Contentious changes to the federal Competition Act aimed at preventing corporate greenwashing leave lingering risks for investors of falling victim to false or exaggerated environmental claims, according to new research from an environmental law charity.
Despite the legislation, under which companies could face financial penalties if their green assertions do not stand up to scrutiny, much of Canada’s climate-conscious finance and environmental, social and governance (ESG) fields remain largely unregulated and open to greenwashing, the Quebec Environmental Law Centre said in a report set to be released Wednesday.
Even areas in which compliance is currently mandatory have notable gaps that need to be addressed, the report said.
The act’s shortcomings are compounded by the fact that voluntary guidelines around environmental disclosure and efforts to bolster it are being developed simultaneously by a number of self-governing and regulatory organizations and are in various stages of progress, with no central authority driving the process, said Julien Beaulieu, a law lecturer at the University of Sherbrooke and lead author of the report.
Yet despite the new legislation, without more detailed rules various programs and levels of regulation will risk sowing confusion among the investing public and could result in institutional and retail investors buying stocks and funds based on inaccurate assumptions of their overall environmental impact, Mr. Beaulieu said.
“From my perspective, everybody should play by the same rules under one unified set of standards, and the standards should be mandatory, not voluntary,” Mr. Beaulieu said in an interview.
Efforts under way include the Canadian Sustainability Standards Board’s process to adapt international guidelines for climate and sustainability reporting to the domestic economy, and the expected move by the country’s securities commissions to eventually include them in their regulations.
In addition, the federal government has been studying the draft for a green and transitionary taxonomy that would certify whether investments meet environmental standards, but has yet to produce a document to put into force. Finance Minister Chrystia Freeland and Environment Minister Steven Guilbeault have been examining a taxonomy roadmap developed by an expert panel for the past two years.
“There needs to be a very clear and robust taxonomy,” Mr. Beaulieu said. “That’s the cornerstone of this whole financial policy and that’s your working force, and then you need to harness different pieces of legislation around that working force.”
Mark Carney, the former governor of the Bank of Canada and Bank of England who recently accepted an economic adviser role for the federal Liberals, has also been vocal in criticizing Canada’s patchwork approach to climate-related finance.
The controversial anti-greenwashing provision within the government’s Bill C-59, enacted in June, makes changes to the Competition Act with the aim of forcing companies to prove their assertions of environmental performance. Individuals and companies could face sizable fines if found liable.
The government said corporate communications must be backed up by the as-yet-undefined international standards. The move has been lauded by climate activists.
In response to the act, several oil and gas companies and industry associations have added disclaimers to their websites and social-media feeds or deleted content. The Alberta government has been vociferous in its opposition to the amendment, calling the anti-greenwashing provision a “gag order.”
The Competition Bureau invited submissions as part of its consultation efforts, and is expected to release the results in the coming weeks.
In its submission, released publicly on Tuesday, the Business Council of Alberta said the legislation creates uncertainty that will result in years of decisions and legal judgements, and prevent companies from talking about their environmental actions and aspirations. That will restrict investment, and in turn limit hiring, it said.
The report makes several recommendations to improve the reliability of sustainable finance, including regulating new products and services such as voluntary carbon offsets, green and sustainability-linked bonds as well as ESG ratings services. All of those have come under scrutiny in recent years for insufficient information and disclosure. The centre also recommends strengthening labelling standards for investments.
It urges reinforcing rules for reporting environmental risks on, and the impacts of, the finance industry, including the metrics that back corporate assertions. Mr. Beaulieu said Europe’s recent requirements to disclose data on double materiality – environmental risks to a company as well as its impact on the environment – would be an improvement.
In addition, the centre is calling for improved professional qualifications for financial advisers to bolster their knowledge of the topic, as the retail investors they serve tend to be the most vulnerable to greenwashing.
Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. E-mail him at jeffjones@globeandmail.com.