Last month, a U.S. Court of Appeals judge temporarily blocked the U.S. Securities and Exchange Commission's (SEC) new climate risk disclosure rules following a legal challenge. So far, at least 19 Republican-led states have sued the SEC, in part because the SEC's rules “force” companies to disclose certain information. It is suspected of violating the First Amendment right to freedom. The suspension follows a similar lawsuit filed by business groups in January against California's new climate disclosure law.
This is not the first time that free speech has been invoked to avoid legal liability related to climate change. In 2019, ExxonMobil used free speech as a defense to dismiss a “false advertising” lawsuit related to climate change. Since then, fossil fuel companies have repeatedly returned to the same argument to deny similar lawsuits.
Canada is approaching a key milestone of its own towards more effective climate disclosure rules. Federal and state regulators are trying to end greenwashing and investor confusion by promoting common reporting practices across companies. These rules provide specific guidance on how companies and financial institutions must communicate their exposure to risks arising from climate change, such as more frequent extreme weather events, and greenhouse gas emissions. There is also the possibility that emissions will be required to be aggregated and published.
In 2021, provincial securities regulators across Canada issued one of the world's first climate disclosure rules for publicly traded companies in draft form. Last month, the regulator indicated it would draft revised climate disclosure standards following the publication of the Canadian Sustainability Standards Board. The standard is the national equivalent of the International Sustainability Standards Committee's global sustainability standard and is currently in the consultation stage.
Ottawa is also engaged. The federal government announced in its Fall 2023 Economic Statement that it will develop climate information disclosure rules for private companies. This measure would complement climate change disclosure rules recently imposed on banks, insurance companies, and other federally regulated financial institutions by the Financial Institutions Superintendent, an independent federal agency.
As Canada's disclosure rules continue to be finalized, should we expect Canadian companies to follow suit in the US and file free speech cases? So far, Canada is rising in the US Relatively unaffected by the wave of anti-ESG litigation and policy. However, Canada has a history of controversial public policy litigation challenging transparency under the banner of freedom of expression.
In the late 1980s, the tobacco industry successfully challenged the constitutionality of federal tobacco advertising regulations. In a 1995 decision, the Supreme Court of Canada agreed with tobacco companies that Ottawa's advertising ban was too broad and infringed on companies' free expression rights. A second, more targeted version of the regulations was given the green light by the Supreme Court in 2007.
Environmental policy has so far been immune to freedom of expression litigation in Canada, but stakeholders are already using other legal arguments in court to block or delay action on climate change. . For example, in recent months, the Quebec cities of Boucheville and Prevost have been sued over proposals to tax large parking lots and ban natural gas in new buildings, respectively. Similarly, the Supreme Court ruled last fall that the federal government's environmental impact assessment system was “substantially unconstitutional” following a review request by the Alberta government.
So far, Canada has remained relatively unaffected by the wave of anti-ESG litigation and policies emerging in the United States.
That said, Canadian companies espouse unique values and operate within a different political culture than their U.S. counterparts, and business groups are challenging the legality of upcoming climate change disclosure rules. may face backlash from members. In Canada, the industry is pushing for clear standards to end what it calls an “alphabet soup” of ESG (“Environmental, Social and Governance”), despite some disagreements over the final scope of the rules. There was widespread support for disclosure and target-setting guidelines and organizations such as TCFD (Task Force on Climate-Related Financial Disclosures), SBTi (Science-Based Targets Initiative), and IASB (International Accounting Standards Board).
This rule has wide support from the public. A 2022 survey of Canadian retail investors found that 75% expressed concern about greenwashing and 78% supported stronger and stricter regulatory measures within the financial sector to combat greenwashing. did.
Most importantly, Canadian businesses have a constitutionally protected right to freedom of expression, but this right is not absolute. The Supreme Court has upheld disclosure obligations when the government's objectives are determined to be legitimate and restrictions on freedom of expression are limited to those necessary to achieve those objectives.
Canada's federal and provincial policymakers therefore need to resist the temptation to water down climate change disclosure proposals in anticipation of future legal challenges. Climate change transparency is too important to jeopardize such an important tool in closing Canada's $115 billion annual climate finance gap.
Julien O. Beaulieu is a lecturer in law at the University of Sherbrooke and a researcher at the Quebec Environmental Law Center. Iris Fairey Beam is an independent legal researcher.
