Last month, a United States appeals court judge temporarily suspended the U.S. Securities and Exchange Commission’s (SEC) new climate-risk disclosure rules amid legal challenges. To date, at least 19 Republican-led states have sued the SEC, in part over alleged concerns that the agency’s rules violate companies’ First Amendment right to free speech because they “compel” companies to disclose certain information. The suspension follows a similar lawsuit launched by business groups in January against California’s new climate disclosure laws.
This is not the first time that freedom of speech has been raised to sidestep legal responsibilities related to climate change. In 2019, ExxonMobil used free speech as a defence to dismiss a “deceptive advertising” suit related to climate change. Since then, fossil fuel companies have repeatedly returned to that same argument to rebuff similar lawsuits.
Canada is approaching its own critical milestones on the road to more effective climate disclosure rules. Federal and provincial regulators are seeking to put an end to greenwashing and investor confusion by fostering common reporting practices across firms. These rules will 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 may require them to tally and reveal their greenhouse gas emissions.
In 2021, provincial securities regulators across Canada issued, in draft form, one of the world’s first climate disclosure rules for publicly traded companies. Last month, the regulators indicated that they would produce a revised draft following the publication of a climate disclosure standard by the Canadian Sustainability Standards Board. That standard – a domestic equivalent to the International Sustainability Standards Board’s global sustainability standards – is currently in the consultation phase.
Ottawa is also engaged. The federal government, in its 2023 fall economic statement, announced that it would develop climate disclosure rules for private companies. This measure would complement the climate disclosure rules recently imposed on banks, insurers and other federally regulated financial institutions by the Superintendent of Financial Institutions, an independent federal agency.
As this flurry of Canadian disclosure rules gets finalized, should we expect Canadian businesses to launch free speech lawsuits, mimicking their U.S. counterparts? So far, Canada has been relatively immune to the wave of anti-ESG litigation and policies that have emerged in the United States. However, Canada has a history of controversial public-policy lawsuits fighting transparency by raising the freedom-of-expression flag.
In the late 1980s, the tobacco industry successfully challenged the constitutionality of the federal government’s tobacco advertising regulations. In a 1995 ruling, the Supreme Court of Canada agreed with tobacco companies that Ottawa’s ad bans were overly broad and violated the companies’ freedom of expression. A second, more targeted version of the regulations was given the green light by the Supreme Court in 2007.
While environmental policies have thus far escaped freedom-of-expression lawsuits in Canada, stakeholders are already using other legal arguments in court to prevent and delay climate initiatives. For example, in the past few months, the Quebec cities of Boucherville and Prévost have been sued after respectively proposing a tax on large parking lots and a ban of natural gas in new buildings. Similarly, last fall, the Supreme Court ruled that the federal government’s environmental-impact-assessment regime is “largely unconstitutional,” after a request for review by the Alberta government.
So far, Canada has been relatively immune to the wave of anti-ESG litigation and policies that have emerged in the United States.
That being said, Canadian corporations espouse distinctive values and operate in a political culture that is different from that of their U.S. counterparts, and business groups challenging the legality of upcoming climate disclosure rules could face pushback from their members. In Canada, despite some disagreements regarding the final scope of the rules, there has been broad industry support for clear standards that would put an end to what has been referred to as an “alphabet soup” of ESG (for “environmental, social and governance”) disclosure and target-setting guidelines and organizations, like TCFD (the Task Force on Climate-Related Financial Disclosures), SBTi (the Science Based Targets initiative), IASB (the International Accounting Standards Board) and others.
The rules are also supported by the broader public. In a 2022 survey of Canadian retail investors, 75% expressed concerns regarding greenwashing, and 78% supported increased and stricter regulatory measures within the financial sector to combat it.
Most importantly, while companies in Canada have a constitutionally protected right to freedom of expression, this right is not absolute. The Supreme Court has allowed disclosure mandates where the government’s objectives are deemed to be legitimate and restrictions on freedom of expression are limited to what is necessary to achieve those objectives.
Canadian federal and provincial policy-makers should therefore resist any temptations to water down their climate disclosure proposals in anticipation of future legal challenges. Climate transparency is simply too important to threaten such crucial instruments in closing Canada’s $115-billion annual climate-financing gap.
Julien O. Beaulieu is a lecturer in law at the University of Sherbrooke and a researcher with the Quebec Environmental Law Centre. Iris Fairley-Beam is an independent legal researcher.
