The Evolving Landscape of ESG: Trends, Standards and Legislative Developments

Melanie Cole of Aird & Berlis explores the current state and future trajectory of environmental, social and governance frameworks in Canada and across the world

Melanie Cole, Partner at Aird & Berlis LLP and Chair of the firm’s ESG & Sustainability Group, explores the dynamic landscape of ESG considerations, delving into the intricate interplay between politics, finance and sustainability, as well as related legal developments affecting businesses and organizations in 2024.

Has the politicized nature of ESG in some jurisdictions had a chilling effect on sustainable finance and ESG investment? What trends are you seeing in this area?

When discussing environmental, social and governance (ESG) matters, I find it helpful to shift the focus from value-based views to what simply makes business sense for the organization in question. At its core, ESG is a framework used to assess an organization’s business practices and performance, and measure risks and opportunities. The spotlight on ESG in recent years comes from a growing desire in business to focus on innovation and build competitive and resilient companies for the future. Focusing on ESG is simply a way for companies to create long-term value in their business. Politics tends to extend its arm into many facets of business. The political backlash against ESG, particularly in the United States, has attracted significant media attention. Despite this, data surrounding the exponential growth of the sustainable finance market makes it increasingly evident that investors and other stakeholders continue to recognize the immense opportunity that sustainable finance presents.

In November 2023, the Global Sustainable Investment Alliance (GSIA) published the sixth edition of the biennial Global Sustainable Investment Review (GSIR), finding that US$30.3 trillion is invested in sustainable assets globally at present.[1] The report shows that in non-U.S. markets – Canada, Europe, Japan, Australia and New Zealand – there has been a 20% increase in sustainable assets under management (AUM) since the 2020 report. According to a 2022 report, ESG-focused institutional investment is expected to soar by 84% to US$33.9 trillion in 2026, representing an impressive 21.5% of assets under management globally.[2] This data demonstrates an unprecedented and continuing shift in the asset management and wealth industry.

In an effort to unlock the full potential of sustainable finance, investors and asset managers alike are pushing for standardized ESG reporting standards. Currently, there are a number of different reporting standards, frameworks and ESG rating agencies. This often leads to conflicting concepts and fragmented requirements which can be difficult for companies and investors to navigate.

It is in this context that the International Financial Reporting Standards Foundation formed the International Sustainability Standards Board (ISSB) in 2021 to develop a consolidated set of reporting standards, drawing on the frameworks that have already been published by various entities to assist companies in producing high-level sustainability-oriented disclosures that investors can rely upon to make informed financial decisions. On June 26, 2023, the ISSB published its inaugural standards for sustainability and ESG-related disclosure: IFRS S1 – General Requirements for Disclosure of Sustainability-Related Financial Information and IFRS S2 – Climate-Related Disclosures. The ISSB Standards were developed in heavy reliance on the Task Force on Climate-Related Financial Disclosures (TCFD) framework and structure disclosure requirements around the TCFD’s four key pillars: (a) governance, (b) strategy, (c) risk management and (d) metrics and targets. IFRS S1 requires disclosure across these four pillars of all material sustainability-related risks and opportunities that could affect an entity’s prospects. IFRS S2 requires disclosure across these four pillars of all climate-related risks and opportunities that could affect an entity’s prospects and that might be useful to primary users of general-purpose financial reports in deciding whether to provide resources – financial or otherwise – to the entity.

The ISSB Standards came into force on January 1, 2024, with certain transition relief for the first annual reporting period. Entities looking to comply with the ISSB Standards will need to disclose any sustainability- and climate-related risks and opportunities identified in respect of the third quarter or entirety of 2023. In addition, the Canadian Sustainability Standards Board (CSSB) was formed in April of 2023 to “support the uptake of ISSB standards in Canada, highlight key issues in the Canadian context and facilitate interoperability between ISSB standards and any forthcoming CSSB standards.[3]

When advising clients from an ESG perspective, which recent policies or legislative developments are front of mind for you in 2024?

In addition to the recently released ISSB standards, one of the major items of focus in this area is Canada’s new modern slavery legislation mandating transparency and addressing the risk of forced labour and child labour in an organization’s supply chain. On January 1, 2024, Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff, came into force in Canada. At a high level, Bill S-211 sets out new import bans and requires federal government institutions and a broad range of other public and private companies – including certain international companies that conduct business or hold assets in Canada – to report on steps taken to reduce and prevent the risk of forced labour and child labour being used in their respective supply chains.

Bill S-211 introduces two new obligations. Firstly, all organizations meeting the criteria under Bill S-211 must publish an annual report with the federal Minister of Public Safety and Emergency Preparedness, on or before May 31 of each year, that sets out the steps that the organization has taken during its previous fiscal year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the organization. Private entities will also be required to report on any steps taken during their previous fiscal year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods imported into Canada by such entities. The first report is due on May 31, 2024 (or earlier for certain federally incorporated entities).

The introduction of Bill S-211 was timely as supply chain risk management and the prevention of forced labour and child labour in the organization and its supply chain have increasingly come into focus globally. Several other international jurisdictions have also adopted legislation to address these matters. Furthermore, as Bill S-211 imposes a reporting obligation on numerous organizations, one of the potential “trickle-down” effects is that organizations may be prompted to examine their business practices more closely, which may lead to the reduction and even elimination of certain risks that pose wider threats to their operations. Through this internal examination, organizations may identify the presence of forced labour or child labour in their supply chains that could expose the organization to a number of legal risks beyond the scope of Bill S-211, for example, under labour and criminal legislation in multiple jurisdictions. Moreover, even if there is no risk of forced labour or child labour identified in an organization’s supply chain, the examination indirectly contemplated by Bill S-211 may prompt organizations to revise supplier agreements and implement the necessary mechanisms to identify and mitigate other ESG-related risks that, if left unaddressed, would expose the organization to various financial, regulatory, legal or operational risks.

When it comes to M&A, it is becoming prudent for acquirers to conduct due diligence specifically with ESG in mind. What does that look like? And what should targets be most focused on?

The identification and evaluation of potential ESG risks and opportunities associated with an investment or acquisition is becoming increasingly important in the M&A context and can have a substantial impact on key deal terms. A 2023 KPMG study[4] in the United States found that 53% of U.S. acquirers have had deals cancelled and 42% of investors have opted for a purchase price reduction due to material findings resulting from ESG due diligence. The same study found that 62% of U.S. investors are willing to pay a premium for targets that align with their ESG priorities, and that U.S. acquirers are increasingly opting to perform ESG due diligence on a majority of their future deals.

ESG due diligence in the context of a potential acquisition or investment can help investors and acquirers make more informed decisions as well as identify and manage ESG-related risks and opportunities effectively. The process of ESG due diligence involves reviewing a wide range of ESG factors, including the company’s impact on the environment, its relationships with stakeholders, and its governance practices.

One of the common challenges in conducting ESG due diligence is a lack of understanding of what ESG is, a lack of robust data and, although there have been important steps forward, parties can easily become lost in a complicated and inconsistent measurement and reporting landscape.  Much like the preliminary steps a company would take when creating its own ESG framework, an investor or acquirer should first conduct a materiality assessment to identify the most relevant ESG factors impacting the target company. The materiality assessment is crucial when conducting due diligence, as it establishes the factors that should be prioritized during a review. An investor or acquirer should also identify and review any ESG-related legal or regulatory compliance issues the target company may have and assess their potential impact on the transaction.

What are the current and proposed mandatory ESG-related reporting requirements for Canadian public companies?

Currently in Canada, ESG reporting is largely a voluntary exercise. Despite this, prospective or existing investors, watchdog agencies and other stakeholders increasingly have an expectation that companies disclose their ESG performance and goals, and their progress (or lack of progress) in achieving such goals, given that ESG disclosures have largely become “market,” particularly for larger and more established issuers. These expectations introduce a kind of “soft law” obligation on these issuers, where the penalty for failing to disclose or failing to meet external, and even internal, expectations is opportunity cost (at best) or reputational damage.

Companies that are listed on Canadian stock exchanges may be subject to additional mandatory ESG disclosure requirements. On October 18, 2021, the Canadian Securities Administrators (CSA) released the proposed National Instrument 51-107 Disclosure of Climate-related Matters (NI 51-107). While NI 51-107 is yet to be finalized, should the CSA adopt NI 51-107 in its current form or something similar, issuers will potentially be required to disclose:

  • governance mechanisms (i.e., a description of the company’s board of directors’ oversight of climate-related risks and opportunities, as well as management’s role in assessing and managing those same risks and opportunities);
  • risk management procedures (i.e., a description of the issuer’s processes for identifying, assessing and managing climate-related risks, including a description of how those processes are integrated into the issuer’s overall risk management);
  • strategies developed to identify, assess and mitigate or capitalize upon climate-related risks and opportunities (i.e., would include a description of the climate-related risks and opportunities the issuer has identified over the short-, medium- and long-term, and the impact on the issuer’s business, strategy and financial planning); and
  • goals the entity has set for itself in reducing its greenhouse gas (GHG) emissions (i.e., a description of the metrics used by the issuer to assess climate-related risks and opportunities, in addition to a description of the targets used to manage those same risks and opportunities, along with the issuer’s performance against these targets).

The climate-related strategy, risk management, metrics and targets disclosure of proposed Form 51-107B would also require disclosure regarding GHG emissions, which would require, among other things, disclosure of all direct GHG emissions (Scope 1), indirect GHG emissions (Scope 2) and all other indirect GHG emissions not disclosed under Scope 2 (Scope 3) and their related risks. If the GHG emissions are not disclosed, the issuer must provide reasons for not doing so. The issuer must also disclose the reporting standard used to calculate and disclose the GHG emissions. 

Certain existing national instruments may currently apply to an issuer’s disclosure of ESG-related information. For instance, Form 51-102F1 Management’s Discussion and Analysis and Form 51-102F2 Annual Information Form note that “materiality” is the deciding factor when determining whether information is required to be disclosed, and the latter specifically requires issuers, when completing their annual information forms, to note material risk factors that may influence an investor’s decision to purchase the issuer’s securities. National Policy 58-201 Corporate Governance Guidelines, National Instrument 52-110 Audit Committees and National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings set out guidelines for adopting corporate governance mechanisms and internal controls and procedures to identify and manage principal risks and opportunities, including climate-related risks and opportunities. The details of an issuer’s corporate governance policies and practices are ultimately disclosed in an issuer’s continuous disclosure documents, if required. While the CSA is exhibiting an increased interest in an issuer’s ESG-related disclosures and may impose regulatory penalties on an issuer for failing to publish adequate public disclosures, proxy advisory firms in Canada such as Glass Lewis, Globe and Mail Board Games, and ISS Corporate Solutions are also exhibiting an increased interest in an issuer’s ESG performance and may take such action as advising shareholders to vote against incumbent or nominee directors in an issuer’s upcoming annual general meeting if, for example, an issuer’s disclosure on governance practices, including board diversity, are insufficiently detailed or exhibit an inadequate commitment to good governance by the entity.

Regardless of whether a company chooses to disclose its ESG goals and performance voluntarily or ultimately pursuant to mandatory disclosure requirements, it must be mindful not to engage in the practice of “greenwashing,” whereby a company may make misleading, or potentially misleading, unsubstantiated, overly broad or untrue claims about the sustainability of its operations, products or services. A company that greenwashes its products or services runs the risk of undermining its brand image, losing customer trust, triggering investigations from consumer protection authorities, and even sparking shareholder activism or litigation, whereby a company may be sued for damages arising from such misleading statements. In observing an increase in the practice of greenwashing among public companies listed on Canadian stock exchanges, the CSA has set out guidance in CSA Staff Notice 51-364 Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2022 and March 31, 2021 for such issuers when making voluntary or mandatory ESG-related disclosures.[5]

The global ESG landscape is continuously evolving. Do you have any insights on the evolution and development of ESG in Canada over the short- and long-term?

I believe that the efforts to standardize ESG measurement and reporting globally will continue to strengthen. I am hopeful that increased standardization will make ESG more accessible for entities at an earlier stage of growth, and will also make it simpler for stakeholders to track an entity’s progress on ESG matters against its peers in a more meaningful way. I am hopeful that standardization will also help address some of the criticisms that ESG has faced in its 20-year history. Greater uniformity in ESG reporting standards will create a more level playing field for companies wishing to utilize sustainable finance tools, as it will be easier to determine what must be reported in order to access global investors and markets. Standardized ESG reporting can also enhance trust and credibility in a way that decreases the risk of both greenwashing and greenhushing.

In addition to standardization, to stay competitive in the global marketplace, I expect that legislation and policy guidance in Canada (which typically lags behind the United Kingdom and the European Union from an ESG perspective) will become more prescriptive – not only requiring disclosure, but mandating practices, diligence and other actions.

I also expect that we will see greater attention on nature-related risks and opportunities in Canada, including the protection and restoration of biodiversity.

Based on what is happening globally, I expect to see increasing focus in Canada on social factors, such as diversity and inclusion, human rights and labour practices, and gender pay equity. We are already seeing some of this in Canada with Bill S-211, as well as the introduction of mandatory diversity disclosure for Canadian federally incorporated corporations. We have seen increasing shareholder proposals in the ESG space, particularly around issues of diversity and inclusion, which can be an early indicator of a shift in terms of investor sentiment, such as tying executive compensation to the achievement of ESG and sustainability goals.

The pursuit of standardization, coupled with a growing focus on social and nature-related factors, underscores the integral role ESG will play in shaping the future business landscape.


Melanie Cole is a Partner at Aird & Berlis LLP. She is the Chair of the firm’s ESG & Sustainability Group and a member of the firm’s Capital Markets, Corporate/Commercial and Mergers & Acquisitions/Private Equity Groups, as well as a number of industry groups, including the Life Sciences, Cannabis and Mining Groups. Melanie practises corporate and securities law with a focus on public and private financings, mergers and acquisitions, ongoing securities and continuous disclosure, corporate governance, and going-public transactions, including reverse takeovers and initial public offerings. She advises domestic and international clients, ranging from small startups to large public companies, including those listed on the TSX.

[5] In their guidance, the CSA noted that: (1) all statements regarding an issuer’s current or anticipated ESG performance must be factual, balanced and substantiated; (2) certain statements regarding, for instance, an issuer’s ESG-related targets, forecasts or projections, may constitute forward-looking information (FLI) and must therefore be supplemented by disclosure regarding material factors or assumptions used to develop the FLI, material risk factors that may cause any anticipated results to differ substantially, and any policies implemented by the issuer to update such FLI; (3) issuers should exercise caution when using promotional language; and (4) disclosures about any ESG ratings must be accompanied by additional details to provide context as to how such ratings were awarded. Depending on the nature and extent of the deficiencies in an issuer’s ESG disclosures, the CSA may add the issuer to its default list, issue a cease-trade order, and/or refer the issuer to enforcement. The CSA may also require an issuer to refile a document correcting any previously noted deficiencies (e.g., by issuing a clarifying news release), commit to making disclosure enhancements on a prospective basis, or file a missing document. The CSA may inform issuers specifically of changes that it wishes to see in its next set of applicable continuous disclosure documents or may require the issuer to deepen its awareness on a particular topic. 


Melanie Cole