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Canadian securities regulators publish guidance on ESG – Do you know how to manage ESG risk?

March 17, 2022
Canadian securities regulators publish guidance on ESG - Do you know how to manage ESG risk?


by CSE research team


In recent years, there’s been more pressure for investment managers and managers of active businesses to increase their reporting of Environmental, Social and Governance (ESG) metrics in their financial and non-financial public disclosures. Regulators and legislators are implementing rules to promote this objective.


Under Canadian securities legislation, there are currently no separate specific requirements mandating environmental and social-related disclosures by public companies. However, the Toronto Stock Exchange and the TSX Venture Exchange have adopted policies regarding timely disclosure of ESG metrics alongside reporting obligations for listed public companies. In addition, Bill C-97, which received royal assent in 2019, introduced amendments to the Canada Business Corporations Act that will require corporate boards to disclose information related to diversity on boards and senior management ranks, and the wellbeing of employees, retirees and pensioners. These amendments have not yet come into force.


Businesses need to think critically about the accuracy and structure of their ESG claims to protect against possible legal challenges and regulatory action. Businesses should clearly define the scope of their commitments to ESG, while ensuring they meet legal obligations and market expectations for disclosure. Companies should also review their insurance policies to determine whether ESG-related claims are covered.


Core elements:


  • Consider the risks of proxy disputes from inaction on ESG

Failure to take sufficient action on ESG matters can risk proxy contests and harm to a company’s business. Large institutional investors in Canada are increasingly expecting businesses to act on ESG matters.

  • Understand applicable mandatory reporting requirements

Mandatory legal obligations to disclose information relating to ESG already apply to many Canadian businesses, and new disclosure obligations are forthcoming. It is imperative that businesses be aware of and understand these requirements, as failure to abide by them can result in enforcement and other sanctions.

  • Ensure the accuracy of ESG statements

Globally there has been increased regulatory action and litigation related to false or misleading ESG claims. In recent years, regulators in the United States and Canada have been actively pursuing companies for alleged misstatements and deceptive claims.

  • Be ready to defend your ESG-related performance, at home and abroad

There is an increasing international trend towards litigation targeting companies’ ESG-related performance, or perceived lack thereof. Canadian companies have faced lawsuits alleging negligence or misconduct by subsidiaries and suppliers in foreign jurisdictions.

  • Don’t let your ESG Disclosure be used against you


Even where ESG-related statements are accurate, they may be used as evidence in litigation about whether a company has fulfilled its legal obligations. Recent case law in Canada and the United Kingdom suggests that public ESG statements may provide a basis for plaintiffs to bypass the “corporate veil” and sue a parent company directly for the actions of its subsidiaries. If a parent company is sued for the actions of subsidiaries abroad, it should be familiar with the substantive laws of the foreign jurisdiction, which may apply in tort claims brought in Canada.


Canadian businesses should be particularly careful to scrutinize their ESG disclosure to ensure it aligns with their operations.


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