On November 7, 2024, the Canadian Securities Administrators (“CSA”) released CSA Staff Notice 51-365 Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2024 and March 31, 2023 (“51-365”). 51-365 notes that the CSA have seen promotional activities by certain issuers leading to disclosure that is either untrue or unbalanced including disclosure and promotional campaigns that provide unbalanced or unsubstantiated material claims about the issuer’s business. Recently, the CSA have noted that such promotional activities have included greenwashing.
Given the rise of regulation regarding the disclosure of an issuer’s Environmental, Social and Governance practices (“ESG”), such disclosure in continuous disclosure documents, news releases, website disclosure and voluntary documents such as sustainability or ESG reports, has grown rapidly in recent years.
As a result of this increased disclosure, the CSA have observed an increase in issuers making potentially misleading, unsubstantiated or otherwise incomplete claims about business operations or the sustainability of a product or service being offered, conveying a false impression commonly referred to as “greenwashing”.
51-365 sets out several examples of “greenwashing” which include:
- Disclosure about a target to transition to net zero which can be misleading if the issuer does not indicate what is included in its net zero target and if the issuer has no credible plan to achieve such a target; and
- Disclosure claiming a material product or service is ESG “friendly” or “compliant” with industry standards, which can be misleading without accompanying disclosure identifying the industry standards, the particular factors considered and how they are measured and evaluated.
The CSA note that when describing current and proposed ESG-related activities, issuers should consider the following:
- In order to avoid misleading promotional language issuers should ensure that all ESG disclosures, whether voluntary or required, are factual and balanced;
- ESG disclosure should be specific and supported by facts and corporate activities, as applicable; and
- ESG-related disclosures may also constitute forward-looking information (“FLI”), for example, disclosure about future plans to improve operational performance in the context of ESG standards, or to reduce greenhouse gas emissions, or to obtain a carbon neutral position. Issuers must have a reasonable basis for FLI. In addition, issuers must identify the material risk factors that could cause actual results to differ materially, state the material factors or assumptions used to develop the FLI and describe its policies for updating the information.
As with all FLI, including in the context of ESG disclosure, issuers are expected to have a reasonable basis for statements respecting future targets or plans and must disclose the material factors or assumptions underpinning those targets or plans and the material risks to achieving those targets or plans.
The CSA note that terms such as “ESG”, “sustainability”, “responsible investing”, “ethical” and “green” can encompass a broad range of environmental and ecological matters such as relating to climate change, greenhouse gas emissions and bio-diversity.
The CSA advise that issuers should exercise caution in using broad terms and if they do use them, they expect details respecting what is meant by the term, which factors are included and how these factors are weighted and prioritized. The CSA note as an example that investors may confuse an issuer’s claims respecting sustainability-related goals with those related to climate-change and net-zero ambitions. Sustainability-related goals may be broader in scope or, for example, prioritize only certain social objectives. Likewise, climate-related goals can include climate-change adaption activities that may not have corresponding reduction in emissions output. As these goals may have distinct objectives with different scopes and outcomes, issuers should ensure that they clearly define the parameters of these goals to mitigate any potential confusion between them.
The CSA also advise that issuers should exercise caution in using a rating to demonstrate its ESG impact and generally expect the following to be disclosed:
- The actual rating;
- A description of the specific set of criteria on which the rating is based;
- A description of the methodology used and whether it is based on quantitative or qualitative data and the degree of subjectivity involved;
- The identity of the third party certifying the rating; and
- The date of the rating.
The CSA note that it is not sufficient, for example, to say that an issuer obtained “a high score” on “a national corporate governance survey”, without disclosing the actual score, the parameters on which the survey was based, the name of the third party conducting the survey and the date of the survey.
The foregoing is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, please contact the author who would be pleased to discuss the issues above with you, in the context of your particular circumstances.
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