U.S. Anti-ESG Spillover Tests Canadian Climate Governance: Report

Canada’s distinct legal and regulatory framework supports continued management of climate risk

Much of the recent conversation about sustainable investing in Canada has focused on the continuing powerful anti-ESG political backlash in the United States. But new research published today by the Institute for Sustainable Finance (ISF) and Canada Climate Law Initiative (CCLI) shows there is a different story in this country.

The report, titled Climate Governance Under Pressure: The Anti-ESG Movement’s Impact on Canadian Institutional Investors, maps out how political and legal pressures from the U.S. affect climate-concerned Canadian boards and investors. But it also shows how differences in Canadian corporate law have allowed those who take climate risk seriously to stand their ground.

“Canada has not imported the U.S. culture war over sustainable finance, but it is navigating its spillover,” said 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 U.S. can affect governance outcomes here.”

What can be described as the U.S. anti-ESG movement encompasses state legislators, political actors, fossil fuel interests and free-market advocacy organizations. The U.S. House Judiciary Committee’s 2024 interim report coined the term “climate cartel” to describe co-ordinated stewardship activities of the kind that Canadian institutional investors routinely practice. Meanwhile state-level legislation has targeted Environmental, Social and Governance (ESG) investing practices. Canadian investors with U.S. holdings are being placed in a difficult position of managing political and legal risks created even as they take steps to manage climate risk.

Three channels of U.S. anti‑ESG influence

Researchers identified three ways this U.S. political pressure can reach Canadian markets:

• U.S. asset managers may apply revised voting guidelines to their Canadian holdings.
• Canadian pension funds with large U.S. portfolios may face political or legal risks when supporting U.S. climate‑related proposals.
• Canadian asset owners may delegate some decisions to U.S. managers whose voting practices could create tensions with their own policies and fiduciary duties.

Canada has also not been fully insulated at the regulatory level. In April 2025, the Canadian Securities Administrators paused work on proposed mandatory climate-related disclosure requirements shortly after the U.S. Securities and Exchange Commission withdrew its own rules.

Canadian law provides resilience, but not immunity

The paper finds grounds for cautious optimism. The Canadian legal framework is substantially different from the U.S. and supports climate risk oversight to a far greater degree, through:

• Fiduciary duties owed by corporate directors and pension trustees.
• Securities disclosure obligations.
• Sustainability reporting standards.
• Enforcement mechanisms designed to combat greenwashing.

Canadian corporate law gives directors broader latitude than the U.S. shareholder-primacy model to consider material ESG factors and stakeholder interests, including the environment. This legal foundation may make Canadian directors less vulnerable to anti-ESG challenges when addressing financially material climate risks.

“There has been some adjustment, but many Canadian institutional investors are still regarding sustainability as an important business issue,” said ISF Director of Research, Dr. Yrjö Koskinen. “They understand the importance of environmental factors for risk management, and they recognize that the climate crisis is not going away.”

Recommendations

The authors recommend that Canadian asset owners:

• Strengthen oversight of external managers.
• Ensure proxy voting aligns with their policies and fiduciary obligations.
• 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.

Download the full report, Climate Governance Under Pressure: The Anti-ESG Movement's Impact on Canadian Institutional Investors, to learn more.

Check out the webinar: Join a presentation of the findings and expert panel discussion on September 24 at noon ET. Register here.