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Ottawa’s ban on 'greenwashing' has already put a chill on climate disclosure targets

The Peace Tower of Parliament Hill is pictured in Ottawa, Tuesday, June 4, 2024. (THE CANADIAN PRESS/Sean Kilpatrick) The Peace Tower of Parliament Hill is pictured in Ottawa, Tuesday, June 4, 2024. (THE CANADIAN PRESS/Sean Kilpatrick)
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It didn’t take long.

Within hours of Bill C-59 being passed, which introduced an amendment to the Competition Act, businesses and industry associations took down climate related disclosures from their websites. Some gave reasons, stating the risks associated with non-compliance with the legislation was too high while others simply removed language associated with climate disclosure or significantly reduced their online presence. Not only should this be seen as preventing Canadian companies from communicating with their stakeholders and the broader public, it will also run counter to the axiom in securities regulations requiring full, true and plain disclosure. In other words, it could contravene securities regulations in Canada and the United States.

Briefly, the federal Liberal amendment is aimed at addressing so-called ‘greenwashing’ claims against companies, requiring them to defend their environmental stewardship statements, practices and goals beyond what currently exists. It would all be done according to an international methodology that has yet to be defined, and on forward-looking ambitions that have yet to come to fruition.

This will derail investment directed at reducing emissions – across all sectors – and cause Canada to miss, not meet, its climate targets. There is absolutely no scenario in which a company will make investment decisions without knowing the standards against which they will be measured.

Take for example a company working to reduce waste by incorporating reusable or compostable products into their operations. If it is unclear how to substantiate their plans in accordance with the Competition Act, or if they lack the legal and compliance capacity as an organization to defend their plans, companies will decide to not publicly disclose their achievements, or forgo plans altogether.

This will leave both investors and consumers in the dark as to how companies are supporting the environment – and worse, will stifle opportunities for businesses writ large to advance their environmental goals. The irony is that companies that are spending a lot of money on emissions reducing initiatives will now be muzzled from telling investors, employees and other stakeholders about their efforts and successes.

Among the more curious stipulations in Bill C-59 is the probability companies could be challenged on the provability of their commitments or representations relating to their climate-related initiatives and would be liable for the costs and the associated work to prove their position against the undefined international methodology. If they are unsuccessful in meeting these undefined criteria, business would be subject to penalties as high as three per cent of global profits.

This is not the way for Canada to reach its ambitious climate targets or attract investment.

And it will be felt far beyond Alberta. From energy to agriculture, the steel, mining, cement, chemical manufacturing and retail sectors – this would affect the entire economy and add a bureaucratic burden to both government and the private sector.

Nor would it help our sagging per capita productivity.

Governments need to set the table for stable policy that facilitates investment, not discourages it. Companies don’t invest under a ‘just in case’ scenario; they invest to grow their businesses and allocate capital where the risks can be managed.

What seems to have been lost is the fact markets are already requiring companies to report and reconcile targets – not to mention comply with existing legislation in other jurisdictions if they have operations outside Canada or are listed on another stock exchange.

The Final Climate Disclosure Rules required by the U.S. Securities and Exchange Commission or the European Union’s Corporate Sustainability Reporting Directive that applies to non-EU companies are relevant examples. Moreover, there are robust financial reporting requirements related to sustainability goals and metrics under existing legislation contained in the Canadian Sustainability Standards Board.

Simply put: investors are demanding more disclosure, not less, on emissions reductions targets and the plans to get there and companies across all sectors are responding accordingly. In fact, 85 per cent of publicly-listed companies in Canada have sustainability reports. It should be noted that the information is also required in the context of complying with existing regulations, as well companies accessing government incentives such as tax credits.

The legislation could result in the Competition Tribunal or the courts being asked to investigate ‘greenwashing’ claims on behalf of third parties within a year of the legislation being passed.  This would be tantamount to allowing entities that are not associated with a company – nor have anything at risk, to delay and obfuscate progress related to emissions reductions investments.

If anything, this will be counterproductive to our long-term goals as a country and harm our global reputation because our climate goals would inevitably be missed.

It would be far more productive to look at existing legislation and develop a system of mutual reliance between jurisdictions in the context of climate and emissions standards. That is what exists regarding cross border financings by Canadian companies looking to raise money in the U.S under the Multi-jurisdictional Disclosure System (MJDS).

Not only would this provide certainty by eliminating the spectre of complying with undetermined international standards, but it would also ensure Canadian companies are not put at a disadvantage when it comes to disclosing emissions reduction goals relative to their peers.

Rather than put a chill on capital attraction and investment certainty in Canada, let’s focus on how we can be more competitive and productive, attracting talent and capital that support the realization of our climate ambitions. Canada was already fighting against the U.S. and the Inflation Reduction Act to keep investment dollars in the country and Bill C-59 will accelerate the flight of capital. It didn’t need to be this way.

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