Wind turbines in Palm Springs, Calif., on Oct. 12, 2024.Mike Blake/Reuters
Conor Chell is the national leader of ESG law at KPMG Law LLP and KPMG Canada.
Over the past 18 months, Canada’s sustainability landscape has experienced sweeping regulatory reforms and mounting expectations for greater transparency. These increasing requirements show no signs of slowing down. Governments around the world – including Canada’s – have introduced numerous sustainability disclosure mandates and laws, setting the stage for increased corporate accountability. Further transparency and enforcement-based legislation are expected to come into effect in 2025 and beyond.
For Canadian companies, especially those operating internationally, the cumulative impact of the ever-expanding list of sustainability reporting and compliance requirements represents a growing challenge. Many companies are facing significantly rising compliance costs, a lack of qualified and experienced personnel needed to meet these requirements, and direct effects on operations.
Sustainability regulation in Canada isn’t merely a bureaucratic hurdle. It signals a fundamental change in how companies are being held accountable. For instance, Canada has introduced one of the most punitive greenwashing laws and associated penalties in the world (Bill C-59, which amends the Competition Act); a law which many companies are not prepared for. KPMG’s annual CEO Outlook survey found 53 per cent of Canadian CEOs believe their sustainability claims can withstand scrutiny. With this heightened focus on regulatory and reporting requirements, many business leaders may be questioning their ability to substantiate claims such as carbon-neutral, environmentally friendly or ethically sourced.
The cost of compliance will continue to escalate, given that stricter and farther-reaching reporting requirements are on the horizon. For example, the fall economic statement revealed the federal government is preparing to amend the Canada Business Corporations Act to require mandatory climate-related financial disclosure for large federally incorporated private companies.
Meanwhile, some argue that the incoming U.S. administration is set to have a profound impact on how businesses compete in the U.S. and global markets, with worries over tariffs and talk of rolling back green regulations and measures under the Inflation Reduction Act. Nonetheless, Canadian companies shouldn’t expect sustainability reporting and disclosure laws in Canada to materially change.
As investors and other stakeholders continue to expect more ESG data disclosure, we are seeing the convergence of sustainability reporting frameworks and standards on a global scale. There is a growing international consensus on the need to address sustainability issues through standardized transparency, accountability and enforcement. This signals a movement toward political and regulatory alignment – one driven by market pressures, broader international co-operation and, importantly, the need to tackle climate and social challenges.
As sustainability regulation continues to gain ground globally, it would be very difficult for any Canadian government to walk back, for instance, anti-forced and child labour legislation. In fact, over the past few months, the U.S. has been pressing Canada to take greater steps to ban imported goods that may have been made using forced or child labour. In response, the government is now proposing to legislate the import ban on goods produced using forced labour, create a new oversight agency for compliance, and invest $25-million in the Canada Border Services Agency and Global Affairs Canada.
Dozens of jurisdictions around the world have already enacted anti-forced and child labour and anti-greenwashing laws, so repealing this sort of legislation in Canada seems very unlikely, regardless of which political party forms the next federal government. It is also unlikely that any Canadian government would repeal laws prohibiting environment and social misrepresentations (such as Bill C-59), especially since the vast majority of Canadians support anti-greenwashing measures.
While the path forward is not crystal clear, the trajectory toward greater ESG regulation is. Global strides have been made and increased regulatory and legal scrutiny on Canadian businesses are irrevocable.
Companies must prepare to ensure their claims are credible and align with emerging sustainability reporting standards. Those that respond effectively will continue to communicate their environmental and social benefits in this heavily regulated environment, positioning themselves as market leaders and differentiating themselves from their competitors. There really is no turning back.