Environmental, social and governance (“ESG”) considerations are playing an increasingly important role across a Canadian company’s functions, whether at the board level where directors are tasked with overseeing ESG-related risks and opportunities or at the operational level where management is dealing with matters such as supply chain management. Appropriate ESG disclosure, whether mandatory or voluntary, by Canadian public companies is becoming a norm that is being demanded by institutional investors in Canada and around the world as they decide where they will allocate their investment capital.
In this bulletin, we identify what ESG-related public disclosure is mandated by securities legislation for public companies in Canada and we discuss considerations that should be taken into account when Canadian public companies make voluntary public disclosure with respect to ESG matters.1
Mandatory ESG Disclosure
Under Canadian securities legislation, there are currently no separate specific requirements mandating environmental and social (“E&S”)-related disclosure (we are omitting governance because public disclosure requirements around governance are well known2). Rather, issuers must disclose in a meaningful way “material” information in their continuous disclosure documents, which includes information that, if omitted or misstated, would likely influence a reasonable investor’s decision to buy, sell or hold a security. This requirement applies to E&S information as it would to any other information.
In recent years, the Canadian Securities Administrators (“CSA”) published guidance3 (the “Guidance”) to assist issuers in determining what environmental information is material and should be disclosed in their continuous disclosure documents. The Guidance lists the following guiding principles for determining materiality, which the CSA notes can apply to non-environmental information as well:
• No bright-line test: There is no quantitative threshold at which information becomes material and qualifying materiality varies by industry, issuer, and context. Issuers should consider both quantitative and qualitative factors in determining materiality.
• Context: The materiality of certain facts and information should be considered in light of all available information, not in a silo.
• Timing: Issuers should consider when the impact of such information will occur and if early disclosure is warranted.
• Trends, demands, commitments, events and uncertainties: Issuers should consider the probability that any trends, demands, commitments, events or uncertainties will occur and the anticipated magnitude of such impacts.
• Err on the side of materiality: If there is any doubt as to whether information is material, issuers are encouraged to err on the side of materiality and disclose the information.
In a Management’s Discussion and Analysis (“MD&A”), for example, an issuer must disclose material information that may not be fully reflected in its financial statements and trends and risks that are reasonably likely to affect the issuer’s future performance4. Trends relating to consumer preference, supply chain management, availability and price of carbon credits or offsets are examples of E&S information that may be considered and may require disclosure in a MD&A.
In an annual information form (the “AIF”), an issuer must describe, among other things, risk factors relating to the company and its business most likely to influence an investor’s decision to purchase securities of the company and what environmental and social policies have been implemented that are fundamental to its operations5. Climate change risk, such as potential exposure to effects of extreme weather patterns, emissions-limiting regulations, the transition to a low-carbon economy, and risks associated with modern slavery are examples of such potential risks that may require disclosure if considered material6.
The Guidance also reminds issuers that forward-looking information regarding environmental matters, whether disclosed in continuous disclosure documents or in voluntary reports and websites, may be subject to securities legislation. Forward-looking information might be expressed as targets, goals, projections, possible events or results of operations, and includes future oriented financial information (“FOFI”). When the forward-looking information disclosed is material, reporting issuers must include certain details, including the material risk factors that could cause actual results to differ materially from the forward-looking information and the material factors or assumptions that were used to develop the forward-looking information. If such information is FOFI, additional requirements will apply7.
The social issue of modern slavery was the subject of a notice (the “Notice”) issued by Québec’s securities commission—the Autorité des marches financiers (“AMF”)—to provide guidance to issuers on existing disclosure requirements with respect to modern slavery. The Notice indicates that this social issue particularly impacts the construction, manufacturing, entertainment and agricultural industries. Similar to the Guidance, the Notice indicates that it does not modify any existing legal requirements nor create new ones and focuses on materiality, assessed in light of the reasonable investor, as the test for risk factor disclosure in the MD&A. The AMF notes that an issuer could face litigation risks, regulatory risks, reputational risks and operational risks in regard to modern slavery that may have to be discussed in continuous disclosure documents. The AMF also points out that when carrying out their oversight duties, boards of directors as well as audit committees and certifying officers “should examine, among other things, management’s assessment of the materiality of issues related to modern slavery and satisfy themselves that the disclosure provided in the documents filed under securities regulation is consistent with that assessment”.8
On October 29, 2020, Bill S-216, An Act to enact the Modern Slavery Act and to amend the Customs Tariff (the “Bill”) was introduced to the Senate of Canada for its first reading. If passed, the Bill will enact Canada’s first modern slavery disclosure legislation, which would impose supply chain reporting requirements with respect to forced or child labour on an entity that (a) is listed on a Canadian stock exchange, (b) has a place of business in Canada, does business in Canada, or has assets in Canada, and such entity meets certain financial and employment criteria, or (c) is prescribed by regulations, and that (i) produces or sells goods in Canada or elsewhere; (ii) imports into Canada goods produced outside Canada; or (iii) controls an entity engaged in any activity described in (i) or (ii). The Bill also provides for enforcement mechanisms in the event that such entities do not comply with the reporting requirements.9
Issuers should also be aware that the Toronto Stock Exchange (“TSX”) and TSX Venture Exchange (“TSX-V”) have adopted policies regarding timely disclosure that are in addition to their obligations under securities legislation10. In August 2020, the TSX released an updated version of “A Primer for Environmental & Social Disclosure”, which provides information on these policies in addition to other resources intended for issuers seeking to start or enhance their E&S disclosure.11
Finally, Bill C-97, which received Royal Assent in 2019, introduced amendments to the Canada Business Corporations Act that will require boards to disclose certain social information to its shareholders, including information relating to diversity on the board and in senior management roles, as well as the well-being of employees, retirees and pensioners, and certain governance information dealing with remuneration clawbacks12. At the time of writing, these amendments had not yet come into force.
Voluntary ESG Disclosure
Many companies, public and private, choose to publicly disclose a broad range of ESG information in different forms, including in annual sustainability reports or on company websites. Voluntary ESG disclosure can provide valuable information to a company’s stakeholders, including consumers, the communities in which they operate, and investors. Public issuers should be aware, however, that such disclosure does not replace the need to make mandatory disclosure in their continuous disclosure documents as required by securities legislation and that, as noted in the previous section, such information may be subject to securities legislation regarding forward-looking information.
When making voluntary ESG disclosure, issuers should therefore turn their mind as to whether (i) the disclosure contains any forward-looking information, and (ii) if any of the information disclosed consists of material information that is required to be included in its continuing disclosure documents, including in a MD&A or AIF. In addition, issuers should ensure consistency and accuracy of ESG-related information across all documents, including voluntary reporting and mandatory continuous disclosure documents, and be cognizant that any misrepresentations of ESG-related information in voluntary (as well as mandatory) disclosures are subject to potential civil liability for secondary market disclosure.
The Guidance recommends that boards and management have a robust process to review voluntary disclosure prior to dissemination to the public to ensure the information is reliable and accurate. ESG disclosure should be supported by fact and data and not be overly aspirational. Disclaimers are also critically important.
In addition, when making investor facing E&S disclosures, issuers may want to consider the following recommendations made by the Canadian Coalition for Good Governance in The Directors’ E&S Guidebook:13
• Convey key considerations related to governance, strategy, and risk management with a level of detail, context, supporting information, and metrics based on the perspectives and needs of investors.
• Establish E&S metrics that are clear, measurable, forward-looking, and comparable. There are several widely accepted rubrics that companies can use for guidance.
• Describe the reporting framework chosen, and the rationale, in the corporate reporting. This is advisable with both mandatory and voluntary reporting.
• Ensure some level of board accountability where the E&S reporting is separate from financial reporting. At a minimum, approval for E&S reporting should be under the mandate of the board committee charged with the E&S oversight, and the board should have controls in place to provide reasonable verification and assurance of the facts and assumptions relied on by management in preparing the reports.
Potential Liability and Related Risks
Issuers may face legal challenges regarding their decisions about whether and how they make ESG disclosures, both mandatory and voluntary. In addition to the risk of losing a lawsuit and being ordered to pay damages, simply defending a claim will cost an issuer time and money. Further, the attention that litigation can attract may be considerable and therefore can contribute to reputational damage for the issuer. Issuers should, therefore, take care to make informed decisions when determining what information to disclose and how it will be done. Building upon the AMF’s comment in the Notice about the oversight duties of boards, audit committees and certifying officers, issuers may wish to consider implementing sufficient internal controls (and perhaps external assurances), for example, to ensure that ESG disclosure made in mandatory or voluntary disclosure documents are reviewed for accuracy and consistency.
Examples of E&S-related claims and complaints made against companies in jurisdictions outside Canada may shed light on the types of claims that might be brought in Canada under securities law. One such example is the action brought by the Attorney General of the State of New York against Exxon Mobil Corporation (“Exxon Mobil”) on October 24, 201814 where it was argued that Exxon Mobil had materially misrepresented and omitted information from its public disclosure documents regarding how it accounted for climate change risks. Following a twelve day trial and testimony from eighteen witnesses, the court dismissed the action finding that the Office of the Attorney General “failed to prove, by a preponderance of the evidence, that Exxon Mobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor”.15 As investors increasingly come to view E&S information as material to their decision-making, litigation in this area will likely also increase, and this decision leaves open the possibility that such a claim could succeed in the future on different facts.
Another example took place in Australia, where shareholders of the Commonwealth Bank of Australia brought a claim against the bank alleging it had violated Australian corporate law by not adequately informing investors of climate change-related business risks relating to some of its investments in its 2016 annual report.16 The shareholders withdrew their claim after the bank published its 2017 annual report, which acknowledged the risks posed by climate change. The bank thereafter also published its first climate policy position statement.17
In the Canadian context, on May 16, 2016, Greenpeace Canada sent a complaint to the Alberta Securities Commission (the “ASC”), with copies to the Ontario Securities Commission and the Canadian Securities Administrators, against Kinder Morgan Canada Ltd. (“Kinder Morgan”), expressing their concern that Kinder Morgan may have failed to provide “full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed” as required by securities laws in Alberta and Ontario in its amended and restated preliminary prospectus filed in connection with its initial public offering (“IPO”), pointing to the possibility that Kinder Morgan (i) relied on outdated oil demand projections which could potentially mislead investors, and (ii) failed to make adequate disclosures on the impact that climate change related risks (including transition, business and physical risks) may have on its business model.18
Greenpeace Canada asked the ASC to review Kinder Morgan’s prospectus and consider halting the IPO until the prospectus adequately disclosed all material information to potential shareholders as required by statutory requirements. While further details of this investigation are not publicly available, the ASC confirmed they would consider the submission as it deemed appropriate.19 Kinder Morgan announced completion of its IPO on May 30, 2017. In 2018, Greenpeace sent a subsequent complaint to the ASC, alleging incomplete disclosure of climate-related risks in Kinder Morgan’s 2017 annual report, while also publicly issuing a briefing note that evaluated the climate risk disclosures in Kinder Morgan’s 2017 annual report against those recommended by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (“TCFD”). 20 The results of the ASC’s review of these complaints have not been disclosed.
Finally, although the 2007 securities class action case, Kerr v. Danier Leather Inc., dealt with financial forecasting in a prospectus, it also is relevant in the context of ESG disclosure.21 In its unanimous 2007 judgement, the Supreme Court of Canada concluded that “while forecasting is a matter of business judgment, disclosure is a matter of legal obligation. The Business Judgment Rule is a concept well-developed in the context of business decisions but should not be used to qualify or undermine the duty of disclosure”. Thus directors should be aware that their decisions about disclosure, including regarding ESG disclosure, will not be protected by the business judgment rule.
Increasing Focus on ESG Disclosure
In 2020 and continuing in 2021, large institutional investors like BlackRock and State Street, the International Business Council of the World Economic Forum, and in the Canadian context, leading pension plan investment managers, recognized the importance of ESG-related disclosure, in many cases calling for improved and more robust ESG disclosure and endorsing reporting standards and frameworks like the Sustainability Accounting Standards Board standards and the TCFD framework.22
For example, Larry Fink, CEO of BlackRock in his January 2020 annual letter to CEOs stated, “We believe that all investors, along with regulators, insurers, and the public, need a clearer picture of how companies are managing sustainability-related questions... Each company’s prospects for growth are inextricable from its ability to operate sustainably and serve its full set of stakeholders.” He went further to state that “[BlackRock] will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them”. In his 2021 annual letter to CEOs, Mr. Fink strengthened his call for specific disclosure on how a company’s business model will be compatible with a net zero economy, specifically requesting companies to “disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors”.
In November 2020, the CEOs of eight leading Canadian pension plan investment managers, representing approximately $1.6 trillion of assets under management, issued a joint statement calling on companies and investors to provide “consistent and complete” ESG information in order to “strengthen investment decision-making and better assess and manage their collective ESG risk exposures” and stating that they will “allocate capital to investments best placed to deliver long-term sustainable value creation”.23
In January 2021, Ontario’s Capital Markets Modernization Taskforce issued its Final Report which includes a specific recommendation mandating disclosure of material ESG information, “specifically climate change-related disclosure that is compliant with the TCFD recommendations for issuers through regulatory filing requirements of the OSC.” 24The Taskforce recommends a phased-approach to implementation of this new requirement based on an issuer’s market cap and encourages the CSA to implement a similar requirement across Canada.
Leading proxy advisory firms have also made recent updates to their Canadian voting guidelines for 2021 and beyond placing greater emphasis on ESG considerations. For example, Glass Lewis’ Canadian guidelines for 2021 onwards include new focus on board oversight relating to ESG issues. Starting in 2021, Glass Lewis will note a concern when boards of companies listed in the S&P/TSX 60 index do not provide clear disclosure concerning board-level oversight given to E&S issues and, in 2022, will generally recommend withholding votes from the chair of the governance committee of such companies that fail to provide such disclosure. Glass Lewis will examine a company’s proxy statement and governing documents, such as its committee charters, to determine if directors maintain a meaningful level of oversight of, and accountability for, a company’s ESG-related impacts and risks.25 Similarly, Institutional Shareholder Services (“ISS”) has added “demonstrably poor risk oversight of environmental and social issues, including climate change” to its list of examples of failure of risk oversight. ISS generally recommends voting against or withholding votes from individual directors, committees or the entire board, under extraordinary circumstances, where there has been, among other things “material failures of governance, stewardship, risk oversight, or fiduciary responsibilities at the company”.26
In light of the foregoing discussion, boards and management of Canadian public companies may wish to take a fresh look at their current approaches and internal and external processes for assessing, preparing and overseeing their mandatory and voluntary ESG-related public disclosure.
If you have questions, feel free to reach out to your Fasken contact lawyer or to any member of Fasken’s ESG and Sustainability group.
Authors: Stephen Erlichman, LLM (NYU), MBA (Harvard), RIPC (RIA), Partner, Fasken and Sophie Langlois, Associate, Fasken. From 2011 to 2018 Stephen also was the Executive Director of the Canadian Coalition for Good Governance and in that capacity oversaw the creation of The Directors’ E&S Guidebook referred to in this bulletin.
 The authors gratefully acknowledge the assistance of Yvonne Mazurak in preparing this article.
See National Instrument 58-101 – Disclosure of Corporate Governance Practices, Form 58-101F1 – Corporate Governance Disclosure, and Section 473 of the TSX Company Manual for disclosure requirements regarding corporate governance.
 CSA Staff Notice 51-333 Environmental Reporting Guidance dated October 27, 2010 and CSA Staff Notice 51-358 Reporting of Climate Change-Related Risks dated August 1, 2019.
 Form 51-102F1 Management’s Discussion and Analysis, sections 1.2 and 1.4.
 Form 51-102F2 Annual Information Form, sections 5.1(4) and 5.2.
 See CSA Staff Notice 51-333 Environmental Reporting Guidance dated October 27, 2010; CSA Staff Notice 51-358 Reporting of Climate Change-Related Risks dated August 1, 2019; and Notice relating to modern slavery disclosure requirements issued by the Autorité des marches financiers (Québec) dated September 4, 2018 (further discussion on the Notice relating to modern slavery is provided below).
 See Parts 4A and 4B of National Instrument 51-102 for disclosure requirements regarding forward-looking information and FOFI.
 Notice relating to modern slavery disclosure requirements issued by the Autorité des marches financiers (Québec) dated September 4, 2018.
 Please refer to our November 24, 2020 Bulletin “Slavery in the Supply Chain: New Canadian Rules on the Way?” for further details on the Bill, and our February 9, 2021 Bulletin “Forced Labour in Supply Chains: Canada brings the focus on China” for further details on recent action taken by the Canadian government to address labour and human rights abuses in Canadian and global supply chains.
 See Policy 3.3, Timely Disclosure and Policy Statement on Timely Disclosure for the respective timely disclosure policies of the TSX-V and TSX.
 TMX Group and CPA Canada, “A Primer for Environmental & Social Disclosure” (2020), <https://www.tsx.com/resource/en/2388>.
 Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures, 1st Sess, 40th Parl, 2019 at cl 143(1) (assented to 21 June 2019).
 Canadian Coalition for Good Governance, “The Directors’ E&S Guidebook” (2018), <https://ccgg.ca/policies/>.
 See People of the State of New York v Exxon Mobil Corporation, No. 452044/2018 (N.Y. Sup. Ct.).
 Similarly, on November 7, 2016, a federal securities fraud class action claim was filed against Exxon Mobil alleging material misstatements and omissions in its public disclosure (See Pedro Ramirez Jr v Exxon Mobil et al, No. 16-3111 (ND Tex 2016), and on October 24, 2019, a claim was filed by the Attorney General of Massachusetts but with broader allegations of misleading both consumers and investors (See Commonwealth of Massachusetts v. Exxon Mobil Corporation, 1984-CV-03333-BLS1, Commonwealth of Massachusetts Superior Court, Suffolk County (Boston). Both suits remain ongoing.
 See Guy Abrahams v Commonwealth Bank of Australia (VID879/2017).
 See Commonwealth Bank of Australia, Climate Policy Position Statement (August 14, 2017) <https://www.commbank.com.au/guidance/newsroom/our-climate-commitment-201708.html>.
 For an example of media coverage, see: Meenal Vamburkar, “Alberta regulator to review Greenpeace’s Kinder Morgan IPO challenge”, The Globe and Mail (18 May 2017), <https://www.theglobeandmail.com/news/british-columbia/alberta-regulator-to-review-greenpeaces-kinder-morgan-ipo-challenge/article35055396/>.
 See Reuters, “Greenpeace asks Alberta regulator to halt Kinder Morgan Canada IPO” (May 18, 2017) <https://www.reuters.com/article/us-canada-kinder-morgan-de-greenpeace-idUSKCN18E2QC>.
 See Greenpeace Canada, “Alberta Securities Commission reviewing Greenpeace complaint of inadequate disclosure of climate risk by Kinder Morgan” (April 9, 2018), <https://www.greenpeace.org/canada/en/press-release/285/press-release-alberta-securities-commission-reviewing-greenpeace-complaint-of-inadequate-disclosure-of-climate-risk-by-kinder-morgan/>; and Greenpeace Canada, “Investor Beware: Kinder Morgan Canada’s Climate Risk”, <https://www.greenpeace.org/static/planet4-canada-stateless/2018/06/Review-of-Kinder-Morgan-climate-risk-disclosure.pdf >.
 2007 SCC 44 at para 54.
 Please refer to our November 30, 2020 Bulletin “Boards and Management in Canada Take Note: Demand for Better ESG Oversight and Disclosure” for further details on ESG-related standards and frameworks.
 Please refer to our November 30, 2020 Bulletin “Boards and Management in Canada Take Note: Demand for Better ESG Oversight and Disclosure” for further discussion about the joint statement.
 See Recommendation 41, Capital Markets Modernization Taskforce: Final Report (Ontario) dated January 2021.
 See Glass Lewis’ “2021 Guidelines - An Overview of the Glass Lewis Approach to Proxy Advice” (Canada).
 See ISS’ “Proxy Voting Guidelines for TSX-Listed Companies Benchmark Policy Recommendations” (Canada) effective for meetings on or after February 1, 2021.