Political and legal opposition to ESG measures in the United States is spilling over the border to Canada, but the country’s legal and regulatory framework continues to support institutional investors who ‘stand their ground’, a new report by the Institute for Sustainable Finance (ISF) and Canada Climate Law Initiative (CCLI) has found.
“Canada has not imported the US culture war over sustainable finance, but it is navigating its spillover,” commented Dr. Julie Bernard, co-author of the report.
“Canadian investors are protected by strong legal foundations, not by distance. Capital moves across borders, and the political pressure shaping investment practices in the US can affect governance outcomes here.”
Anti-ESG pressure
As the report, Climate Governance Under Pressure: The Anti-ESG Movement’s Impact on Canadian Institutional Investors, noted, US-based anti-ESG pressure is most visible across three main channels:
- US asset managers may apply revised voting guidelines to their Canadian holdings;
- Canadian pension funds with large US portfolios may face political or legal risks when supporting U.S. climate‑related proposals; and
- Canadian asset owners may delegate some decisions to US managers whose voting practices could create tensions with their own policies and fiduciary duties.
Regulatory spillover is also a factor – in April of last year, the Canadian Securities Administrators paused work on proposed mandatory climate-related disclosure requirements shortly after the US SEC withdrew its own rules.
As the authors note, Canadian corporate law supports climate risk oversight ‘to a far greater degree’ than in the United States, through fiduciary duties owed by directors and pension trustees, securities disclosure obligations, sustainability reporting standards and enforcement mechanisms addressing greenwashing.
‘Important business issue’
“There has been some adjustment, but many Canadian institutional investors are still regarding sustainability as an important business issue,” added ISF director of research, Dr. Yrjö Koskinen. “They understand the importance of environmental factors for risk management, and they recognise that the climate crisis is not going away.”
The report recommends that Canadian asset owners strengthen oversight of external managers, ensure proxy voting is consistent with their policies and fiduciary obligations, and ‘clearly communicate’ the financial rationale for climate-risk oversight.
“As anti-ESG pressure evolves and climate-related financial risks intensify, institutional investor boards will need to remain focused on protecting beneficiaries through prudent long-term risk management,” said report co-author Kirthana Singh Khurana. Read more here.
