Developments in ESG-related disclosure requirements for Canadian companies

Federal private company climate disclosure obligations

On October 9, the Canadian federal government published a news release announcing its intention to amend the Canada Business Corporations Act (CBCA) to introduce mandatory climate-related financial disclosure for large, federally incorporated private companies and to deliver "Made-in-Canada sustainable investment guidelines." This follows from commitments in the 2023 Fall Economic Statement and Budget 2024 to, among other things, develop a sustainable finance taxonomy identifying "green" and "transition" investment.

Amendments to the CBCA that will mandate climate-related financial disclosures for large, federally incorporated private companies will be brought forward and the federal government will launch a regulatory process to determine the substance of such disclosure requirements and the size of corporations that would be subject to them. Small- and medium-sized businesses will not be subject to the disclosure requirements, but the federal government is considering ways to encourage them to voluntarily disclose.

The news release included a statement that the federal government is ready to work with provincial and territorial partners "to ensure broad disclosure coverage across the Canadian economy" and also indicated that efforts will be made to harmonize any CBCA requirements with climate-disclosure rules adopted by Canadian securities regulators.

No information on timing, process, company size thresholds or substantive requirements has been released at this time.

This initiative comes as companies are attempting to deal with the potential impact of the recent Bill C-59 "greenwashing" amendments to the Competition Act and the questions raised by those amendments. It will be important to understand the interplay of the proposed CBCA amendments with the greenwashing rules.

Federal sustainable investment guidelines

The federal government has also pledged to deliver "Made-in-Canada sustainable investment guidelines" (the Taxonomy) which, unlike the proposed climate disclosure requirements, will not be mandatory, but would likely apply to more than just large, federally incorporated private companies. At a high level, the Taxonomy will create categories and definitions as a tool for investors to determine whether economic activity is "green" or "transition" with the aim being to "mobilize investment in support of Canada's net-zero transition by enabling investors to understand and communicate which key activities and investments will deliver a Canadian net-zero economy."

The Taxonomy will be developed and governed by one or more external, third-party organizations and will first focus on the following sectors: electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractives, including mineral extraction and processing, and natural gas. The news release indicated that a taxonomy for two to three priority sectors will be released within 12 months of the commencement of work on the Taxonomy. In addition to the news release, the federal government published a backgrounder on the Taxonomy.

Ontario Securities Commission - Insights on the OSC Staff's Approach to Sustainable Finance

On October 7, two days prior to the federal government's news release, the Ontario Securities Commission published a document called "Insights on the OSC Staff's Approach to Sustainable Finance." This document includes a foreword from the CEO of the OSC and was not issued in conjunction with any other Canadian securities regulatory authorities. The document contains a discussion of the OSC's role within the sustainably finance ecosystem and, given its nature, does not set out any details on current or proposed regulatory initiatives. Nonetheless, the following regulatory items were listed as short- and medium-term priorities for the OSC:

• working towards implementing "right-sized" climate-related disclosure requirements for public companies;
• monitoring the work of various organizations to develop ethics standards that could be used for sustainability assurance reporting;
• considering the varied feedback provided on diversity disclosure proposals published for comment in April 2023 and seeking a harmonized approach;
• considering opportunities to enhance the role of the audit committee and the extent of disclosure around governance matters, such as whistleblowing procedures and the use of internal audits;
• continuing to monitor the practice of virtual shareholder meetings, including reviewing disclosure in proxy-related materials;
• continuing to engage with Indigenous communities on issues relevant to their participation in the capital markets;
• continuing to review sustainable finance products; and
• right-sizing the OSC's oversight of emerging financial infrastructure entities, such as carbon exchanges.

Conclusion

Depending on the timing of the CBCA amendments and the response of the securities regulatory authorities, the result could be that not only would large, private, CBCA corporations have greater disclosure obligations than large, private, provincially incorporated corporations but also greater disclosure obligations than public corporations. The latter would seem an unusual and arguably unintended consequence. We will continue to monitor developments.

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