Weak climate disclosure is hurting Canada’s financial independence

University researchers in Canada are building a strong case for ramped-up corporate climate disclosure rules, arguing that mandatory sustainability reporting would help attract foreign capital and reduce the country’s dependence on investment from the United States.

Interest in Canada is growing by major European investors as they shift assets out of the United States to flee the chaos of the Trump administration. European investors also want data on corporate climate emissions, risks and policies to satisfy stringent sustainability reporting rules there, and demand for environmental, social and governance (ESG) investment funds.

Unfortunately, Canada is poorly positioned to meet Europe’s requirements for climate information. Policy work to align Canadian corporate disclosure rules with global climate reporting guidelines was halted in April 2025. Regulators said the time wasn’t right to impose new disclosure regulations given the uncertainty of rapidly changing economic and geopolitical conditions.

In response, researchers at the Institute for Sustainable Finance (ISF) at Queen’s University in Kingston have mounted a major initiative to study this disclosure gap. The project points to a firm conclusion: the absence of mandatory climate disclosure is hurting the country’s financial independence.

In a study published in early June, From U.S. Dependence to Global Capital: The Role of Climate Disclosure, ISF researchers examined changes in foreign investment in 206 Canadian companies after the United States announced its “Liberation Day” tariffs in early 2025. They also compared how much investment changed between firms without formal climate disclosures and companies reporting under the globally recognized Task Force on Climate-Related Financial Disclosures (TCFD).

Results surprising

TCFD-reporting firms experienced a 24.6% higher increase in foreign holdings over non-reporting companies after the Liberation Day tariffs.

“I was really surprised how strong the results were comparing the Canadian companies that disclose climate risk and the companies that don’t,” says Yrjo Koskinen, a finance professor at the University of Calgary and research director at ISF.

The 24.6% differential “is a strong, strong result,” he says in an interview. European investors accounted for almost all of the difference between TCFD-reporting firms and non-TCFD companies. “It shows that climate disclosures are very important for European institutional investors.” (The differential is based on a model of capital measures controlling for factors such as firm size and sector and market-wide trends. It helps to better isolate the TCFD reporting effect.)

The ISF discussed the results of this study along with other research at a roundtable event on Parliament Hill in Ottawa on April 15 attended by representatives of business, the investment industry and academics. The roundtable was moderated by Daniel Tisch, chief executive officer of the Ontario Chamber of Commerce.

Evidence presented at the roundtable showed that the benefits of mandatory climate disclosure outweigh corporate costs, according to a briefing note on the discussion. Stronger disclosure is associated with better liquidity of company shares, a lower risk of share price crashes, more efficient risk pricing and stronger access to foreign capital.

Given that 40 jurisdictions are currently using or moving toward the global disclosure guidelines of the International Sustainability Standards Board (ISSB), Canada “is increasingly out of step with major markets,” the briefing note states.

Several roundtable participants also argued that publicly available ISSB disclosures will become more important as artificial intelligence models become more prevalent in ESG and financial analysis.

An illustration of how AI is being used in ESG analysis was revealed earlier this year when Norges Bank disclosed that it uses Anthropic’s Claude AI model to continually screen for ethical and reputation risks of companies in Norway’s $2-trillion pension fund.

“Standardized disclosure will become even more strategically important as AI increasingly shapes investment analysis,” the ISF briefing note states. “In that environment, weak, inconsistent or fragmented Canadian analysis could place Canadian issuers at a growing disadvantage in AI-assisted capital markets.”

Regulators continue to be opposed

Despite the growing body of evidence for mandatory reporting, the Canadian Securities Administrators – the network of provincial securities commissions – is adamant that its pause will continue. “The pause remains in effect until otherwise signaled by the CSA,” a spokesperson writes in an email to Corporate Knights.

One of the barriers to mandatory climate reporting in Canada is the power of the oil and gas industry, which has opposed mandatory reporting on climate scenario analysis and end-use emissions. Corporate reporting issues are also complicated by the recent oil-pipeline and carbon-capture agreement between Alberta and the federal government. By significantly raising oil-sands production without assurance of long-term demand or guaranteed carbon dioxide reduction, the agreement raises the industry’s climate risks.

The Alberta Securities Commission has expressed skepticism about mandatory climate reporting, saying disclosure costs are high for small companies, disclosure increases liability concerns, and mandatory reporting could hurt the industry’s competitiveness with the United States. Since the Canadian Securities Administrators is a network of provincial securities commissions, large provinces like Alberta can veto changes.

In a commentary published in the Toronto Star, Koskinen and Tisch responded to the Alberta Securities Commission’s concerns. They argue that mandatory climate reporting should be phased in, starting with large companies that are responsible for the majority of Canada’s carbon dioxide emissions. They also argue that the focus should be on “straightforward and impactful” information, such as direct Scope 1 and 2 greenhouse gas emissions.

Interest grows as investment summit approaches

The ISF research initiative comes at an important moment in policymaking as the government prepares for an international institutional investment summit in Toronto in September.

European institutional investors are expected to form a large contingent of the asset managers, investment funds and pension plans invited by Prime Minister Mark Carney. Climate change is expected to be top of mind among the European representatives after Europe’s record-breaking hot temperatures this spring and summer. They’ll be looking for companies that have low emissions and negligible climate risk, especially if they are involved in climate transition sectors, such as clean power, environmental industries, green steel and critical minerals.

The federal government is pushing for enhanced climate disclosure even though the provinces are directly responsible for securities regulation. On June 5, Ryan Turnbull, member of Parliament for Whitby and parliamentary secretary to the minister of finance, announced an additional $10 million in funding for the International Sustainability Standards Board office in Montreal, in addition to $8 million already allocated in 2022. Turnbull, who attended the ISF roundtable on April 15, has been a strong advocate inside the government for sustainable investment policies.

Turnbull was not available for comment for this article, but a Finance Department spokesperson says the federal government “is working closely with provinces and territories to support the uptake of internationally aligned climate disclosure standards across the economy. Roundtables that bring together investors, issuers of climate disclosures, academics and other experts provide valuable feedback to inform this work and help to ensure a broad range of perspectives is considered. The government will provide an update on its engagement with Canadian regulators in the coming months.”

Despite the foot-dragging by the provincial securities commissions, Koskinen believes policy is moving forward in Canada. “For the first time in several years I am optimistic that we can actually get something done,” he wrote on LinkedIn. “Time to start implementing mandatory climate disclosures in a gradual and pragmatic way.”

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).