ESG (Environmental, Social, and Governance) is often associated with large public companies, but it is not limited to them. In Canada, ESG-related responsibilities apply to businesses of all sizes, although the scope, expectations, and consequences differ.

Do legal obligations apply to all businesses?

Many ESG-related requirements come from existing Canadian laws. These laws generally apply to any business operating in Canada, regardless of size.

For example:

• Environmental laws such as the Environmental Protection Act applies to any person or business that discharges a contaminant into the environment. This means both a small business (e.g., a mechanic shop handling chemicals) and a large corporation can be liable if their activities cause pollution.
• The Ontario Water Resources Act applies to any person, corporation, or municipality in Ontario. Under section 34(1) it applies if they take more than 50,000 litres of water per day, or who discharges materials into water that may impair water quality.
• Employment laws like the Employment Standards Act set minimum workplace standards for all employers whether it is a startup or large corporation
• Privacy laws such as the Personal Information Protection and Electronic Documents Act (PIPEDA) also apply to any organization engaged in commercial activity that collects, uses, or discloses personal information. This includes any size businesses, non-profits, and associations in most provinces, particularly when data crosses provincial or national borders.
• The Ontario Occupational Health and Safety Act (OHSA) applies to almost all workers, employers, supervisors, constructors, and workplace owners. It covers most workplaces, including businesses, offices, and construction projects. Therefore, the OHSA applies broadly to large corporations and small businesses.

What are ESG reporting requirements?

While basic legal obligations apply broadly, formal ESG reporting and disclosure requirements are more common for larger organizations:

Task Force on Climate-related Financial Disclosures (TCFD)

• For example, the federal government is developing rules that would require banks and insurance companies to disclose how climate change affects their business and finances. These rules are based on the Task Force on Climate-related Financial Disclosures (TCFD), an international framework for reporting climate risks. Larger companies may be required to explain how climate change affects their financial performance and strategy.

Supply Chain Reporting (Forced Labour and Child Labour)

• The Fighting Against Forced Labour and Child Labour in Supply Chains Act requires certain companies to file annual reports on steps taken to prevent forced labour and child labour in their supply chains. This law only applies if a business: produces, sells, or imports goods, and meets specific size thresholds (based on revenue, assets, or employees). Therefore, only larger businesses must report on labour practices in their supply chains.

Corporate Governance and Diversity Disclosure

• Under corporate and securities laws, some companies must disclose information about their governance practices, including diversity in leadership.
• For example, under section 172(1) of the Canada Business Corporations Act “ distributing corporations” (generally public companies or companies that have issued securities to the public) requires certain corporations to report on the representation of women, Indigenous peoples, visible minorities, and persons with disabilities in senior management and boards.

Securities Law

• Canadian securities law requires public companies to disclose material risks to investors on an ongoing basis. This includes ESG-related risks, such as environmental risks (e.g., climate change) social risks (e.g., labour practices), governance risks (e.g., board oversight failures) These obligations arise under instruments such as National Instrument 51-102. This instrument simply states that public companies must tell investors about any ESG issue that could affect the business financially.

Extractive Sector Transparency Reporting

• The Federal Extractive Sector Transparency Measures Act requires companies in the oil, gas, and mining sectors to report payments made to governments (such as taxes and royalties). This is a governance-focused disclosure aimed at transparency and accountability.

As a result, formal ESG reporting requirements tend to apply most directly to:

• publicly traded companies (through securities disclosure obligations)
• financial institutions (through federal regulatory requirements)
• large corporations (through emerging climate disclosure frameworks and thresholds)

What are the indirect effects on smaller companies?

Even where ESG is not legally required, small businesses may still be affected indirectly.

For example:

• Large companies may require suppliers (including small businesses) to meet ESG standards.
• Investors may expect startups to demonstrate ESG awareness before providing funding.
• Customers may prefer to support businesses with strong environmental or social practices.

This means small businesses may need to take on the following practices, even without formal legal requirements:

• Track environmental impact
• Adopt fair labour practices
• Demonstrate ethical sourcing

On the other hand, adopting ESG practices early can:

• Make it easier to attract investors
• Build trust with customers
• Prepare the business for future regulation
• Reduce legal and operational risks

More information

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

								
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