In December, U.S. Senator Ted Cruz introduced legislation that would block voting on environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) matters for the federal pension fund. The bill would prohibit BlackRock and State Street from exercising their voting rights as shareholders on matters related to the Thrift Savings Plan – the $1-trillion retirement plan for U.S. federal employees.

This legislation strengthens Republican efforts to limit asset manager participation in ESG and climate coalitions, occurring alongside lawsuits alleging antitrust violations related to sustainability initiatives. Shareholders should be deeply concerned.

Despite the government’s rhetoric, climate risks are not abstract concerns. The financial losses from climate-related disasters are already staggering and directly affect corporate balance sheets, insurance costs, supply chain stability and asset values. When wildfires destroy infrastructures, when extreme weather events force business closures, these become material financial risks that any prudent investor must consider.

Yet this legislation would forbid asset managers from voting directors off boards when they underperform as a result of failing to manage these risks. Nor would they be able to vote against CEO pay packages that incentivize short-term thinking over long-term climate resilience. Voting for or against mergers and acquisitions based on the climate-related risks or opportunities they present would also be off the table.

The doublespeak has been striking. The bill’s proponents frame it as protecting shareholder interests and ensuring fiduciary duty, yet it proposes the wholesale elimination of voting rights on a broad category of financially material issues. Shareholders – including the federal employees whose retirement savings are at stake – are being told that their interests are best served by having fewer voting rights and reduced ability to hold management accountable. The underlying assumption appears to be that asset managers considering climate risks, social factors, or practices such as ESG and DEI are inherently acting against shareholder interests, an assertion that ignores decades of research demonstrating the financial materiality of these factors and the value of active ownership in protecting long-term returns. The evidence is clear.

Yet the implications of Senator Cruz’s bill extend far beyond this single piece of legislation. Once governments establish the precedent that they can selectively prohibit voting on certain categories of proposals, what is the next target? The legislation effectively creates a two-tiered system of shareholder rights: some topics are deemed acceptable for investor engagement, while others, despite their potential financial materiality, are placed beyond the reach of fiduciary oversight. This is not market-based decision-making; it is state intervention determining which corporate governance matters shareholders may address through their ownership rights.

Cruz’s proposal is part of a broader pattern. Important changes are reshaping the U.S. corporate governance landscape, with particularly significant implications for the 2026 proxy season, which is upon us. The Securities and Exchange Commission (SEC), citing lack of resources, has dramatically limited no-action letter requests, now focusing only on resolutions not being a “proper subject” for shareholders under state law.

Paradoxically, despite these claimed resource limitations, President Donald Trump has issued an executive order directing the SEC – along with the Federal Trade Commission and the Department of Labor – to undertake a comprehensive review of regulations governing proxy advisers, particularly those involving DEI and ESG considerations. The executive order specifically targets Institutional Shareholder Services and Glass Lewis, which together control more than 90% of the proxy adviser market, asserting that these firms prioritize politically motivated agendas over investor returns.

Furthermore, Texas has implemented legislation that restricts both derivative actions and shareholder proposals, effectively narrowing the pathways through which investors can hold corporations accountable. Perhaps most telling is ExxonMobil’s move last year to sue shareholders who filed a climate-related proposal – a stark indication that the corporation–shareholder relationship has shifted from the realm of business and markets into legal warfare.

We should be concerned not just about ESG or DEI specifically, but about the precedent being established for all shareholder rights. If companies can sue shareholders into silence, what incentive remains for investors to exercise stewardship and active ownership? And if the SEC withdraws from its role in maintaining a fair and orderly process for shareholder proposals, who will protect investors’ fundamental rights? These are not hypothetical concerns; they are materializing in real time and at, what I would consider, light speed in the United States.

The right to vote as a shareholder is at risk of becoming a hollow privilege, restricted to only those matters deemed politically acceptable to the government of the day. The irony is that those claiming to protect free markets and shareholder interests are systematically dismantling the very mechanisms that allow markets to function and shareholders to exercise their ownership rights. Whether this erosion can be reversed will depend on whether investors recognize what is at stake before it is too late.

Julie Bernard is a research fellow with the Institute for Sustainable Finance at Smith School of Business, Queen’s University, and an assistant professor of sustainable finance at the School of Environment, Enterprise and Development at the University of Waterloo.

The post It’s not just ESG – all shareholder rights are being threatened in the U.S. appeared first on Corporate Knights.

That was before the return of Trump, a new wave of trade tensions, and a looming recession. So we asked ourselves this question: has anything changed for Canadian businesses?

We don’t think so – and here’s why.

1. Canada’s biggest buyer – the government – still sets the tone

The federal government is by far Canada’s biggest buyer, and despite fiscal tightening, Canada’s sustainable procurement policy remains in place. It requires federal departments and agencies to integrate environmental and social considerations into their purchasing decisions. With Prime Minister Mark Carney expected to uphold this framework, we anticipate continued pressure on suppliers to demonstrate ESG alignment. This has clear trickle-down consequences, including at the provincial and Crown corporation level, for example with the Ontario Education Collaborative Marketplace (OECM), Ontario’s not-for-profit that helps its public sector (schools, municipalities, etc.) buy goods and services more efficiently. We have been helping OECM develop an ESG strategy since 2022,which led to it including 45 questions related to ESGI (ESG and Indigenous relations) in its supplier evaluation methodology in 2024, among other initiatives.

2. Big corporations are also staying the course

According to our analysis of Canada’s top 15 corporate buyers (shown in the table below) representing an estimated $440 billion in spending, while the depth and maturity of their policies vary, the trend is clear: large Canadian companies are increasingly integrating sustainability into their procurement practices, driven by consumer demand, investor expectations, ESG commitments and reputational risk. Each of the top 15 currently has a sustainable procurement policy in place that includes sustainability criteria in supplier evaluations. It’s never the first or only factor they look at, of course, but it’s a factor. Examples of ESG criteria used in supplier evaluation go from the obvious greenhouse gas emissions and diversity, equity and inclusion practices to waste and water reduction, biodiversity, community investments, risk management and policies.

Sustainability expectations of Canada’s largest corporate buyers

Given the combined purchasing power of these organizations, as well as the robustness and complexity of their supply chains, this is also likely to have ripple effects across the broader Canadian market.

3. Regulation is driving ESG down the supply chain

Bill S-211, now in its second year of implementation, mandates that companies report on how they are addressing forced and child labour in their supply chains. This is not just a compliance issue; it’s a signal that supply chain transparency is becoming a baseline expectation.

The Canadian Sustainability Standards Board launched its first disclosure standards in January 2025, based on the International Sustainability Standards Board (ISSB) standards. While still voluntary, these standards align with international frameworks and include Scope 3 emissions, which cover indirect emissions from a company’s supply chain and typically represent 90% of companies’ emissions, according to an analysis from McKinsey. Companies that adopt these standards early will be better positioned as disclosure becomes mandatory.

Whether it’s Scope 3 emissions or human rights due diligence, the common thread across these standards is the need for visibility beyond tier 1 suppliers – and in some cases, all the way to raw materials. This is a major shift in how companies manage risk and build resilience.

4. Global markets are raising the bar

As Canadian companies look to diversify away from the United States, they’re encountering stricter ESG regulations abroad – not just in the European Union, but also in China and other key markets (1,255 ESG policy interventions have been introduced worldwide since 2011, according to ESG Book research in 2023, and 53 jurisdictions are using or preparing to adopt the ISSB standards, representing 57% of global GDP, according to ESG Book research in 2025). Recent research by the Canadian Climate Institute of the top 10 non-U.S. trading partners shows that countries responsible for buying $142 billion of Canadian goods in 2024 are by and large further along than Canada in terms of climate regulation. This global shift is pushing Canadian firms to embed ESG deeper into procurement and vendor selection.

Even in the United States, where ESG has become politically polarized, companies are still moving forward. According to EcoVadis’s 2025 US Business Sustainability Landscape Outlook, 87% of U.S. companies are quietly increasing sustainability investments, even if they’re not promoting them publicly.

5. Investors, lenders and consumers are watching

Canadian and international investors are increasingly demanding robust ESG disclosures, including supply chain practices. And according to 2025 research by Millani, even though Canadian investors are dialling back communications about their ESG integration activities, that doesn’t mean they’ve stopped. Some Canadian banks and lenders are also requiring ESG information during the lending process. Companies that can’t demonstrate ESG alignment risk losing access to capital or trust.

Recent data for consumers is harder to find, as most studies focus on the impact of tariffs, inflation, et cetera. There was, however, a plethora of studies done on the topic in the past few years, and even as inflation concerns were raging in 2024, according to a PwC survey consumers were increasingly prioritizing sustainability in their consumption practices, as almost nine in 10 (85%) said they are experiencing the disruptive impacts of climate change in their lives.

6. It’s not just about compliance and winning contracts – it’s about value

Of course, overall investments are down, which affects the sustainability sector as well, and companies may hesitate to invest in ESG right now. But at the risk of repeating ourselves, beyond revenue and risk management, having a robust sustainability strategy can:

• reduce costs in the medium to long term (e.g., through energy efficiency or waste reduction)
• improve supplier relationships through transparency, clarity and shared sustainability standards
• enhance brand reputation through a clear, science-backed sustainability strategy
• attract and retain talent by demonstrating purpose and environmental responsibility

In short, ESG isn’t just a reporting exercise – it’s a strategic advantage.

Conclusion: The trickle is now a flow

From winning procurement bids to regulation, investor pressure and global market access, the message is clear: ESG expectations are increasingly cascading down the supply chain. While we understand that tariffs and general uncertainty are probably at the top of everyone’s agenda, suppliers that are able to think long-term and get ahead of the curve will not only future-proof compliance, they’ll win business.

In today’s economy, that’s worth thinking about. If you’re a supplier navigating this landscape, now is the time to act. As someone once said: “Never waste a good crisis.”

Boris Couteaux is principal at ESG Global Advisors, and Gur Simar Preet Kaur is an associate. ESG Global offers a comprehensive range of ESG advisory services for companies and investors.

Disclaimer: AI contributed to the creation of this article, but it was guided, reviewed and fact-checked by ESG Global’s human experts. Please note that the content and material provided in this article is for general information purposes only. It is not to be taken or relied upon as legal advice and should not be used for professional or commercial purposes. The content is subject to change based on evolving regulatory reporting requirements.

The post Amid Trump tensions, does sustainability still matter for Canada’s biggest corporate buyers? appeared first on Corporate Knights.

Principles for Responsible Investment (PRI) counts more than 5,300 companies as members, together managing assets of more than US$128 trillion. Pension executives at the PRI in Person gathering in Toronto said they had no problem upholding environmental, social and governance approaches to investment. In fact, it’s the only way they can secure long-term payouts to their plan members. “We have fully bought into the thesis that we can generate outperformance by leaning into the climate revolution,” Michael Cohen, chief investment operating officer at CalPERS, the US$529-billion fund for California public employees, told the conference. The fund intends to double its climate investment over the next six or seven years.

Bertrand Millot, head of sustainability for the Caisse de dépôt et placement du Québec (CDPQ), Quebec’s $450-billion pension fund, said earning a good return is critical to safeguard pensions in the province, which are paid to six million Quebecers. “We are a fiduciary, and returns are number one, and always will be,” he said. The CDPQ divested from the oil sector five years ago and reinvested the funds in clean energy, a move that has generated an 18% annual return. “We are very happy to be out of the oil sector,” Millot said.

The keynote address came from Canada’s finance minister and deputy prime minister, Chrystia Freeland, who announced a plan for labelling green and transition investments. The new rules are expected to boost ESG- and climate-related investment in Canada, such as clean energy bonds and transition bonds for sectors like steel and cement.

The gathering took place amid a wider financial industry rift caused by mounting doubts surrounding the effectiveness of ESG investing, particularly on climate action – doubts that have been sowed mainly by large asset managers, such as BlackRock CEO Larry Fink, who has stopped using the term “ESG,” saying it has been “weaponized” by the far left and far right.

Asset owners, on the other hand, are intensifying their ESG commitments. Pension funds own some of the world’s largest, most significant long-term assets. They have the power – if they choose to exercise it – to allocate trillions of dollars to the global climate transition. “We’re starting to see a real split in the financial sector,” says Adam Scott, executive director of the Canadian climate action group Shift: Action for Pension Wealth and Planet Health.

“Pensions have long time horizons on their investment, so they’re starting to come around to a deep internal recognition that they have to hit climate targets or invest in that direction,” he says. But banks, Scott points out, have relatively short-term lending horizons: “They don’t see past a few quarters when it comes to allocating their loan books.”

A new report on fossil fuel loans and investments by Toronto-based financial institutions underscores Scott’s point. Released during the conference, the report found that financed emissions by six banks, six asset managers and six pensions totalled 1.44 billion tonnes of carbon dioxide in 2022. Of those, the pension funds were responsible for less than 10 million tonnes.

To be sure, there are still hundreds of asset managers and banks that are fully committed to ESG and climate investment, many of which belong to PRI and other climate coalitions for investment managers and bankers.

But some of the world’s largest asset managers have recently sent signals that they want to lower expectations for their ESG and climate action. This year, JP Morgan Asset Management, State Street Global Advisors, PIMCO, Goldman Sachs and others withdrew from the Climate Action 100+ network, a coalition pressuring leading global companies to set climate targets and plans.

Banks and asset managers have faced growing hostility from Republican lawmakers in the United States who have called ESG “woke capitalism.” In August, Republican members of the House of Representatives sent letters to 130 U.S.-based investors inquiring about their involvement with Climate Action 100+ and asking them to explain their ESG goals.

Can finance force change?

Last month, the Institute of International Finance – a trade group representing asset owners and investors – issued a paper calling for a reset on the role of private finance in the net-zero transition. The authors identify a “prevailing finance-centric theory of change,” which assumes that banks and investors can force change in the “real economy” by shifting their assets from high emitters to low emitters.

But this theory fails to acknowledge the degree to which financial entities are limited by the commercial viability of the projects and customers they finance, the paper argues.

This off-loading of responsibility echoes recent statements by energy and resource company executives who say that phasing out fossil fuels is a fantasy. The wars in Ukraine and the Middle East are creating turmoil in energy markets and driving up oil and gas prices, making them a more attractive short-term investment.

The “ESG pendulum had swung back in the past year,” Glencore CEO Gary Nagle said in August after the mining giant cancelled plans to spin off its high-CO2-emitting but very profitable coal business.

Don’t call ESG dead

In contrast, asset owners are expressing a growing confidence in the importance of climate and ESG factors. Last month, a survey by the financial index company FTSE Russell found that 86% of large asset owners (with assets of US$10 billion or more) and 63% of small owners (less than US$10 billion) are incorporating sustainability considerations into their portfolios. A similar survey by Morningstar found that 67% of asset owners said that ESG factors have become more important in selecting investments than five years ago.

Owners are also increasingly recognizing the connection between ESG and fiduciary duty and allocating more assets under ESG considerations, says Tom Kuh, head of ESG strategy for Morningstar Indexes. “It runs counter to the narrative that ESG is dead.”

UN climate envoy Mark Carney, who together with New York business tycoon Michael Bloomberg founded the Glasgow Financial Alliance for Net Zero three years ago, laid out a hopeful alternative to the prevailing financial pessimism among bankers and investment managers at the conference: “When society sets a clear goal, such as net-zero, it becomes profitable to be part of the solution and costly to remain part of the problem.”

“You’re the first generation of investors who understand the risks associated with climate change, but you are also the last generation who will be able to do anything to mitigate climate change,” he said.

The climate transition will happen only with both private and public action, said Barbara Zvan, president and CEO of University Pension Plan in Ontario. Pensions have a fiduciary duty to pressure politicians and regulators for climate transition policies, she argued. “There is value in working together to get into a consensus and then staying steadfast to it,” said Zvan, who led the lobbying effort for the new green taxonomy that Freeland announced at the conference.

Millot said the most important thing for the finance industry to do is to get away from backward ways of thinking and look forward, even if the data is unavailable or uncertain. “The planet is on a path where there is no crystal ball. Companies are going to do projections and make suggestions that are more or less correct,” he said. “We need to really get comfortable with that.”

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

The post Death of ESG is greatly exaggerated, say pension managers appeared first on Corporate Knights.

Since the early 2000s, ESG integration has become a widely used strategy in the financial industry. If your mutual fund claims to use this strategy, it’s essentially telling you that fund managers consider company data on environmental, social and governance factors in their investment analysis and decisions. Most managers, however, use it to improve financial returns rather than achieve social or environmental objectives.

The strategy has come under increasing criticism in recent years as a marketing tool to attract ESG-focused investors. In a case that received a lot of attention, DWS agreed to pay $25 million to the U.S. Securities and Exchange Commission after it accused the German asset manager in 2022 of greenwashing by labelling its investments “ESG-integrated” while only a very small proportion of portfolio managers used ESG ratings.

The Canadian Investment Funds Standards Committee (CIFSC), a body of investment management and data providers that oversees national fund standards, decided to take action. As of August 31, the strategy is no longer considered an acceptable approach for any fund wishing to be officially recognized as a responsible investment fund.

The crux of the problem is that it’s not possible to distinguish an ESG-integration fund from a non-ESG mutual fund “because there is no guarantee of a defining feature, nor is there any promise that ESG information is being used at all,” CIFSC said in an industry release. “This would increase the potential of perceived greenwashing for investors who seek to find ESG objective funds.”

The new policy tells the mutual fund industry, in effect, that it’s okay to use ESG integration as an investment tool – just don’t call your fund a responsible investment fund because you use it.

“ESG integration is a process,” said Fundata Canada vice-president John Krisko, who also serves as CIFSC’s vice-chair, in a company blog. “A process does not have an objective, or a measurable endpoint.”

The CIFSC action is part of an overall effort by the responsible investment industry to turn the tide on greenwashing. A global set of common definitions has been established by global responsible investment networks. Researchers and asset managers are pulling back on their estimates of ESG assets as trillions of dollars in investments once considered to be “responsible” or “sustainable” are now judged to be of doubtful ESG validity.

RELATED:

Clean energy stocks are making a comeback

Bank financing for fossil fuels dips second year in a row

How consultants have taken over sustainability reporting – and not for the better

In March, the Canadian Securities Administrators (CSA), the network of provincial financial-industry regulators, issued a highly critical report on ESG fund disclosures, saying lack of transparency on ESG practices can lead to the perception of greenwashing.

Securities commission staff observed “a considerable increase” in funds claiming to consider ESG factors, without being clear on the extent of ESG decision-making. “To prevent greenwashing, the name and investment objectives of a fund should accurately reflect the extent to which the fund is focused on ESG,” CSA staff said.

The CSA called on the industry to bring clarity and consistency to disclosure and communications to avoid misleading investors on the nature of ESG funds they purchase.

CIFSC oversees classifications for Canadian mutual funds on matters such as asset classes (cash, fixed income, equity, for example) and how funds are sold (commission-based, fee-based advice, do-it-yourself and institutional). Since 2022, CIFSC has also maintained an RI fund list, providing a definitive easily accessible register of responsible investment funds for investment managers, advisors, investors and the public.

To make it to the list, ESG funds must employ one of the following strategies: ESG exclusions (screening out specific industries, sectors, regions or companies; i.e., oil and gas), ESG best-in-class investments that meet certain desirable criteria (i.e., human rights leaders), ESG thematic investing (sectoral themes; i.e., clean energy), ESG-related engagement and stewardship (using shareholder influence to effect change) and impact investing (investing to bring about certain outcomes; i.e., increase affordable housing). Prior to this summer, ESG integration was also on the list.

In August, after notification that ESG integration would be removed as a qualifying strategy, approximately 40 funds out of about 500 on the list asked CIFSC to remove the strategy from the flags for their fund. All but one of these funds remained on the list by flagging one or more of the other approved strategies, according to CIFSC chair Danielle LeClair.

While this might imply that most funds do not use ESG integration as a greenwashing tool, CSA staff pointed to a significant number of investment manager websites that suggest that all or most of their funds consider ESG factors. Yet staff found no disclosures of ESG specifics in fund prospectuses.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

The post Memo to Canadian mutual funds: Stop greenwashing with vague ‘ESG integration’ claim appeared first on Corporate Knights.

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.

The post Will free speech derail North America’s climate finance agenda? appeared first on Corporate Knights.

“This rule is a floor, not a ceiling, for companies to report how their business is adapting to a global economy that is transitioning away from fossil fuels,” said Maria Lettini, CEO of the U.S. Sustainable Investment Forum, in a statement. 

The rule, approved last week by the Securities and Exchange Commission (SEC), will provide “an achievable floor of disclosure” on company climate emissions and physical and transition risks, said the chief executive of the association whose members manage US$5 trillion in assets. 

When fully in place in 2026, the rule will require large, publicly listed companies to disclose their Scope 1 and Scope 2 greenhouse gas emissions from their direct operations and energy use if the emissions are sizeable enough to represent a material financial risk to the company. Smaller companies will start reporting in 2028. 

Under heavy lobbying from business organizations and threats of legal action, the SEC pulled back from a proposal two years ago to also require disclosure of Scope 3 greenhouse gases, the end-use releases that make up about 75% of all emissions. The earlier proposal also would have required companies to report on their Scope 1 and 2 emissions regardless of whether they are financially material. Even with the concessions, 10 Republican-led states launched a legal challenge against the rule, meaning its survival will ultimately be decided in the courts.  

The sustainable investment industry was among the strongest supporters of the SEC’s initial proposal. 

“The SEC’s new climate rule will help make it clearer which companies are living up to their climate pledges and which are doing nothing more than greenwashing,” said Al Gore, former U.S. vice-president and co-founder of sustainable asset firm Generation Investment Management. “But it’s not the full accounting of corporate climate pollution that we need,” he wrote on X, formerly Twitter. 

“It’s a step forward, but we feel it’s too little too late,” said Leslie Samuelrich, president of sustainable investment manager Green Century Funds, blaming “vigorous opposition by trade groups” for the pullback. 

“The SEC’s new rule can be seen as a step in the right direction, even if it backtracked from some provisions in earlier proposals,” said a post from the global corporate rating agency Sustainalytics. 

Largest consultation in SEC history  

Last week’s decision caps off two years of consultations in which the SEC heard from 24,000 investors, companies, lawmakers, think tanks and citizens. It was an unprecedented level of public debate for an initiative spearheaded by the regulator.    

The lobbying was particularly heavy by Republican lawmakers and large corporate interests, led by the U.S. Chamber of Commerce.  

While the future of the SEC rule is in doubt, large global corporations are facing a rising tide of mandatory climate reporting requirements around the world. Most notably, the European Union Corporate Sustainability Reporting Directive will require European-listed companies to disclose all three scopes of emissions, as well as detailed climate risk disclosures and “double materiality” impacts (real-world effects on people and the environment). 

The SEC estimates that 3,700 U.S. companies with business in Europe will be subject to the European rules when they go into effect between 2025 and 2029. 

The state of California has also approved new climate reporting requirements that apply to 5,300 large companies – including some large oil and gas conglomerates like Chevron – for all three scopes of greenhouse gas emissions and climate risks. 

In February, China announced new sustainability reporting requirements for companies listed on its three major stock exchanges. The sweeping rules include mandatory disclosure on all three scopes of carbon emissions, as well as reporting on environmental, social and governance impact and risk factors. Similar to the EU rules, the regulations include a “double materiality” standard. 

Eyes on Canada  

As home to one of the world’s largest fossil fuel industries, Canada also has a large role to play in the evolving world of climate reporting.  

The new SEC rule will apply to more than 200 large Canadian companies that trade on U.S. stock exchanges, including some of the country’s biggest oil, gas and pipeline companies. 

On March 13, the Canadian Sustainability Standards Board (CSSB), the Canadian branch of the International Sustainability Standards Board (ISSB), released its own climate reporting framework, based on the ISSB standard, which includes Scope 3 reporting. 

Once finalized later this year Canada’s securities commissions could then make the ISSB reporting standard mandatory for Canadian publicly listed companies. 

The Canadian Securities Administrators (CSA) – the umbrella group for Canadian securities commissions – has already proposed reporting requirements similar to the final SEC rule. But the securities commissions suspended that proposal while awaiting the CSSB framework. Once the CSSB standard is finalized, CSA will issue a new climate reporting proposal for adoption by provincial securities commissions. The CSA said its proposal will consider the CSSB standard “and may include modifications appropriate for the Canadian capital markets.”

The big question is whether Canada will go further and adopt full-scope climate reporting like the Europe-California-China standard or simply default to the weaker SEC rule, aligning Canada and the U.S. 

Eugene Ellmen is a former executive director of the Canadian Social Investment Organization (now Responsible Investment Association). He writes on sustainable business and finance. 

The post U.S. SEC waters down its climate reporting rule under legal threats  appeared first on Corporate Knights.

That’s the golden question many investors have for the thousands of companies claiming to be sustainable in one way or another. In the United Kingdom, investors and the public may soon be a bit more certain of companies’ green credentials thanks to new laws coming into effect in May.

Britain’s financial regulator, the Financial Conduct Authority, will require firms’ public communications to be clear, fair and not misleading. Regulators around the world are trying to tackle the problem of greenwashing with new rules and enforcement mechanisms. In January, the European Parliament approved a new directive that bans greenwashing and misleading advertising.  

As greenwashers are expected to face increasing and more frequent fines in certain jurisdictions, a plastic-prevention start-up called CleanHub recently ranked the largest greenwashing fines given out to date. Rolling into first place was Volkswagen, with US$34.69 billion in penalties issued over a number of years in different countries for using software in its cars that reported emissions as lower than they were.  

The top three are rounded out by Toyota, which paid US$180 million in fines in 2021 for failing to report defects in its cars’ tailpipe emissions to the Environmental Protection Agency, and DWS, a Deutsche Bank-controlled investment firm, which forked out US$25 million last year in a settlement after U.S. regulators alleged that the investment firm had misstated its environmental, social and governance (ESG) investing.  

“Given how substantial these fines are, it’s clear that regulators are trying to send a message to companies,” CleanHub’s vice-president of marketing, Nikki Stones, said in a statement. “The days of quiet punishments are over when it comes to greenwashing – brands that intentionally mislead consumers over green initiatives will be severely penalised moving forward.”

That being said, after the top two the fines drop off significantly, revealing that historically, companies have not been held to account for making misleading green claims. Many business leaders claim they don’t understand how to make their companies more sustainable, let alone how to communicate how green their companies are. Last year, 72% of business executives surveyed by the Harris Poll, an American market research firm, agreed that “while everyone says they want to advance sustainability efforts, no one knows how to actually do it.” And worse, 59% of American executives surveyed “admitted to overstating – or inaccurately representing – their own sustainability activities.” 

But all of this could soon change as regulators slowly start to impose more greenwashing rules. In Canada, the federal government is making amendments to the Competition Act, which currently bars misleading advertising, to ban greenwashing specifically, although some environmental groups say the changes don’t go far enough. The Competition Bureau is currently investigating RBC and the Canadian Gas Association over greenwashing allegations. In 2022, Keurig Canada paid $3 million in fines to the bureau to settle concerns over the company’s misleading claims about the recyclability of its coffee pods.  

In the United States last year, the Securities and Exchange Commission adopted a rule that requires registered funds with names that suggest they’re focused on ESG to align at least 80% of their assets in sustainable investments.  

Could we be seeing the beginning of the end of the age of the greenwasher? Stones thinks so.  

“We expect to see more greenwashing fines in the coming years,” she said. “To swerve these penalties, companies need to make sure all of their environmental claims and initiatives are transparent, truthful and are backed up with evidence.” 

Here are the top 10 greenwashing fines from CleanHub:

The post Here are the nine biggest corporate greenwashing fines appeared first on Corporate Knights.

Today, 72% of S&P 500 companies include environmental, social and governance (ESG) metrics in determining executives’ pay, says the Semler Brossy Consulting Group. Of the 2024 Corporate Knights Global 100 companies, 79% have sustainability pay links.

But the ESG backlash south of the border continues to grow. In the U.S., a report from Pleiades Strategy finds that Republican lawmakers in 37 states introduced 165 pieces of legislation in 2023 to discourage companies and investors “from considering commonplace risk factors in making responsible, risk-adjusted investment decisions.” The good news, according to Pleiades: only 22 laws and six resolutions passed in 2023, and “the bills that became law were often heavily revised to weaken core provisions and minimize costs.”

Defenders of ESG metrics were put on the back foot again when the Financial Times quoted an asset manager calling companies’ ESG targets “fluffy.” The story charged that “investors are worried the [ESG] metrics are being gamed to increase payouts.” Its examples include Southwest Airlines, where a disastrous 2022 holiday season that saw cancellation of 16,000 flights didn’t stop senior executives from garnering bonuses, and CBRE, a real estate firm whose CEO failed to meet key financial objectives but still earned US$4 million in bonuses by achieving five other strategic goals, such as improving team diversity and boosting employee engagement.

One executive of Boston-based State Street Global Advisors told the Times they were skeptical of using ESG metrics to determine executive compensation: “Oftentimes they are very subjective, fluffy and easily gamed.” 

So does tying compensation to ESG targets work? A study released last summer by researchers at Stanford University found that firms that link executive bonuses to emission-specific metrics do decrease their carbon dioxide emissions. They also tend to see improvements in their ESG performance, as measured by third-party ratings. The study found no evidence so far that this practice affects organizations’ financial performance or share price.

A similar study released in 2023 by two business professors at Concordia and Carleton universities took a bolder tack, asking whether ESG-based bonuses result in S&P 500 executives receiving excess pay. Using artificial intelligence to identify normal pay ranges and outliers, the researchers found that use of ESG-based bonuses produced a 32% reduction in excess annual cash bonuses, “implying ESG incentives are an effective corporate governance tool.”

However, they did spot sectors where boards and shareholders should remain on high alert: companies in environmentally sensitive industries such as mining or oil and gas, where management teams were determined to have greater influence on the board. They may “need to put additional checks and balances in place to better monitor, control and advise management on the use of these incentives, especially with respect to the selection of ESG performance metrics,” said Sprott School of Business’s Leanne Keddie and Concordia’s Michel Magnan.

A recent report from Harvard Law Review suggested some best practices for companies treading the ESG path: take time to develop meaningful performance data; adopt targets that are “material, durable, and auditable”; and test your ESG operating goals for a year or two before linking them to pay, to ensure their relevance and hone your methodology.

In Canada, the Institute of Corporate Directors has actively promoted ESG-linked executive pay for more than a decade. “Successful incentive programs require robust planning and metrics and verification systems,” says Gigi Dawe, the institute’s VP of policy and research. “There’s lots of new information out there to help set standards, so I think we are going to get better at it.” 

The post Are CEOs gaming ESG bonuses? appeared first on Corporate Knights.

Investors for Paris Compliance (I4PC), a shareholder advocacy organization, has called on the provincial regulator, and its Quebec counterpart, Autorité des marchés financiers, to investigate whether Canada’s “Big Five” banks – RBC, TD, CIBC, Scotiabank and BMO – have misled investors as to the seriousness of their response to climate risk. I4PC submitted a complaint to both regulators earlier this week, asking them to look into whether the banks’ sustainable finance disclosures were adequate and accurate.

They also urged the regulators to require the Big Five to disclose the emissions impact of their sustainable finance departments – to show that they were in fact different from their “regular” financing. “At best, sustainable finance as currently practised by Canada’s big banks is a $2-trillion placebo at a time when we need strong medicine to reduce emissions,” Matt Price, the executive director of I4PC, said in a statement. “At worst, it is greenwashing of carbon-intensive businesses, misleading investors and the public.”

In 2021, all five banks signed on to the Net-Zero Banking Alliance, which committed them to reach net-zero in their financed emissions by 2050. And each bank has acknowledged that the climate crisis could pose significant risks to their businesses. But none have fully disclosed the emissions impact of their sustainable finance divisions to the public or shareholders. And that’s a problem, Price says.

“We allege that by presenting sustainable finance as part of their climate responses, and attaching huge dollar figures to this, that banks are misleading their investors as to the seriousness of their response to a business risk that they themselves have called material,” Price said in an email. “There’s no evidence that sustainable finance is actually moving the needle, since the banks don’t disclose any emissions measurements associated with it.”

The I4PC complaint cited deals within the banks’ sustainable finance divisions that it says expanded fossil fuel production. One of these deals saw Scotiabank act as joint bookrunners (or secondary underwriters) on an $800-million “sustainability bond” of a utility company called Georgia Power, which then filed with Georgia state regulators to expand its use of fossil fuels. Another deal involved RBC and National Bank acting as joint bookrunners and structuring advisers for a $200-million sustainability-linked bond issuance, a portion of which went to buying another oil and gas company – which I4PC says raised emissions and moved the banks further away from their stated net-zero goals. (That was followed by another $100-million sustainability-linked issuance that helped acquire another fossil fuel company.)

In response to the complaint, the Canadian Bankers Association (CBA), which represents the five banks, said that Canadian banks understand the financial sector’s role in the energy transition and that sustainable finance is “one tool” to help companies “mobilize capital toward this effort.”

“Canadian banks follow prevailing North American market standards on environmental, social and governance disclosure, comply with applicable disclosure rules and regulations, and continue to work with industry forums and relevant governing bodies to advance standards that govern sustainability reporting and disclosure practices,” CBA spokesperson Maggie Cheung said in an emailed statement.

Price says the problem with banks following the “prevailing North American market standards” is that those very standards are not good enough. Even the emissions-increasing deals cited in the complaint comply with those standards, which Price says are too vague. The complaint called on regulators to establish clearer standards for sustainable finance. And there is hope that the guidelines will get better, as Price says regulators are trending in this direction, having identified greenwashing as a securities problem and issued reminders that the disclosure of ESG issues is subject to the same rules as all disclosure.

In response to a request for comment, the Ontario Securities Commission spokesperson said they were “unable to confirm or comment on the existence, status or nature of any complaint, review or investigation.”

The post Are the ESG departments of Canada’s Big Five banks a ‘$2-trillion placebo’ for an ailing planet? appeared first on Corporate Knights.

Given the poor performance of green energy stocks and the chorus of opposition against anything viewed as “woke,” it’s easy to get lost in the narrative that the shine has worn off sustainable investing. But that’s not what I’m seeing. The negative sentiment doesn’t match the tremendous progress that is being made.

Sustainable investments soared in 2020 and 2021, and that was certainly when the shine was on. They mostly outperformed traditional investments, and we also saw tons of new funds launch, giving sustainable investors more options. It was a different story in 2022. Sustainable investments underperformed as oil prices spiked and a pronounced backlash against ESG (investing that optimizes environmental, social and governance factors) emerged, especially in the U.S. Comparatively few new ESG-labelled funds have been launched in the last two years.

Despite record oil-company profits and a surge in military share prices stemming from instability in the Middle East, most sustainable investments have quietly outperformed in 2023. But big financial firms like BlackRock aren’t talking about it anymore. Most of the media attention has been focused on the ESG blowback while ignoring the successes. We used to be concerned about greenwashing, but now it seems that many companies are deliberately staying quiet in what some are calling greenhushing – the practice of downplaying or keeping quiet about their sustainability initiatives.

Green stocks have come back to earth

That’s not to say there haven’t been lows. The worst-performing area for sustainable investors was certainly in renewable energy. Clean energy stocks performed tremendously in 2020 and early 2021, but in hindsight this was clearly a bubble.

Companies became way too over-valued, and share prices that once surged have settled back down. It didn’t help that tech companies in general have had a rough time since 2022, and now higher interest rates are negatively affecting utilities with high up-front capital costs for large green energy projects.

Those of us who invested in 2019 or earlier are still doing well, but I feel terrible for people who jumped on the green energy bandwagon in 2020. Now that prices have fallen back to more reasonable levels, I think investors should take another look to see if now is a good time to buy.

Negative sentiment hasn’t affected capital flows

Despite the negative sentiment and falling share prices of green energy stocks, the inflows of capital are still tremendous. According to reports from Bloomberg New Energy Finance and the International Energy Agency, green themes like renewable energy, green buildings and electric cars are seeing double-digit growth in capital investments.

The green economic transition is unstoppable. We can argue whether it’s happening fast enough to avoid the worst-case climate scenarios, but there is no denying the investment flows that continue to pour into the green economy.

A big reason for the increased money flow was the passing of the historic Inflation Reduction Act in 2022. We saw the benefits in 2023 with huge growth in green jobs in the U.S. Even better, the majority of these jobs are in red states. It’s hard to argue against the green transition when your livelihood (or the livelihood of someone you love) is dependent on it.

In Canada, the climate policy conversation, sadly, has circled back to attacks on the carbon tax. Whatever your politics, I think we can all agree that a carrot is more popular than a stick.

Anti-ESG funds have stalled

There was so much pushback against sustainable investing in 2022 that we saw the launch of several anti-ESG funds with ticker symbols like YALL and DRLL. You’ve probably heard of Republican presidential candidate Vivek Ramaswamy, but did you know that in early 2022 he co-founded Strive Asset Management, which offers “anti-woke” investment funds?

Although these funds got off to a roaring start with lots of initial investment, they haven’t seen nearly the capital flows that actual ESG funds experienced. I tracked one fund – the Constrained Capital ESG Orphans ETF – which invested in companies that are usually excluded by sustainable investors. It launched in May 2022 but failed to attract investors and closed, or “de-listed,” in June 2023.

Language has been standardized

I’ve been frustrated by people misusing and conflating various sustainable investment strategies. Divestment is different from ESG, which is different from impact investing. Thankfully, we now have a partnership between the CFA (Chartered Financial Analyst) Institute, the UN Principles for Responsible Investment and the Global Sustainable Investment Alliance to harmonize definitions of sustainable investment approaches.

Check out quick descriptions of the five approaches in the glossary (below).

Now’s the time to act

Amidst the economic turmoil this year, green sprouts are growing. People are increasingly recognizing that our economic system is broken and are actively looking for solutions. One of the easiest solutions to implement is shifting your investments in a more sustainable direction.

It’s still a challenge to pick the good funds amidst the greenwashers, so look to these lists for inspiration. Make sure you consider the risks before carefully deciding how much to invest in each category.

Corporate Knights reviewed 2949 funds and rated the equity funds deemed responsibly managed in four categories, with 40 funds listed below. Download the complete list.

FUND NAME	% market weight covered by Corporate Knights ratings*	Weighted rating**	Final score***	Holdings date
INTERNATIONAL
Invesco S&P International Developed Dividend Aristocrats ESG Index ETF (IIAE)	95.9%	20%	100%	2023-09-30
Franklin ClearBridge Sustainable International Growth Fund	93.7%	19%	95%	2023-08-31
iShares ESG MSCI EAFE Leaders Index ETF (XDLR)	94.9%	17.7%	85.2%	2023-09-30
BMO MSCI EAFE ESG Leaders Index ETF (ESGE)	95%	17.7%	83.3%	2023-09-30
Invesco S&P International Developed ESG Tilt Index ETF (IITE)	94.8%	17.7%	82.3%	2023-09-30
Wealthsimple Developed Markets EX North America Socially Responsible Index ETF (WSRD)	92.4%	17.4%	81.3%	2023-09-30
iShares ESG Aware MSCI EAFE Index ETF (XSEA)	96.9%	17.3%	79.4%	2023-09-30
TD Morningstar ESG International Equity Index ETF (TMEI)	94.9%	17.2%	78.4%	2023-09-30
NEI International Equity RS Fund	92.2%	17%	75.4%	2023-08-31
Desjardins SocieTerra International Equity Fund	92.4%	16.9%	74.5%	2023-09-30
GLOBAL
AGF Global Sustainable Growth Equity	95.5%	27.7%	100%	2023-03-31
Black Diamond Impact Core Equity Fund	92.5%	23.6%	99%	2023-06-30
NEI Environmental Leaders Fund	96%	21.7%	98.5%	2023-08-31
Mackenzie Betterworld Global Equity Fund	92%	21.7%	98.1%	2023-03-31
IA Clarington Inhance Global Equity SRI	95.8%	21.4%	97.6%	2023-03-31
VPI Sustainability Leaders Pool	75.5%	21.1%	97.1%	2023-09-30
Mackenzie Greenchip Global Environmental All Cap Fund	88.8%	20.6%	95.7%	2023-03-31
CI Global Climate Leaders Fund	87.6%	20.5%	95.2%	2023-03-31
Desjardins SocieTerra Positive Change Fund	89.4%	20.5%	94.8%	2023-09-30
Global Iman Fund	100%	18.7%	93.8%	2023-06-30
U.S.
Invesco ESG NASDAQ 100 Index ETF (QQCE)	99.3%	21.3%	100%	2023-09-30
Desjardins SocieTerra American Equity Fund	98.8%	20.9%	99.5%	2023-09-30
Invesco S&P 500 ESG Index ETF (ESG)	99.7%	17.7%	92.6%	2023-09-30
Invesco S&P 500 ESG Tilt Index ETF (ISTE)	99.8%	16.9%	91.1%	2023-09-30
Invesco S&P US Total Market ESG Index ETF (IUCE)	99.1%	16.8%	90.6%	2023-09-30
Mackenzie Bluewater US Growth Fund	97.7%	16.5%	89.6%	2023-03-31
iShares ESG Aware MSCI USA Index ETF (XSUS)	100%	16.1%	88.6%	2023-09-30
Invesco S&P US Total Market ESG Tilt Index ETF (IUTE)	99%	16.1%	88.1%	2023-09-30
iShares ESG MSCI USA Leaders Index ETF (XULR)	100.1%	15.8%	87.1%	2023-09-30
BMO MSCI USA ESG Leaders Index ETF (ESGY)	99.7%	15.8%	86.6%	2023-09-30
CANADIAN
iShares Jantzi Social Index ETF (XEN)	97.9%	21%	99.1%	2023-09-30
Desjardins SocieTerra Canadian Equity Fund	92%	18.2%	95.5%	2023-09-30
RBC Vision QUBE Fossil Fuel Free Low Volatility Canadian Equity Fund	89.1%	18%	94.6%	2023-06-30
iShares ESG MSCI Canada Leaders Index ETF (XCLR)	92.8%	17.8%	93.8%	2023-09-30
BMO MSCI Canada ESG Leaders Index ETF (ESGA)	95.8%	17.4%	92%	2023-09-30
TD Morningstar ESG Canada Equity Index ETF (TMEC)	95.5%	17.2%	90.2%	2023-09-30
Invesco S&P/TSX Composite ESG Index ETF (ESGC)	94.9%	17%	88.4%	2023-09-30
Invesco S&P/TSX Composite ESG Tilt Index ETF (ICTE)	93%	16%	84%	2023-09-30
Invesco S&P/TSX 60 ESG Tilt Index ETF (IXTE)	97.8%	15.9%	81.4%	2023-09-30
CIBC Sustainable Canadian Equity Fund	95%	15.7%	78.7%	2023-06-30

*Sum of a given fund’s underlying constituents’ weights that are rated by Corporate Knights
**The weight of a constituent of a given fund multiplied by its rating by Corporate Knights, summed up for all of that fund’s underlying constituents
***The score of a given fund (based on the percent-ranking calculation approach) derived by comparing its weighted rating against that of other funds in the same category

GLOSSARY – Five common approaches:

Screening
Applies strict rules to decide what companies are in or out of a fund. Negative screening – also known as divestment – is common for “sin sectors” like tobacco, weapons and (increasingly) fossil fuels.

ESG integration
Considers environmental, social and governance factors within investment decision-making to lower exposure to financial and reputational risks. ESG-integrated funds don’t screen out particular companies.

Stewardship
This can include engagement with a company’s senior leadership on a wide range of ESG issues and voting for shareholder resolutions.

Thematic investing
Selects only companies that contribute to a sustainability “theme” like clean energy, water or green buildings.

Impact investing
Investing with the intention to generate measurable social and/or environmental impact.

Tim Nash is the founder of Good Investing.

The post Sustainable investments had secretly great year appeared first on Corporate Knights.