From Guidelines to Enforcement: The Future of ESG Regulation in Canada

The future of ESG regulation in Canada is no longer theoretical. For years, companies treated environmental, social, and governance disclosure as guidance or best practice. Now regulators, investors, and financial institutions expect action that can stand up to scrutiny. This shift means the future of ESG regulation in Canada is moving from voluntary frameworks to real enforcement.

Regulators are clarifying expectations. Investors are demanding data. Financial institutions are tightening risk practices. At the same time, legal risks around greenwashing have jumped. As a result, Canada’s ESG landscape is shifting quickly, and organizations must act now.

How voluntary ESG guidance is becoming enforceable

In 2025, Canada took a major step in tightening ESG rules. The Competition Bureau released its final guidelines on environmental claims to clarify enforcement of recent greenwashing provisions added to the Competition Act. These guidelines require companies that make environmental claims, like carbon neutral or eco-friendly, to support those claims with proper testing or recognized methodologies. Companies that fail to comply can face severe penalties.

Unlike previous guidance that focused on best practices, this new guidance clarifies how regulators will use existing laws to hold companies accountable. It reinforces the idea that the future of ESG regulation in Canada is not just about reporting data but proving it.

At the same time, the Canadian Securities Administrators (CSA) announced a pause in developing mandatory climate-related disclosure rules. However, the CSA emphasized that existing securities law already requires companies to disclose material climate-related risk, and this responsibility continues even without a new regulation.

This means issuers must still disclose climate risks that could influence investor decisions and financial performance. The decision to pause new rules reflects market conditions, not a shift away from accountability. In other words, the future of ESG regulation in Canada requires credible risk disclosure now, not later.

Why regulators are driving enforcement

Regulators across Canada are focused on preventing misleading environmental claims. The Competition Bureau’s final guidelines make clear that greenwashing risk now has teeth. Penalties for deceptive environmental marketing can reach millions of dollars or a percentage of global annual revenue for repeat offenses.

The Bureau’s guidance also explains how environmental claims should be tested, substantiated, and communicated. Without appropriate evidence, companies risk enforcement action. The aim of these rules is not to restrict sustainability claims, but to ensure they are truthful and backed up with data that stakeholders can verify.

This enforcement dynamic shows that the future of ESG regulation in Canada is not solely shaped by new laws. It also depends on how existing laws, like the Competition Act, apply to corporate behavior in the marketplace.

Financial institutions and investors raising the bar

Banks, insurers, and investors play a central role in demanding credible ESG disclosure. They are increasingly integrating climate risk into their risk frameworks and underwriting standards. As companies struggle to substantiate ESG claims, lenders and insurers may require stronger evidence before allocating capital.

At the same time, investors are demanding consistent and comparable disclosures. Regulatory pauses and changes affect how capital markets view ESG risk. While the CSA has paused mandatory climate reporting development, markets still expect material climate risks to be disclosed and supported with data. This expectation ties directly into the future of ESG regulation in Canada, as investors view enforcement credibility as essential to investment decisions.

External legal analyses suggest that greenwashing litigation and alleged mismanagement of climate risk are growing areas of exposure, especially as regulators and investors push for accountability.

Emerging pressures companies must prepare for

Even amid regulatory changes and proposed amendments, accountability expectations are rising. Canada’s government has considered modifying some greenwashing enforcement provisions. Recent budget announcements propose changes to the requirements for substantiation, but require that environmental claims must still not be false or misleading.

This evolving regulatory environment shows that the future of ESG regulation in Canada will involve a combination of:

• Disclosure requirements that go beyond corporate narratives

• Enforcement under existing laws like the Competition Act

• Investor and market discipline through risk assessment expectations

At the same time, companies must prepare for litigation risk. Courts and tribunals may interpret the Competition Act’s environmental claims provisions, which could shape how companies structure disclosures and evidence their sustainability claims.

Strategic steps organizations should take now

Companies that recognize that the future of ESG regulation in Canada is enforcement-oriented can take proactive steps to protect themselves and build trust with stakeholders.

Create a unified data approach
Align sustainability reports, financial disclosures, marketing materials, and investor communications around the same verified data. This reduces inconsistency and reputational risk.

Audit existing claims
Conduct an internal review of all environmental and ESG claims. Tie each claim to documented evidence that meets internationally recognized testing or substantiation standards.

Strengthen governance
Give executives and boards clear responsibility for ESG data. Document review processes and approval workflows. Treat ESG claims with the same rigor as financial statements.

Align to global standards
Draft disclosures to align with frameworks such as the ISSB and emerging Canadian sustainability disclosure standards. Even voluntary frameworks help create consistency that investors and regulators seek.

Prepare for stakeholder scrutiny
Anticipate deeper questions from lenders, insurers, and investors about methodologies, assumptions, and risk analysis.

Join CANADA 2026

The future of ESG regulation in Canada is clear. Expectations are rising, enforcement mechanisms are strengthening, and companies that are unprepared risk legal, financial, and reputational harm.

If your organization wants to stay ahead of regulatory requirements and investor expectations, join CANADA | Certified Sustainability (ESG) Practitioner Program, Advanced Edition 2026. Gain practical insights and tools to build ESG strategies, disclosures, and risk frameworks that hold up under scrutiny in the evolving Canadian landscape.