Key Impact Points
- Heightened Scrutiny: The Canadian Securities Administrator (CSA) warns of increased regulatory focus on misleading ESG claims, emphasizing transparency and accuracy.
- Strict Disclosure Standards: Issuers must ensure environmental claims are factual, supported by evidence, and avoid overly promotional language or undefined terms.
- Enforcement Risks: Non-compliant disclosures may lead to enforcement actions, reputational damage, or shareholder claims.
Regulators Crack Down on Greenwashing
The CSA is intensifying its oversight of ESG disclosures, highlighting concerns about potentially misleading environmental claims. In its Staff Notice 51-365, the CSA outlines common deficiencies, including overly promotional claims and insufficient substantiation. “The Notice warns that false, misleading, or unsubstantiated claims can result in significant penalties,” reinforcing that regulators are treating greenwashing claims seriously under both securities and competition laws.
Risks of Non-Compliant Disclosures
The Notice stresses that issuers must:
- Provide factual, specific, and evidence-based ESG disclosures.
- Avoid broad terms like “sustainability” without clear definitions.
- Ensure forward-looking information (FLI) meets legal standards, including reasonable bases and risk factors.
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Disclosures about ESG ratings must include detailed explanations of methodologies, criteria, and third-party certifications to prevent misrepresentation.
Examples of Greenwashing Claims
Common pitfalls include:
- Announcing net-zero targets without credible plans.
- Labeling products as ESG-compliant without defining industry standards.
- Setting vague sustainability goals without measurable outcomes.
Key Takeaways for Issuers
The CSA’s guidance serves as a clear signal to issuers: non-compliance in ESG disclosures can lead to enforcement actions and shareholder claims. “Failure to provide compliant ESG disclosures can result in deficient documents or misrepresentations,” with consequences ranging from re-filings to default status.
KPMG’s ESG tax and legal team offers specialized expertise to help issuers navigate these regulations and adopt best practices for compliant ESG reporting.
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