CSA flags a rise in overly promotional disclosures relating to greenwashing

Reporting issuers making environmental claims must proceed with caution as greenwashing in Canada is under heightened scrutiny from regulators. On November 7, 2024, the Canadian Securities Administrator (“CSA”) published CSA Staff Notice 51-365 Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2024 and March 31, 2023 (the “Notice”), highlighting common disclosure deficiencies such as overly promotional claims relating to greenwashing.

The CSA joins various other regulators in Canada and globally that are increasing their focus on ESG disclosures, stressing the importance of accuracy and transparency. The Notice warns that false, misleading, or unsubstantiated claims can result in significant penalties. Competition Act, which introduced anti-greenwashing provisions to hold companies accountable for unsubstantiated claims, further reinforcing that this type of disclosure is being taken seriously by regulators.

To learn more about the developments surrounding greenwashing risk in Canada, see our previous October 2024 Bill C-59: Balancing Green Goals with Economic Risks, October 2024, Bill C-59: From investigation to inquiry, July 2024 KPMG Insight: Corporate Greenwasher’s Beware. See also, KPMG’s The Challenge of Greenwashing: An International Regulatory Overview (November 2024), a global report analyzing greenwashing accusations and regulations across 25 jurisdictions.

In the Notice, the CSA raises concerns about the increase in issuers making potentially misleading, unsubstantiated, or otherwise incomplete environmental claims about their business operations, products, and services. Notably, the content echoes guidance from previous staff notices, indicating a growing concern within the CSA to address greenwashing.

Importantly, reporting issuers must consider the risk of greenwashing in any disclosures about environmental, social, and governance (“ESG”) and/or sustainability impacts in a wide range of documents, including continuous disclosure documents, news releases, website disclosures, and voluntary documents such as sustainability and ESG reports.

The Notice reminds reporting issuers that:

• Descriptions of ESG-related matters must not be overly promotional
• Disclosures must be factual, balanced, specific, and supported by corporate activities, as applicable
• Disclosures must not contain overly broad terms (e.g., “ESG”, “sustainability”, “responsible investing”, “ethical,” and “green”) without details respecting what is meant by the term

• If a disclosure constitutes forward-looking information (“FLI”), it must meet the requirements set out in National Instrument 51-102, Continuous Disclosure Obligations, Part 4A. The Notice reminds issuers that FLIs must:
  • be accompanied by a reasonable basis
  • 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 the policies for updating the information

Importantly, this applies to the disclosure of plans and targets, such as net-zero commitments and other environmental targets

• ESG ratings must be disclosed with caution and generally be accompanied by the following:
  • the actual rating, 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
  • the degree of subjectivity involved, the identity of the third party certifying the rating and the date of the rating
  • the name of the third party conducting the survey
  • the date of the survey
    

Examples of disclosures that may constitute greenwashing include:

• a target to transition to net zero without disclosing a credible plan to achieve such a target
• a material product or service is ESG “friendly” or “compliant” with industry standards without accompanying disclosure identifying the industry standards, the particular factors considered and how they are measured and evaluated
• a plan to improve operational performance in the context of ESG standards, or to reduce greenhouse gas emissions, or to obtain a carbon neutral position without establishing a reasonable basis for the FLI
• sustainability-related or climate-related goals without clearly defined parameters relating to scope and outcomes

While the CSA’s recent guidance remains largely consistent with its previous guidance on ESG disclosures, it is a clear reminder that the CSA is closely monitoring ESG disclosures for false, misleading, and unsubstantiated ESG claims.¹

Additionally, the Commissioner of Competition recently commented that securities disclosures may contain promotional claims about products and business interests, implying that such claims are covered under its purview of enforcement. While securities laws and competition laws regulate representations made by public companies for different purposes, the Commissioner’s position creates potential jurisdictional overlap and could result in conflicting enforcement efforts across both regulatory frameworks; particularly with the recent introduction of new anti-greenwashing provisions under the Competition Act.

Failure to provide compliant ESG disclosures can result in deficient disclosure documents or misrepresentations, which can have significant consequences, including the risk of enforcement action, re-filing requirement or being added to the CSA defaulting issuers list. If such deficiencies result in misrepresentations, the issuer can be liable to claims from shareholders.

KPMG’s multi-disciplinary ESG tax and legal team is available to help issuers assess their ESG disclosures and provide sector specific technical expertise to determine industry best practices for compliant ESG disclosure.

If you need guidance, please contact our ESG tax and legal team to explore how we can help you navigate your legal needs.
Please note this publication presents an overview of the CSA’s latest guidance on greenwashing. It is for informational purposes only and is not a replacement for legal advice.

1. See e.g., CSA Staff Notice 51-333, Environmental Reporting Guidance (October 2, 2010), CSA Staff Notice 51-356, problematic promotional activities by issuers, (November 29, 2018), CSA Staff Notice 51-358, Reporting on Climate Change-related Risks (August 1, 2019), and CSA Staff Notice 51-364, Continuous Disclosure Program Activities for the fiscal years ended March 31, 2022 and March 31, 2021.