As the focus on greenwashing increases, Canadian public companies are becoming more attentive to their environmental disclosure.
In particular, issuers are questioning whether the current protections under securities laws for forward-looking information, as well as for current or historical disclosed information, should be revisited (and potentially expanded) in light of significant recent developments around greenwashing.
Those developments include the adoption of new anti-greenwashing provisions under the Competition Act and the upcoming introduction of expanded private rights of action before the Competition Tribunal as well as the possibility climate-related disclosure requirements will be adopted under Canadian securities laws.
Among the comments filed with the Competition Bureau in the fall of 2024 in connection with its greenwashing guidelines consultation, at least 32 out of the 211 submissions called for the addition of protections similar to those offered under securities laws, in light of the new Competition Act provisions. Some applicants highlighted potential litigation risks stemming from the new requirements aimed at deterring unsubstantiated environmental claims, whether related to product benefits or business activities.
It has also been argued that current protections offered under securities laws are insufficient. In 2021, the Canadian Securities Administrators (CSA) were asked to consider enhancing, or adopting, additional safe harbours when comments were submitted on the draft of the proposed climate-related requirements, National Instrument 51-107 Disclosure of Climate-related Matters (“NI 51-107”). In that regard, the CSA indicated in December 2024 that it would consult on concerns regarding liability in the context of a revised draft of NI 51-107, before pausing its work on the development of a new mandatory climate-related disclosure rule on April 23, 2025 to allow Canadian issuers to adapt to the recent developments in the U.S. and globally (see our “Concluding Comments” below).
Are the current protections offered under securities laws sufficient? Should safe harbours for climate-related disclosure be expanded under securities laws or be created under competition laws? Certain countries, such as Australia, have approached this issue by providing specific safe harbours for certain climate-related disclosure. Should Canadian regulators follow their lead?
Canada: the Current State of Affairs
Protections for Aspirational Statements
When making aspirational statements addressing environmental performance, issuers have been relying on the protections currently offered by Canadian securities laws regarding forward-looking information (“FLI”). FLI related to climate change could include, for example, a target to reduce carbon emissions or disclosure of an issuer’s assessment of the potential business implications of climate change-related risks and opportunities under various scenarios.
The basic principle is that a company will not be exposed to liability:
- When there is a reasonable basis for the FLI, considering both the reasonableness of the underlying assumptions and the process followed in preparing and reviewing the FLI (Companion Policy 51-102CP – Continuous Disclosure Obligations), or
- When certain disclosure conditions are met, such as identifying the information as FLI, providing cautionary language and identifying the material factors or assumptions used to develop the FLI (Part 4A, Part 4B and section 5.8 of National Instrument 51-102 - Continuous Disclosure Obligations).
However, when the CSA adopted these provisions in 2007, they did not have environmental disclosure specifically in mind. Nor did they consider FLI that could extend over a period of 25 years, such as could conceivably be the case in regard to carbon emissions commitments made in the context of the Paris Agreement.
Following the increase in green representations, the CSA provided more examples of greenwashing in their latest Staff Notice published on November 7, 2024 in the context of the CSA’s Continuous Disclosure Review Program. The CSA stated, for example, that “disclosure about a target to transition to net zero can be misleading if the issuer does not indicate what is included in its net zero target and if the issuer has no credible plan to achieve such a target”. The CSA also stated that disclosure “to reduce greenhouse gas emissions or to obtain a carbon neutral position” may constitute FLI (CSA Staff Notice 51-365 - Continuous Disclosure Review Program Activities for the Fiscal Years Ended March 31, 2024 and March 31, 2023).
Over the years, the CSA has provided various guidance on FLI specific to environmental disclosure, but it has also highlighted certain weaknesses in the current regime.
Notably, the regulators reiterated that in order to disclose a financial outlook or future oriented financial information, both of which are subcategories of FLI, the information must be based on reasonable assumptions and limited to a time period for which the information can be reasonably estimated. Several issuers told the CSA in 2018 that this standard is difficult to meet when disclosing climate change-related risks and opportunities (for example, the impact of climate change on the value of assets), given the level of uncertainty and subjectivity associated with climate change, and the lengthy time frame over which some of its effects are likely to develop (CSA Staff Notice 51-354 - Report on Climate change-related Disclosure Project).
Uncertainty around the communication of climate risks and opportunities may increase if the CSA releases new requirements for climate-related disclosure this year, which, if released, are likely to be based on the voluntary framework created by the International Sustainability Standard Board (“ISSB”). Issuers consulted by the CSA have indicated that some of the disclosure required under various voluntary frameworks consist of “FLI of a nature and extent which would be difficult to accommodate under existing securities laws in Canada” (CSA Staff Notice 51-354 - Report on Climate change-related Disclosure Project).
Historical and Current Data is Another Story
When it comes to historical and current data, uncertainty is also a challenge.
Securities laws in various jurisdictions across Canada (including Québec, Ontario and British Columbia) provide a due diligence defence against civil liability for issuers, directors and officers if a misrepresentation was found in a company’s continuous disclosure documents.
Generally speaking (and language may vary from one province to another), the following rules apply:
- When the misrepresentation occurs in a document filed under securities laws (often referred to as a core document, such as a prospectus, circular, AIF, or MD&A), the burden of proof is on the defendant to demonstrate that sufficient actions were taken to establish a due diligence defence.
- When the misrepresentation is found in a voluntary disclosure document (i.e. a document that is not a core document), then the burden of proof is reversed. The plaintiff must prove that the issuer, its directors or officers:
- knew, at the time of release, that the statement contained a misrepresentation,
- when the document was released, deliberately avoided acquiring such knowledge at or before that time, or
- was, through action or failure to act, guilty of a gross fault/misconduct in connection with the release of the statement.
That said, the complexities inherent to environmental reporting, especially concerning carbon emissions, could add a layer of difficulty to asserting a due diligence defence. The accuracy of issuers’ carbon emissions data is crucial for investors who increasingly prioritize environmental considerations in their decision-making.
Nonetheless, such data is fraught with measurement challenges. Disclosure around carbon emissions measurement may include estimates and may not be reliable, especially when issuers are disclosing indirect emissions (Scope 3). For example, according to a global survey of issuers by Boston Consulting Group (“BCG”) published in October 2022, 81% of the survey results measure internal emissions (Scope 1 and Scope 2) and external emission (Scope 3) partially, only 19% measure internal emissions fully, and approximately half of those measure external emissions fully. The survey respondents estimated an average error rate of greater than 25% in their emission measurements. Furthermore, companies typically calculate their own direct emissions, which potentially greatly underestimates the total emissions as it omits those generated upstream and downstream in connection with their products.
The estimated error rates noted by BCG’s survey highlight the importance of addressing the discrepancies between the current standards of reasonable investigation and the practical realities of environmental reporting. The results set out in BCG’s survey underscore the need for issuers to enhance the accuracy and reliability of their environmental reporting itself and to ensure that their investigative processes are robust, even when dealing with flawed or imprecise data.
To mitigate these risks, issuers, directors, and officers may try to maximize the protections afforded by the safe harbour provisions, including by implementing strict data collection and verification methods, potentially engaging third-party assurance providers, and disclosing in sufficient detail the limitations and uncertainties of their measurements.
The SEC’s Climate-related Disclosure Rules (Now Paused)
The U.S. Securities and Exchange Commission (the “SEC”) unveiled its final climate-related disclosure rules (the “Rules”) in March 2024. The Rules’ objective is to provide more consistent, comparable, and reliable information to enable investors to make informed assessments of the impact of climate-related risks on current and potential investments. In April 2024, the SEC decided to temporarily stay the Rules pending judicial review and on March 27, 2025, the SEC withdrew its defence of the Rules which had been challenged in court. In addition, with the new U.S. President and a new SEC Chair, it is possible that the Rules could be rescinded or substantially changed.
A notable feature of the Rules is the provision of a safe harbour for forward-looking climate-related disclosure, such as transition plans, scenario analysis, internal carbon pricing, and targets and goals provided pursuant to certain Regulation S-K sections. This safe harbour provides that all such information, except for historical facts, is considered forward-looking statements for the purposes of the safe harbours under the Private Securities Litigation Reform Act (the “Securities Litigation Act”), thus aligning the safe harbour with existing protections for forward-looking statements under U.S. legislation.
The SEC also has authority under the Securities Litigation Act to provide exemptions from liability for other statements based on projections or other forward-looking information if the SEC determines that such exemption is consistent with the public interest and the protection of investors. However, while the Securities Litigation Act provides certain protections for forward-looking statements, this does not preclude the SEC from taking enforcement action if disclosure is misleading, incomplete, or otherwise in violation of U.S. securities laws.
The Rules do not require the disclosure of indirect emissions (Scope 3) from any issuer, in recognition of the fact that, unlike direct emissions (Scopes 1 and 2), Scope 3 emissions typically result from the activities of third parties in an issuer’s value chain and, thus, collecting the appropriate data and calculating these emissions would potentially be more difficult.
Despite feedback suggesting that Scopes 1 and 2 emissions disclosure should also be covered by the safe harbour, the SEC decided against this. The SEC indicated that methodologies for calculating these emissions are fairly well-established and make safe harbour protections from private litigation for such disclosure unnecessary.
The Australian Rules
The Australian federal government has recently introduced a “safe harbour” provision as part of the adoption of mandatory climate-related disclosure standards, which came into force on January 1, 2025.
The newly adopted standards require public companies and large private companies to disclose material climate-related financial risks and opportunities in line with the ISSB standards to ensure international consistency and comparability.
The new Australian legislation introduces a “safe harbour” provision effective for three years from the date the new rules became law. The legislation intends to protect entities from litigation over their disclosure concerning Scope 3 emissions, scenario analysis, and transition plans, referred to as “protected statements”, all of which are considered areas of high uncertainty in climate-related statements. This safe harbour could potentially protect against claims that an entity has engaged in misleading or deceptive conduct in contravention of relevant provisions of other corporate, consumer and securities legislation.
Additionally, statements in sustainability or auditor’s reports for a financial year beginning within the first year from enforcement date are protected if they address climate and involve future projections.
While the provision aims to balance the need for robust disclosure against the challenges of predicting climate-related impacts with precision, it has drawn criticism for potentially enabling greenwashing.
Notably, NGOs and other stakeholders have expressed concerns about the introduction of such safe harbour provisions, arguing that such safe harbours could undermine the rigour of disclosure and delay substantive climate action. These stakeholders emphasized the necessity of maintaining strong legal avenues for holding corporations accountable for their climate commitments and reporting accuracy. Certain stakeholders have also stressed the urgent need for effective climate action and a concrete regulatory framework to address climate change promptly, arguing that in such context the new legislation was removing important accountability mechanisms.
The Australian authorities will have an opportunity to consider such concerns given that the legislation includes provisions allowing for a future review of the new reporting framework as soon as practicable after July 14, 2028.
Concluding Comments
Even though the CSA indicated it has paused its work on the development of a new mandatory climate-related disclosure rule in order to support Canadian markets and issuers as they adapt to the recent developments in the U.S. and globally, the issues surrounding safe harbours remain of significant importance for companies that will continue to make climate-related disclosures either voluntarily or because such disclosures are material risks that are legally required to be disclosed.
The CSA stated on April 23, 2025 that it expects to revisit the climate-related disclosure rule in future years to finalize requirements for issuers. Whether that step takes place or not, in order to provide more certainty and promote comprehensive climate-related disclosure going forward, Canada might benefit from adopting a safe harbour approach similar to what has been implemented in the U.S. and Australia. However, if the CSA does decide to adopt specific safe harbours for climate-related disclosure or enhance current general safe harbours, the CSA may face resistance from stakeholders, including institutional investors and NGOs, similar to the pushback experienced in the U.S. and Australia.
