Key Takeaways: The Many Shades Of Green - Mitigating Evolving Civil And Regulatory Greenwashing Litigation Risk - Securities

On December 6, 2023, McCarthy Tétrault hosted The Many Shades of Green: Mitigating Evolving Civil and Regulatory Greenwashing Litigation Risk as part of the firm's "Navigating the ESG & Sustainability Landscape" seminar series. The seminar's panel featured McCarthy Tétrault's Wendy Berman, Partner and Head of Securities Litigation, and Nikiforos Iatrou, Partner in the firm's Competition/Antitrust and Foreign Investment Group. They were joined by Johanna Superina, the Deputy Director of the Ontario Securities Commission's Enforcement Branch. Together, the panel, moderated by Ljiljana Stanic, discussed litigation and regulatory enforcement developments in the dynamic greenwashing risk landscape, evolving ESG-related disclosure regimes, and options to minimize exposure to such risk.

This blog post highlights some of the key themes and takeaways from the seminar's discussion.

1) Stakeholder demand for corporate accountability is growing

Stakeholders are increasingly scrutinizing corporate ESG-related disclosures and commitments and demanding enhanced sustainability-related disclosures and corporate practices. Beyond this, activist stakeholders are increasingly using innovative litigation strategies to garner publicity and drive corporate change. Public interest litigants (such as NGOs and former employees) are bringing lawsuits and making whistleblower complaints to regulators – all of which results in increased pressure on companies and increased reputational risk.

2) Growing Convergence but still waiting for regulatory clarity on ESG-disclosure "rules of the road"

In Canada, mandatory ESG-related disclosure requirements remain relatively limited with no consistent domestic framework for all Canadian companies. Without clear "rules of the road", companies face significant challenges in mitigating litigation and reputational risk relating to their sustainability disclosures. However, recent developments signal that clarity is on the horizon. The International Sustainability Standards Board (ISSB) has developed standards for a comprehensive global baseline of sustainability disclosures, although these standards are not yet mandatory in Canada. Canadian securities regulators have delayed implementation of enhanced mandatory sustainability-related disclosures pending international developments (including the adoption of the ISSB standards). The Canadian Competition Bureau has also promised revised greenwashing guidance (having withdrawn its previous greenwashing guidance) and has proposed amendments to the Competition Act addressing false and misleading environmental claims and aims to deter companies from making such representations. Canadian companies must carefully monitor these developments.

3) Regulators are prioritizing enforcement of climate action

Domestic and foreign financial regulators and competition authorities have all signalled that "greenwashing" is a top enforcement priority. Recent greenwashing enforcement investigations and settlements, regulatory speeches and statements (including regulatory reports outlining deficiencies in sustainability-related disclosures) provide some clarity on a developing path for risk mitigation. Of note is the rise in regulatory actions in the United States and Australia for allegedly misleading statements about climate commitments, emission reduction activities and the impact of corporate activities on the environment. Cases like these play an important role in predicting Canadian regulatory enforcement actions and developing proactive risk mitigation strategies.

4) The impact of private enforcement is growing

Activist stakeholders play an increasing role in driving greenwashing enforcement against corporations for misleading (and unsupported) sustainability-related practices or commitments (including net-zero or carbon-neutral commitments). Through whistleblower complaints to regulators, civil lawsuits and class action lawsuits, activist stakeholders are increasingly leading such initiatives with the primary goal of modifying corporate conduct, raising awareness, and driving federal and provincial policy changes. One such mechanism is through a complaint made to the Competition Bureau, whereby a group of six Canadian residents can compel the bureau to engage in a formal inquiry of alleged greenwashing violations. The activism of third parties raises awareness of greenwashing issues, increases regulatory attention and successful complaints can generate settlement awards that help fund future complaints and lawsuits by activists against the next corporate target.

5) Foreign jurisdictions can serve as a guide for Canadian regulators

As the public and regulatory interest in ESG-related issues grows, Canadian regulators look to foreign jurisdictions like the United States, Australia, and the United Kingdom for enforcement and regulatory models. In the United Kingdom and the United States, derivative claims against directors and officers who fall short in carrying out their duties (for example, by failing to develop a climate strategy to make a company resilient against external changes or failing to meet or attempt to meet stated net-zero claims or commitments) have been deployed to encourage behavioural change with respect to greenwashing. Whistleblower complaints, such as a recent complaint brought to the securities regulators by an Australian NGO regarding a global mining company's net-zero commitments and sustainability disclosures and use of carbon offsets, are a good indication of the types of litigation that will ensue in Canada.