Answer ... Regulatory requirements relating to ESG in Canada arise from many different statutes. The distribution of legislative powers in Canada is divided between the federal and provincial governments, as set out in the Constitution. As such, there is relevant ESG legislation from both levels of government, as well as municipal governments and Indigenous governing bodies. Canada does not have a specific and comprehensive ESG-directed code or statute. Rather, ESG-related regulatory obligations are imposed through multiple statutes, as well as common law requirements, including with respect to:
- corporate law;
- securities law; and
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areas of law relating to subject matter such as:
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- environmental;
- occupational health and safety;
- employment; and
- pension regulation.
For example, the legal framework in Canada with respect to the operations of business corporations, and specifically directors’ duties, acknowledges that directors can consider other stakeholders when exercising their discretion to make decisions in the best interests of the corporation, including:
- employees;
- the environment;
- consumers;
- governments; and
- retirees and pensioners.
This broader stakeholder interest approach was codified in the Canada Business Corporations Act (CBCA) in 2019. At that time, the CBCA was also amended to require directors of certain corporations to disclose at the annual meeting the remuneration approach for senior management, as well as prescribed information on the wellbeing of employees, retirees and pensioners. The CBCA was also amended in 2018 to require public corporations existing under the CBCA to make mandatory disclosures about the diversity of their boards of directors and senior management with respect to designated groups.
Securities legislation imposes obligations on public corporations to disclose material risks that affect their business and, where practicable, the financial impacts of such risks. In recent years, Canadian securities regulators have provided further guidance on the identification of material financial impacts – including, most recently, climate impacts.
Legislation – including the Competition Act and the Consumer Packaging and Labelling Act – has broad application with respect to responding to false or misleading representations and deceptive marketing practices. Environmental and occupational health and safety legislation provides additional frameworks for ESG factors. For example, environmental assessments under the federal Impact Assessment Act require designated projects to be assessed from the perspective of a number of specific ESG factors, including:
- the extent to which a project contributes to sustainability; and
- the extent to which a project hinders or contributes to the federal government’s ability to meet its climate commitments.
The Extractive Sector Transparency Measures Act was enacted in Canada to contribute to global efforts to increase transparency and deter corruption in the extractive sector. In force since 2015, it requires certain organisations to file an annual report disclosing certain cash and in-kind payments to domestic and foreign governments.
Canada has also seen developments in the area of pension regulation. Since 2016, the province of Ontario has imposed ESG requirements relating to statements of investment policies and procedures (SIPPs). SIPPs must specifically disclose whether ESG factors were incorporated into the SIPP and if so, how ESG factors were addressed by the plan’s investment strategy.. Other pension regulators across the country have issued guidance, are in the process of issuing guidance or have otherwise signalled an interest in requiring greater transparency by plan administrators on how ESG factors have been incorporated into investment and risk management strategies.
Future legislation to address modern slavery in corporate supply chains is being considered for a third time in Canada. There are federal efforts to pass legislation that will require certain entities to publicly report the measures they have taken to prevent and reduce the risk that child labour or forced labour has been used at any step in the production of goods within Canada or elsewhere in the entity’s supply chain for imported goods. Under the Customs Act, Canada already prohibits the import of goods that are manufactured or produced, in whole or in part, with forced labour.