The environmental component of ESG (Environmental, Social, and Governance) refers to how a business’ activities affect the natural environment, and how the business manages environmental risks and responsibilities.

According to the Canadian Government, the following issues fall under the Environmental Factors:

• Climate change & carbon emissions
• Air and water pollution
• Biodiversity
• Deforestation
• Energy efficiency
• Waste management
• Water scarcity

This topic explains how environmental issues appear in ESG. For detailed information about Provincial environmental laws and enforcement, refer to Legal Line’s Environmental Law and Links section.

Key Provincial and Federal Environmental Laws

The following provincial and federal statutes and laws govern businesses operating in Ontario and are environmentally relevant to ESG:

Provincial

• Environmental Protection Act (EPA) – Ontario’s primary pollution control statute. It governs air, water, and land contamination, requires reporting and cleanup of spills, and allows the Ministry to issue orders and impose penalties.
• Ontario Water Resources Act (OWRA) – Regulates water use, sewage disposal, quantity of water, and prohibits the discharge of materials that impair water quality.
• Resource Recovery and Circular Economy Act, 2016 (RRCEA) – Focusing on waste reduction, resource recovery, and producer responsibility.
• Environmental Assessment Act (EAA): Requires assessments for public and designated private projects to determine ecological, social, and economic impacts prior to construction.

Federal 

• Canadian Environmental Protection Act, 1999 (CEPA) – Deals with pollution prevention and the protection of both human health and the environment. Its main function is to identify, assess, and manage the risks posed by toxic and other harmful substances.
• Fisheries Act – Governs the management of fisheries resources and the protection of fish and their habitats.
• Greenhouse Gas Pollution Pricing Act (GGPPA) – Establishes Canada’s federal carbon pricing system.

These laws together with others form the legislative backdrop for the Environmental component of ESG.

What happens when a company does not follow these laws?

If a business fails to comply with Ontario or Federal environmental legislation, the consequences can be serious. They can the following:

1.  Government Orders and Cleanup Requirements

Regulators may issue legally binding orders requiring a company to:

• • Stop certain activities
  • Prevent or reduce contamination
  • Monitor environmental impacts
  • Clean up polluted land or water
  • Reimburse the government for cleanup costs

For example, under section 7 and section 8 Ontario’s Environmental Protection Act, the Ministry can issue cleanup and control orders. These orders may apply even if the current owner did not originally cause the contamination.

2.  Fines and Prosecution

Environmental offences can result in prosecution and significant monetary penalties. For example:

• Under the Environmental Protection Act (186–187), corporations can face substantial fines, which may increase for repeat offences and may apply per day for ongoing violations.
• Under the Canadian Environmental Protection Act, 1999 (272–273), penalties may include large fines and, in serious cases, imprisonment.
• Under the Fisheries Act (40), depositing harmful substances into water frequented by fish can result in significant fines.

3.  Director and Officer Liability

Directors and officers may be personally liable if they fail to take reasonable care to prevent environmental violations. Failure to do so may result in personal fines. For example, section 194 of Ontario’s Environmental Protection Act requires directors and officers to take reasonable care to prevent violations. Failure to do so may result in personal fines.

4.  Business and Reputational Consequences

Beyond formal penalties, non-compliance can lead to:

• • Increased insurance premiums
  • Difficulty obtaining financing
  • Loss of contracts
  • Reputational damage
  • Greater regulatory scrutiny in the future

How can companies improve their environmental impact?

Companies can improve their environmental impact and avoid liability by:

• Investing in renewable energy sources like solar and wind power.
• Installing proper spill containment for fuel, chemicals, or hazardous materials
• Conducting a Phase I Environmental Site Assessment before purchasing property
• Working with suppliers who follow environmental standards
• Promoting sustainable supply chains by working with environmentally responsible suppliers
• Keeping clear records of inspections, maintenance, and compliance efforts
• Consulting an environmental lawyer to review regulatory obligations and potential liability

More information

For more information, visit The Canada Energy Regulator and ESG – Overview of Environmental, Social, and Governance (ESG).

								
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