Lost in the current debate about the anti-greenwashing provisions in Bill C-59 is that we already have safeguards against false claims in securities law. A credible conclusion given oil and gas industry pushback to the new provisions is that there was little expectation of enforcement of the old ones. That needs to change.
Each provincial securities act has a provision requiring accurate and fulsome disclosure. Here is the Alberta version under its Securities Act, section 92 (4.1):
“No person or company shall make a statement that the person or company knows or reasonably ought to know
(a) in any material respect and at the time and in the light of the circumstances in which it is made,
(i) is misleading or untrue, or
(ii) does not state a fact that is required to be stated or that is necessary to make the statement not misleading, and
(b) would reasonably be expected to have a significant effect on the market price or value of a security, a derivative or an underlying interest of a derivative.“
The securities regulators themselves via their common body, the Canadian Securities Administrators (CSA), have repeatedly reminded market participants that these provisions apply equally to ESG-related disclosures, for example in Staff Notice 51-358 and Staff Notice 81-334. In 2022 in Staff Notice 51-364 the CSA explicitly flagged “overly promotional disclosure” and said:
“We have observed an increase in issuers making potentially misleading, unsubstantiated or otherwise incomplete claims about business operations or the sustainability of a product or service being offered, conveying a false impression commonly referred to as “greenwashing.”“
So after recognizing the problem, what have securities regulators done to enforce their law concerning greenwashing? The answer is: not much. Or at least, nothing we can see given their lack of transparency.
We ran into this problem after submitting our securities complaint regarding the “sustainable finance” disclosures of Canada’s big banks to the Ontario Securities Commission and the Autorité des marchés financiers. Despite some banks themselves eventually validating the claims, the answer we received from the securities regulators was akin to something from a spy agency – ‘we can neither confirm nor deny that we’re looking into this.’ This answer does little to advance accountability, either from those making “overly promotional disclosure” or from those who are supposed to be enforcing the law against it.
While the oil sands companies in particular have screamed the loudest about C-59 and the supposed uncertainty in reporting standards (even though more guidance is coming soon), the real reason for their negative reaction is the beefed up “private rights of action” that formalizes citizen complaints and potential financial penalties that go beyond the usual slap on the wrist they are used to. They could be fined up to $10 million for a first offence, and even up to 3% of annual revenues for subsequent offences.
Oil sands companies are particularly exposed on the greenwashing front not only because they are generally trying to put a positive spin on a particularly dirty industry, but more specifically because their net zero claims literally don’t add up. While they profess to not understand how to substantiate their claims against an “internationally accepted methodology” in C-59, it’s actually just basic math that disproves their climate assertions.
For example, Canada’s largest oil sands company Suncor has – or maybe used to have since they’ve now deleted their climate disclosures – an absolute net zero by 2050 commitment, but has pledged only to reduce emissions by 10 Mt by 2030 without saying what the baseline for that number is. Suncor’s emissions could actually rise under that target, for example, if that’s 10 Mt below business as usual, which seems likely given the company’s expansion plans. That’s an incomplete disclosure (supposedly a no-no under securities law),and leaves the company with no realistic mathematically viable pathway to its 2050 pledge.
Moreover, not a single oilsands company has backed up even its weak 2030 target with the requisite spending plans to meet it, showing that they aren’t making their words true with action.
These problems have been evident for years yet we’ve seen no movement by securities regulators to reign in the misleading claims by oil sands and other oil and gas companies, including pipeline operators. This matters to investors because they too have made net zero commitments, meaning the companies in their portfolios must track credibly towards net zero if they are to meet their commitments.
Securities regulators cannot hide behind C-59 and sit on the sidelines. First, they must demonstrate a consistent approach to enforcing securities law, particularly after acknowledging several times that environmental claims can be material and are subject to the same test of veracity and completeness as financial claims. Investors are relying on regulators to ensure companies are telling the truth, particularly as the climate crisis accelerates alongside the energy transition, raising financial risks for investors which they are seeking to manage through accurate disclosure.
Second, the oil industry is trying to turn C-59 into a political football which may mean it gets watered down or reversed by subsequent governments. Securities law, however, will still exist and securities regulators need to be policing greenwashing as a core part of their mandate of ensuring that market participants have accurate and complete information.
