completed financial year, a reporting issuer is required to discuss any factors that have affected the value of the project(s), such as change in land use, political or environmental issues.

In 2010, the Canadian Securities Administrators (“CSA”) published CSA Staff Notice 51-333 Environmental Reporting Guidance, providing reporting issuers with guidance on environmental-related risk disclosure. This notice sought to clarify disclosure requirements for environmental matters related to air, land, water, and waste, and did not purport to create new legal requirements. This notice seeks to assist reporting issuers in: (1) determining what information about environmental matters needs to be disclosed, and (2) enhancing or supplementing their disclosure regarding environmental matters.

In 2019, the CSA published the CSA Staff Notice 51-358 Reporting of Climate Change-related Risks, in which securities regulators reiterated the importance of climate-related disclosure and provided additional guidance. This notice outlines several forms of climate change-related risks, including physical risks, transition risks, reputational risks, regulatory risks, legal risks, and technology risks. It encourages boards and management teams of reporting issuers to review expertise and overall oversight mechanisms for climate-related risks.

Sector-Specific Reporting:

Certain sectors in Canada have reporting obligations related to ESG issues. For example, the Extractive Sector Transparency Measures Act requires companies in the extractive sector to report payments made to domestic and foreign governments. Similarly, the Nuclear Safety and Control Act requires nuclear facilities to disclose their environmental performance.

Responsible Investment Disclosure:

For entities involved in the investment industry, such as pension funds and investment managers, there is a growing expectation to disclose information about responsible investment practices. This includes information on how ESG factors are considered in investment decisions and proxy voting. In March 2024, the CSA released CSA Staff Notice 81-334 (Revised) ESG-Related Investment Fund Disclosure (originally published in January 2022), which states that investment funds making ESG claims through their names, marketing and continuous disclosure documents must reflect this ESG focus in the investment objectives and strategies of the fund.

Indigenous Peoples’ Rights:

The United Nations Declaration on the Rights of Indigenous Peoples ("UNDRIP”) is increasingly recognized in Canada. Companies are expected to consider and disclose their efforts to respect and uphold the rights of Indigenous peoples when operating on their traditional territories.

Diversity Disclosure:

Under various corporate provincial and federal statutes, as well as securities laws, certain diversity disclosure is mandated. For example, public companies existing under the Canada Business Corporations Act are required to make prescribed disclosures regarding diversity.

Companies, regardless of whether they are reporting issuers (public companies) or not, choose to voluntarily disclose a broad range of ESG information in different forms, including in annual sustainability reports or on company websites. Voluntary ESG disclosure can provide valuable information to a company’s stakeholders, including consumers and investors, providing meaningful information to the communities in which they operate. Companies that voluntary choose to make ESG related disclosure may choose any ESG framework.

Voluntary initiatives that focused on sustainability efforts in their respective industries include (which list is non-exhaustive):

Canadian Sustainability Disclosure Standards: In June 2023, the Canadian Sustainability Standards Board (CSSB) was established, with the mandate of interpreting and supporting the implementation in Canada of the two sustainability reporting standards developed by the International Sustainability Standards Board (ISSB) — IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2). In March 2024, the CSSB published two exposure drafts for comment: Canadian Sustainability Disclosure Standard (CSDS) 1, General Requirements for Disclosure of Sustainability-related Financial Information (CSDS 1) and Canadian Sustainability Disclosure Standard (CSDS) 2, Climate-related Disclosures (CSDS 2), along with a consultation paper, Proposed Criteria for Modification Framework. CSDS 1 and CSDS 2 are almost identical to IFRS S1 and IFRS S2, respectively, with the exception of certain extensions of effective dates and transition relief periods for certain reporting requirements. On December 18, 2024, the CSSB released CSDS 1 and CSDS 2, which take effect for the annual reporting period starting January 1, 2025, with transition relief for certain reporting requirements. Accompanying the standards is the Criteria for Modification Framework, which outlines the criteria under which global standards, developed by the ISSB, may be modified for the Canadian context.

Pathways Alliance: The Pathways Alliance is an organization of six of Canada’s largest oil sands producers focused on achieving net-zero greenhouse gas emissions by 2050 and making Canada the preferred supplier or responsibly produced oil to the world.

Towards Sustainable Mining (“TSM”): Towards Sustainable Mining is an initiative led by the Mining Association of Canada. TSM focuses on improving the environmental and social performance of the mining industry. TSM sets standards and indicators for responsible mining practices, covering areas such as tailings management, energy use, community engagement and biodiversity conservation.

Sustainable Forestry Initiative (“SFI”): SFI is an independent, non-profit organization that promotes responsible forest management practices in Canada. It sets standards for sustainable forestry and certifies companies that meet these standards, allowing certified companies to use the SFI on product labels.

Greening Government Strategy: Nationally, through the Greening Government Strategy, the Canadian government has developed its own initiative to promote sustainable practices within its operations. The strategy sets targets for reducing emissions, conserving energy and water and promoting sustainable procurement.

Environmental Social Governance Secretariat: The Province of Alberta has established an Environmental Social Governance Secretariat as of 2021 to serve as a strategic and coordinating body for all ESG-related activities across the Government of Alberta, including acting as a depository for data and performance metrics. Alberta was the first province in Canada to take such action. The initiative also led to the development of “Jurisdictional ESG Framework” to provide an objective basis for addressing and comparing ESG performance within and between sovereign and sub-sovereign regions. The framework will be used by the Government of Alberta to map the province’s policies and programs to enable strong performance across industry, government, and businesses, but currently will not require reporting or grade companies on performance.

The major global reporting frameworks frequently used by reporting issuers in Canada include:

Global Reporting Initiative (“GRI”): GRI is an international organization that has developed a widely used framework for sustainability reporting. It provides guidelines and indicators for organizations to report on their economic, environmental, and social performance. GRI’s framework emphasizes the importance of materiality, stakeholder engagement and transparency in reporting.

Sustainability Accounting Standards Board (“SASB”): SASB is an organization that develops industry-specific standards for disclosing financially material sustainability information. The standards are designed to provide investors with decision-useful information on ESG topics that are relevant to specific industries. SASB’s approach enhances the comparability, consistency, and relevance of ESG reporting.

Recommendations of the Taskforce on Climate-related Financial Disclosures (“TCFD”): The TCFD was established by the Financial Stability Board to develop recommendations for climate-related financial disclosures. Its framework helps companies assess and disclose climate-related risks and opportunities in a consistent and comprehensive manner. TCFD’s recommendations are widely recognized and encourage organizations to report on governance, strategy, risk management, and metrics related to climate change. The TCFD Recommendations also formed the basis for the proposed disclosures under the proposed National Instrument 51-107 Disclosure of Climate-related Matters, which proposed to enact mandated climate-related governance disclosure for public issuers (these proposals are currently halted).

CDP (formerly the Carbon Disclosure Project): CDP is a global environmental disclosure platform that enables companies, cities, and regions to measure and manage their environmental impacts. It requests organizations to disclose their environmental data, particularly related to carbon emissions, water usage and forest conservation. CDP’s platform helps investors and stakeholders assess and compare the environmental performance of different entities.

United Nations Sustainable Development Goals (“SDGs”): The SDGs are a set of 17 goals adopted by the United Nations to address global challenges, including poverty, inequality, climate change and sustainable development. These goals provide a framework for governments, businesses, and organizations to align their strategies and actions with the broader sustainable development agenda. Many companies integrate the SDGs into their reporting and corporate social responsibility efforts.

Climate Disclosure Standards Board (“CDSB”): CDSB is an international organization that promotes the integration of climate-related information into mainstream corporate reporting. It provides a framework for organizations to disclose material climate-related information in their financial filings. CDSB’s approach aims to enhance transparency and accountability in climate-related reporting.

The Organisation for Economic Co-operation and Development (“OECD”) Guidelines for Multinational Enterprises: The OECD Guidelines provide voluntary principles and standards for responsible business conduct by multinational enterprises. These guidelines cover a wide range of topics, including human rights, labor standards, environmental protection, and bribery. They provide a framework for companies to address and disclose their impacts on society and contribute to sustainable development.

In addition, companies often work with ESG standards specific to their industry, such as:

• GRESB (formerly known as the Global Real Estate Sustainability Benchmark): GRESB is a global benchmark for assessing the sustainability performance of real estate portfolios and infrastructure assets. It provides standardized ESG data and benchmarking tools to evaluate the environmental and social performance of real estate companies and funds. GRESB helps investors and stakeholders make informed decisions and drive improvements in the sustainability performance of the real estate sector.
• Equator Principles: The Equator Principles are a voluntary framework for assessing and managing environmental and social risks in project finance. Financial institutions that adopt the Equator Principles commit to a set of guidelines for environmental and social due diligence, impact assessment, and risk management.
• UN Principles for Responsible Investment (“PRI”): The PRI is a global initiative that encourages investors to integrate ESG factors into their investment decision-making and ownership practices. Signatories of the PRI commit to six principles that promote responsible investment, including considering ESG issues, engaging with companies and reporting on their activities. The PRI supports investors in implementing sustainable investment practices and contributing to a more sustainable global financial system.

Canada’s legal framework does not currently include a wide-ranging ESG specific legislation. However, many aspects of ESG are governed by various statutes, which apply to businesses and their operations generally, such as environmental law, employment law, competition law, anti-corruption law, corporate law, and securities law. For instance,

Carbon Pricing

In Canada, a federal “backstop” carbon pricing system has been in place since 2018 under the Greenhouse Gas Pollution Pricing Act. It applies in provinces and territories where there is no carbon pricing system or where the provincial or territorial system does not meet the federal benchmark. The federal system is comprised of two elements: 1) a fuel charge that applies to certain fossil fuels and 2) an output-based pricing system for certain industrial facilities that have reported emissions exceeding particular thresholds. The federal carbon price increases yearly and is expected to reach CAD$170 per tonne in 2030.

Public Procurement

The Federal Government recently adopted the Standard on the Disclosure of Greenhouse Gas Emissions and the Setting of Reduction Targets under its Policy on Green Procurement. Under the Standard, certain federal organizations, when they launch procurements over CAD$25 million, must include solicitation or contract clauses that require or request suppliers participate in a greenhouse gas emissions disclosure and target-setting initiative.

Duty to Consult

In the Canadian context, a key consideration is the intersection of business with the unique rights guaranteed to the First Nations, Inuit, and Métis people of Canada both under (i) the Constitution Act, 1982; and (ii) various treaties to which an Indigenous group and the Federal or Provincial Government are parties. A legal framework has been devised by Canadian courts to protect these rights in the form of the “Duty to Consult.” The Duty to Consult is owed to any indigenous group with well-established or potential rights which could be impacted by a decision of either level of government (including, in some cases, administrative tribunals or other statutory bodies). Many different potential actions of a government may give rise to the Duty to Consult including, the issuance of a permit or licence, the approval of an environmental assessment or a decision to approve a regulatory project, as examples.

While the Duty to Consult is owed by the government whose potential action triggers the duty, it is established that the government may delegate parts of its obligations to a third-party proponent of a particular decision or action. It should be noted that individuals or companies operating in Canada have no duty to consult with any indigenous group. As a practical matter, however, early and frequent engagement with local Indigenous groups is often seen as an important and necessary part of conducting any business which has the potential to intersect with indigenous rights.

Industry and/or Sector-Specific Regulation

Various industries and sector-specific regulations include ESG related obligations, both at the federal and provincial and territorial levels, including extended producer responsibilities regimes applicable to various products and packaging.

In principle, the Canadian statutes and regulations that touch on ESG only apply within Canada. However, the scope of application of certain ESG measures entail extraterritorial aspects. For instance: Transparency in the extractive sector

The Extractive Sector Transparency Measures Act requires certain entities operating in the extractive sector that are active in Canada to publicly disclose, on an annual basis, certain types of payments made to governments in Canada and abroad.

Canadian Ombudsperson for Responsible Enterprise

The Canadian Ombudsperson for Responsible Enterprise, an appointee of the Government of Canada, is tasked with looking into complaints about possible human rights abuses in the garment (i.e., textiles), mining and oil and gas sectors related to Canadian companies that have activities outside Canada.

Forced Labour and Child Labour

Newly enacted legislation, the Fighting Against Forced Labour and Child Labour in Supply Chains Act, requires medium and large companies to report annually on measures taken to identify, address and prevent forced labour and child labour in their supply chains. There is no diligence standard specified, meaning the company is not required to implement specific measures to avoid or reduce forced labour in its supply chain; rather the company must simply report any measures taken. Further details are provided in Question 7 below.

Additionally, Canadian provinces and territories have implemented consumer protection acts with respect to goods, services and industry, and the Federal Government has passed various pieces of legislation applicable to product safety and human health.

The Competition Act includes general provisions with respect to misleading advertising. On June 20, 2024, amendments to be Competition Act established more stringent rules around greenwashing as a deceptive marketing practice. The Competition Act now requires the following:

• Environmental benefits of a product must be supported by adequate and proper testing.
• Environmental benefits of a business or business activity must be based on adequate and proper substantiation in accordance with an internationally recognized methodology.

However, terms such as "internationally recognized methodologies" have not been defined so it is unclear what methodologies or standards may be considered satisfactory. The Competition Bureau has provided some draft guidance regarding these requirements which is expected to be finalized by mid-2025. Under the recent amendments, private parties will be able to apply beginning on June 20, 2025 for leave to challenge deceptive marketing practices. Private parties seeking leave from the Competition Tribunal to bring a claim for deceptive marketing practices would be required to show that granting such leave is in the public interest.

There are three relevant regimes that create obligations on companies in respect to forced labour and modern slavery more generally, which may impact suppliers.

Suppliers of Canada’s Federal Government must adhere to the Code of Conduct for Procurement

Pursuant to a Contracting Policy Notice, Canada’s Federal Government has made its Code of Conduct for Procurement mandatory for all federal procurements. It requires all suppliers and subcontractors of goods and services to adhere to ethical and sustainability standards across their supply chains. For instance, under the Code of Conduct, vendors and their subcontractors must comply with Canada’s prohibition on the importation of goods produced, in whole or in part, by forced labour. If a supplier has not complied with this prohibition, Canada has introduced procurement contract clauses that permit the Government of Canada to terminate a contract without penalty.

Forced Labour Reporting Obligation

Legislation enacted in 2022, mentioned in Question 5 above, being the Fighting Against Forced Labour and Child Labour in Supply Chains Act, requires medium and large companies to report annually on measures taken to identify, address, and prevent forced labour and child labour in their supply chains. There is no diligence standard specified, meaning the company is not required to implement specific measures to avoid or reduce forced labour in its supply chain; rather the company must simply report any measures taken.

This reporting obligation applies to a broad range of entities. An entity means “a corporation or a trust, partnership or other unincorporated organization that is listed on a stock exchange in Canada; or has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years:

1. it has at least CAD$20 million in assets,
2. it has generated at least CAD$40 million in revenue, and
3. it employs an average of at least 250 employees”.

Any company that meets the above definition, and that produces, sells, or distributes goods in Canada or elsewhere, imports goods into Canada, or controls and entity engaged in these activities, must file an annual report. Reports are due by May 31 of each year. It must be approved by the company’s governing body and must be made available prominently on the company’s website.

Prohibition on the import of goods made of forced labour or child labour

Canada prohibits the importation of any goods produced wholly or in part by forced labour or by child labour. This prohibition applies to all goods entering Canada and leads to the tariff reclassification of any such goods as prohibited goods. The prohibition on goods made of child labour took effect January 1, 2024, and is likely the first such prohibition globally.

No specific ESG-related regulations apply in Canada that would create liability for a company / entity or its corporate bodies / representatives with respect to positive ESG efforts. However, the leading Canadian case law confirmed that the duties of the board of directors (notably their fiduciary duty) of a company are owed to the company, and not to shareholders or any specific group. In exercising business judgment to act in the best interests of the company, the directors can consider the interests of a wide range of stakeholders, including the environment. This has been interpreted to be flexible enough to potentially protect ESG-driven decision making, thus limiting the ability of shareholders to sue a board of directors for ESG related activities that the board determines are in the best interests of the company even if they reduce shareholder returns. So far, ESG in Canada has been a less polarizing topic than it has been in the U.S. However, some of the trends currently seen in the U.S., such as criticisms of greenwashing, may become more relevant in Canada. As Canada looks to implement mandatory ESG reporting, it is possible that the critiques associated with ESG initiatives may become more relevant in the years ahead.

The guiding principles described at Q&A 8 apply to this question.

Regarding customers, see the question and response above with respect to the advertising provisions in the Competition Act and the right of action for private parties included in the recent amendments.

Regarding creditors, pursuant to section 38 of the Bankruptcy and Insolvency Act (“BIA”), where a creditor of a bankrupt requests the trustee in bankruptcy to take proceedings for the benefit of the estate and the trustee refuses or neglects to do so, the requesting creditor may obtain a court order authorizing the creditor to take the proceeding in its own name and at its own expense. Where such an order is made, the trustee is required to assign to the creditor all right, title and interest of the estate in the chose in action or subject-matter of the proceeding. While we are not aware that this remedy has been utilized in a ESG claim context, it could likely be used where a cause of action exists against a representative of a bankrupt or a debtor that is being restructured under the BIA or Companies’ Creditors Arrangement Act. In addition, under applicable corporate statutes, a creditor could assert a claim against the debtor if non-compliance with ESG rules was oppressive or unfairly prejudicial to, or unfairly disregarded the creditor’s interests.

As noted herein, there are ESG-related rules in Canada.

Regarding the Competition Act, see the question and response above with respect to advertising and the recent amendments to the Competition Act.

In 2022, a number of amendments were made, relating to relationships between employers and employees, whether companies can be sued for certain contracting practices, how businesses advertise prices and how companies can structure their transactions to minimize regulatory risk. Subsequently in 2023, Bill C-56 was passed, which, among other things, allows for a framework for the Commissioner of Competition or the Minister of Innovation, Science and Industry to conduct market studies assessing competition within a given sector, the inclusion of “excessive and unfair selling prices” in the list of anti-competitive acts, and expansion of the scope of abuse of dominance. The most recent amendments in Bill C-59 have received royal assent in June 2024. In addition to the misleading environmental representations proposed amendments discussed above, the amendments also contain a voluntary certification process for agreements related on environmental protection. Through this process, private parties would be able to apply for a certificate from the Commissioner of Competition. In reviewing such requests, the Commissioner would consider whether the proposed collaboration is for the purpose of protecting the environment and is not likely to prevent or lessen competition substantially. If such a certificate is granted, it would exempt the collaboration from the application of specific provisions of the Competition Act for a specific period.

In Canada, investment fund managers are not subject to any statutory framework regarding ESG indicators. However, if an investment fund’s investment objective or strategies set out such a framework, the investment fund must follow such framework accordingly.

On March 7, 2025, the CSA, the umbrella organization of provincial and territorial securities regulators in Canada, released CSA Staff Notice 81-334 (revised) ESG-Related Investment Fund Disclosure (which updates guidance originally published in January 2022). The Staff Notice provides guidance on the disclosure practices of investment funds as they relate to ESG considerations and on the types of investment funds that may market themselves as being focused on ESG. Although the Staff Notice is not law, the expectation of the CSA is that the guidelines set out in the Staff Notice will be followed by industry participants, excluding any provisions described as “best practices.” Several Canadian securities regulatory authorities have conducted industry “green sweeps” of investment funds and their investment fund managers with the aim of ensuring compliance with securities laws with respect to ESG products.

On March 7, 2025, Canada’s federal regulator of banks and insurance companies (the Office of the Superintendent of Financial Institutions (“OSFI”)) published a revised version of Guideline B-15: Climate Risk Management (Guideline B-15). Most aspects of Guideline B-15 became effective for fiscal year-end 2024 for Internationally Active Insurance Groups (“IAIGs”) headquartered in Canada and Domestic Systemically Important Banks (“D-SIBs”), and are effective for fiscal year-end 2025 or 2026 for all other in-scope federally regulated financial institutions (“FRFIs”), with early adoption permitted. On February 20, 2025, OSFI indicated that the implementation date for disclosure of Scope 3 greenhouse gas ("GHG") emissions is now fiscl year-end 2028. On January 8, 2026, OSFI indicated that the implementation date for the disclosure of financed emissions related to assets under management has been deferred to a future date. The implementation dates for the requirements to describe the FRFI's Climate Transition Plan and the resilience of the FRFI's strategy are also to be determined.

The main requirements under Guideline B-15 include:

• the development and implementation of a Climate Transition Plan to manage physical risks from climate change and transition risks related to the transition towards a low-greenhouse gas emission economy;
• the undertaking of climate scenario analyses to assess the impact of climate-related risks on the FRFI’s risk profile, business strategy and business model; and
• the completion of standardized climate scenario exercises as required by OSFI.

There is currently no single voluntary framework followed in Canada regarding ESG indicators and impact indicators. With respect to investment funds, there are several voluntary frameworks followed or in development by industry participants regarding ESG indicators and impact indicators, including both domestic frameworks (such as the Canadian Investment Funds Standards Committee – Responsible Investment Identification Framework for Investment Funds) and international frameworks (such as the CFA Institute’s Global ESG Disclosure Standards for Investment Products). In addition, several ratings providers provide sustainability scores for Canadian-domiciled investment products (such as Fundata, Morningstar, and Refinitiv).

With respect to financial institutions, the International Capital Market Association’s (ICMA) Green Bond Principles, Social Bond Principles and Sustainability-Linked Bond Principles provide guidance on the core components of the respective financial instruments. Similarly, Green Loan, Social Loan and Sustainability-Linked Loan Principles have been developed by the Loan Syndication and Trading Association and the Loan Market Association. The Bond and Loan Principles have been broadly accepted and adopted by Canadian financial institutions as ESG indicators for transaction in the Canadian debt markets.

On December 18, 2024, the Canadian Sustainability Standards Board (CSSB) released Canadian Sustainability Disclosure Standard (CSDS) 1, General Requirements for Disclosure of Sustainability-related Financial Information (CSDS 1) and Canadian Sustainability Disclosure Standard (CSDS) 2, Climate-related Disclosures (CSDS 2), which take effect for reporting periods beginning on or after January 1, 2025. Accompanying the standards is The Criteria for Modification Framework, which outlines the criteria under which global standards may be modified for the Canadian context. The CSSB’s standards are voluntary unless mandated by regulators or governments.

In Canada, investment advisors (portfolio managers) are neither explicitly required to consider nor prohibited from considering ESG factors when making investment decisions or recommendations, unless the treatment of ESG factors is specified in the investment objective or strategies of the applicable mandate, and only to the extent so specified. To the extent that ESG factors may be financially material to a portfolio, it may be considered appropriate for the investment advisor to consider such ESG factors, even if they are not explicitly specified in the investment objective or strategies of the applicable fund.

In Canada, neither pension fund administrators nor plan sponsors are required to consider or prohibited from considering ESG factors when making investment decisions or recommendations, unless the applicable governing documents specify treatment of ESG factors. However, the consideration of ESG factors is generally considered compatible with a pension fund administrator’s statutory and/or common law duties where such ESG factors are considered relevant to the fund’s financial performance or where such pursuit can improve financial performance. In discharging their duty, pension plan administrators must have regard to all relevant circumstances, including financial and nonfinancial factors. While this has generally been viewed as permitting ESG factors to be taken into consideration, ESG considerations are not specifically referenced in any legislation currently in effect, and the practical application of this duty to ESG considerations is not fully developed or agreed upon.

On June 9, 2022, the Canadian Association of Pension Supervisory Authorities (“CAPSA”) released CAPSA Guideline – Environmental, Social and Governance Considerations in Pension Plan Management. The Guideline aims to support plan administrators in fulfilling their fiduciary obligations and giving appropriate consideration to ESG factors that may have financial relevance to their plan’s investments and risk management frameworks. According to the Guideline, failing to consider ESG factors that may be potentially material to a given pension fund’s financial performance could be a breach of fiduciary duties.

In Ontario, plan fiduciaries are required to disclose, in the statement of investment policies and goals and in participant statements, whether they take ESG factors into account when investing plan assets and, if so, how (section 78(3) of Regulation 909 under the Pension Benefits Act (Ontario)).

Pension fund administrators and plan sponsors are regulated at either the provincial/territorial level or at the federal level. Therefore, requirements applicable to plans, administrators, and sponsors vary by jurisdiction.

Canadian financial institutions are not explicitly required to consider nor prohibited from considering ESG factors when making investment decisions or recommendations. However, as discussed in further detail in our response to Q&A 20 below, federally regulated financial institutions are required to manage their climate-related risks. In addition, Canada’s big five banks are members of the Glasgow Financial Alliance for Net Zero (“GFANZ”). GFANZ was established with the goal of transitioning the financial sector to a low-carbon future. Members of GFANZ must be accredited by the UN Race to Zero campaign upon assessment of science-based guidelines to reduce emissions in line with the campaign’s criteria. The members’ commitments include setting targets that cover a significant majority of their financed emissions (including a minimum 50 percent cut in financed emissions by 2030) and annually publishing absolute emissions and emissions intensity in line with best practices.

A number of jurisdictions are in the process of implementing or are considering proposing legislation or guidance with respect to the consideration of ESG factors when making investment decisions or recommendations. For instance, the Canadian Federal Government is in the process of considering Bill S-243 - An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts, which would establish climate commitments and obligations of various entities in relation to them, including specific federally regulated pension plans and financial institutions.

Canada does not currently offer any direct tax credits or rate reductions to financial institutions and/or pension institutions that can demonstrate the integration of ESG factors into their investment decisions. However, several income tax incentive programs have been introduced over the last few years that are aimed at incentivizing green initiatives at the operating company level. Therefore, financial institutions and pension funds can benefit indirectly from these programs by targeting investments in entities that receive these ESG-related tax incentives and experience a reduced income tax burden.

ESG-related tax incentives in Canada have generally been aimed at promoting de-carbonization through the development of clean energy technology, manufacturing and utilization of clean energy equipment, and exploration for and processing of critical minerals. While an exhaustive list of available credits and incentives is outside the scope of the summary, the following list highlights specific federal proposals included in Canada’s latest federal budget (March 28, 2023):

• the Clean Hydrogen Investment Tax Credit, a 15%-40% refundable tax credit available in respect of the cost of purchasing and installing eligible equipment for hydrogen projects;
• the Clean Technology Investment Tax Credit, a refundable tax credit equal to 30% of the cost of clean electricity generation systems (e.g., solar, nuclear, hydro, etc.), electricity storage systems (e.g., batteries, pumped hydro storage, gravity energy storage, etc.), low-carbon heat equipment (e.g., air or ground source heat pumps) and industrial zero-emission vehicles;
• the Clean Electricity Investment Tax Credit, a refundable 15% tax credit for eligible investments in non-emitting electricity generation systems (e.g., wind, concentrated solar, solar photovoltaic, hydro (including large-scale), wave, tidal, nuclear (including large-scale and small modular reactors);
• the Investment Tax Credit for Clean Technology Manufacturing, 30% refundable investment tax credit for clean technology manufacturing and processing, and critical mineral extraction and processing;
• Investment tax credits and enhanced tax depreciation for capital investment in carbon capture and utilization systems (rates vary according to the type of equipment); and reduced tax rates on eligible zero-emission technology M&P income for qualifying manufacturers.

Eligibility for certain tax incentives depends on the recipient’s adherence to labour requirements relating to wage and apprenticeship targets. The wage requirement generally requires that workers involved in the recipient’s project be paid at or above a “relevant wage” (generally determined by reference to collective agreements negotiated between trade unions and employers in the relevant sector). The apprenticeship requirement generally requires that, subject to applicable labour laws and collective agreements, not less than 10% of the total labour hours of covered workers on a particular project be performed by registered apprentices.

Specific greenwashing measures have been recently adopted in the Competition Act. (See the question and response above with respect to advertising.) Previously, regulators and prosecutors have mostly relied on existing general rules. The potential consequences for non-compliance include administrative monetary penalties in addition to prohibitions and remedial orders.

In addition to the Competition Act, there are some additional federal statutes that relate to consumer matters. The Consumer Packaging and Labelling Act includes general provisions with respect to labelling of non-food consumer goods and the Textile Labelling Act includes general provisions with respect to the labelling, sale, import and advertising of consumer textile goods.

The Competition Bureau has undertaken several investigations on the basis of "greenwashing" in recent years. The investigations have targeted companies in diverse sectors, including forestry, transportation, oil and nature gas, banking and food and beverage. However, the Competition Bureau has not yet commenced criminal or civil actions arising from such investigations.

In October 2021, the CSA published Proposed National Instrument 51-107 - Disclosure of Climate-Related Matters and its companion policy, which proposed to introduce new climate-related disclosure requirements for reporting issuers (largely publicly listed companies) in Canada with limited exceptions. These proposals were never finalized and are currently on hold. In April, 2025, the CSA announced that it is pausing its work on the development of a new mandatory climate-related disclosure rule and amendments to the existing diversity-related disclosure requirements. The CSA cited that this is being done to support Canadian markets and issuers as they adapt to the recent developments in the U.S. and globally. The CSA indicated that it expects to revisit both projects in future years to finalize requirements for issuers.

The proposed instrument would have required climate-related disclosures aligned with the four core elements of the recommendations of the Task Force on Climate-Related Financial Disclosures:

Governance: Describe the board’s oversight of climate-related risks and opportunities and management’s role in assessing and managing climate-related risks and opportunities.

Strategy: Describe climate-related risks and opportunities identified over the short, medium, and long term and their impact on businesses, strategy, and financial planning.

Risk Management: Describe the processes for identifying, assessing, and managing climate-related risks and how such processes are integrated into the overall risk management.

Metrics and Targets: Disclose the metrics and targets used to assess climate-related risks and opportunities and performance against targets, including greenhouse gas emissions. If an issuer does not disclose its greenhouse gas emissions, then it must provide reasons for non-disclosure.

This disclosure would have been required to be provided in the following documents:

Governance: In the management information circular or, if the reporting issuer does not send a management information circular, its AIF or if it does not file an AIF, its annual MD&A.

Strategy, Risk Management and Metrics and Targets: In a reporting issuer’s AIF, or, if it does not file an AIF, in its MD&A.

More generally, we can expect an increase in the scope of existing regulatory initiatives, such as the federal Standard on the Disclosure of Greenhouse Gas Emissions and the Setting of Reduction Targets, as well as the adoption of similar provincial initiatives around procurement.

ESG considerations are important considerations in M&A transactions in Canada. Acquirors and investors are paying more attention to several issues (both risks and opportunities) around ESG, including the acquiror’s and target’s carbon footprint, impact on biodiversity, claims around net-zero and energy consumption, as well as governance considerations, human rights, and diversity. This increasing focus will continue to influence on the scope of the due diligence, the content of representations and warranties, and pricing, including in the form of premiums or discounts based on the target’s ESG records.