Since the US and European Union began scaling back environmental, social, and governance reporting requirements in recent months, ESG experts say the questions they’ve been getting from Canadian businesses largely boil down to one theme: how should we proceed?
“You’re seeing a bit of a shift across the globe when it comes to ESG,” says Conor Chell, a Calgary-based partner at KPMG Law LLP specializing in ESG law. Chell says this change has left businesses nationwide unsure whether they should pause sustainability efforts, revise them, or abandon them altogether.
Sharon Singh, a partner at McMillan LLP and co-head of the firm’s Indigenous and environment practices, is hearing similar concerns from clients. With ESG backlash deepening south of the border and potential changes to the federal government at home, many businesses are reviewing their current ESG efforts and asking, “Are we worrying about nothing?” Singh says.
She says this question has cropped up regarding various ESG developments, like changes to the Canadian Competition Act, new climate change-related disclosure standards, and human rights due diligence legislation. Businesses want to know whether Canadian rules slated to come into effect will be delayed or rolled back.
Specific developments beyond Canada’s borders are prompting these questions. In February Mark Uyeda, the US Securities and Exchange Commission’s acting chairman, announced the agency would pause defending its climate disclosure rule in court. First proposed in 2022 under the Biden administration, the SEC rule would have required thousands of publicly traded companies to report detailed information about their climate-related risks and impacts.
Upon finalizing the rule in 2024, the SEC was immediately hit with multiple lawsuits by trade associations, interest groups, and state attorneys general, who questioned the agency’s authority to require such disclosures. The cases were consolidated before the Eighth Circuit, a federal appellate court, and the SEC stated that it planned to “vigorously” defend the rule.
However, that stance shifted when the SEC’s leadership changed hands with the Trump administration. At the end of March, the SEC told the Eighth Circuit it would no longer defend the rule.
The EU is similarly poised to scale back reporting requirements. On February 26, the European Commission unveiled an omnibus package, proposing to simplify numerous corporate sustainability reporting and due diligence requirements introduced under the European Green Deal.
Since the European Green Deal’s approval in 2020, the EU has adopted a series of regulations, such as the Corporate Sustainability Reporting Directive – which mandated companies to report greenhouse gas emissions and other ESG disclosures – and the Corporate Sustainability Due Diligence Directive – which imposed additional reporting rules.
The omnibus package, which proposes to amend the rules and delay certain reporting obligations by a few years, comes after pushback from businesses and is currently dividing lawmakers.
Other developments, like the acceleration of backlash against equity, diversity, and inclusion initiatives in the US, seem like further indications that Canadian businesses may be able to relax their ESG efforts.
But neither Chell nor Singh believe that’s the case. “Do ESG considerations become moot now that there is this rollback and pushback against certain ESG initiatives in the US? I think the answer to that one is no,” Singh says.
Chell agrees, noting that in Canada, businesses face new regulations in addition to existing mandatory reporting requirements.
Key among them is Bill C-59, which amends the Competition Act to crack down on corporate greenwashing. Passed into law last June, the changes aim to deter companies from making statements, warranties, or guarantees of their products’ environmental benefits unless backed by “adequate and proper” substantiation. The changes also ban unsupported claims about the environmental benefits of a business or business activity.
“They apply very, very broadly to any environmental representation a company would make relative to product or service benefit, as well as any business or business activity benefit claim of the environmental variety,” Chell says. Any claim that business activities or products are “net zero,” “carbon neutral,” “eco-friendly,” or “sustainable” could “potentially be caught by these anti-greenwashing amendments, and there are significant penalties associated with that,” Chell adds.
On January 1, companies could start voluntarily complying with sustainability disclosure standards developed by the Canadian Sustainability Standards Board. While the standards are not yet mandatory, that will change once they’re eventually adopted by the Canadian Securities Administrators.
Other mandatory rules that Chell is helping clients navigate include new requirements that Environment and Climate Change Canada introduced last summer, which mandated companies to report on their manufacture, import, and use of forever chemicals, or per- and polyfluoroalkyl substances, by January 29. Companies captured by Bill S-211, otherwise known as the Modern Slavery Act, are meanwhile facing their second year of reporting on how they’ve identified and mitigated the risk of forced child labour in their supply chains.
“Just based on what we see in the market, I don’t suspect that any of those legal requirements that I mentioned will be affected by … politicization,” Chell says. “If we look at the greenwashing amendments to the Competition Act, for instance, there’s been a number of polls that have indicated the vast majority of Canadians actually support those amendments.”
He pointed to a recent poll conducted by Angus Reid, which found that more than 90 percent of Canadians support the notion that companies should face penalties for making unsupported or false environmental claims.
“Regardless of what happens even in the federal election here, I don’t expect that whatever party forms government would be interested in repealing that because it’s obviously contrary to the views of the Canadian population,” Chell says.
He adds that several other jurisdictions beyond Canada have introduced regulations on forced child labour and forever chemicals, which could further disincentivize the federal government from rolling back rules on those issues.
Singh echoes this perspective. While she can foresee reporting standards being clarified or tweaked, “I don’t see our governments peeling back, for instance, human rights due diligence, in the [form of ] removing forced labour- and child labour-related reporting.”
That said, Singh says she could see authorities deciding to keep certain reporting methodologies or frameworks voluntary rather than mandatory longer than they had initially stated.
In February, for instance, the Office of the Superintendent of Financial Institutions announced it would delay implementing certain climate-related reporting requirements for banks and insurance companies. Originally slated to go into effect this year, those requirements – which concern emissions not directly produced by an organization or its assets but through activities the organization is indirectly responsible for in its value chain – are now poised to be implemented in 2028.
Singh also points to the Canadian Sustainability Standards Board’s sustainability disclosure standards. For those standards to become mandatory under securities law, they need to be incorporated into a Canadian Securities Administrators rule. Last year, the CSA said it was working on a proposed rule and would assess international developments like the SEC’s climate disclosure rule in the US.
“With the state of play in the US, and the fact that the SEC is unlikely to come out with anything under the current climate, one would expect the CSA to be equally delayed in their climate change-related rules,” Singh says.
Despite such delays, she says that, overall, ESG standards are “not something I think the future government is going to walk away from completely.”
While the government’s current priorities are “shoring up economic and social security in this country,” which could involve eliminating red tape to facilitate efficiency, “that is not at the expense of the environment, nor is it at the expense of human rights,” Singh adds.
Chell’s advice to clients is that while the term "ESG" may not necessarily stand the test of time, based on global trends, mandatory requirements won’t be going away anytime soon.
“In the short term, and medium and longer term as well, you’re going to see sustainability be moved more from an aspirational element of corporate strategy into more of a compliance- and value-based exercise,” Chell predicts.
Singh says businesses should also think beyond reporting requirements. While complying with regulations is critical, many ESG efforts benefit businesses in other tangible ways. Practices like assessing a supply chain’s vulnerability to climate change-related risks – like floods, heat, or drought – are smart even if they aren’t technically required under the law.
“Your climate change-related risks don’t disappear because the government changes,” Singh says. “The reputational and the financial and the legal risks related to human rights violations are not eliminated just because there’s a change to the government.”
She adds, “Just because you don’t have to report on something doesn’t mean that it’s not going to be a real issue for the business itself.
“It might be that the reporting burden is decreased, but does it mean the company should stop collecting that data?”
Potential rollbacks of ESG requirements outside Canada
February 11
US Securities and Exchange Commission acting chairman Mark Uyeda announces that the agency will pause defending a climate disclosure rule in court. The rule was originally introduced under the Biden administration.
February 26
The European Commission unveils an omnibus package, proposing to simplify corporate sustainability reporting and due diligence requirements introduced under the European Green Deal.
March 27
The SEC told a federal court it will no longer defend its climate disclosure rule.
Editor's Note: The online version of this story has been updated to clarify that Chell said the term 'ESG,' rather than ESG itself, "may not necessarily stand the test of time."