A Transparency Problem Canada Can’t Ignore

Picture this: You pick up a packaged meal at the grocery store, but there is no ingredient list, no nutrition label and no expiry date. You might still buy it, but you would know you are taking a risk.

That is not far off from what happens in Canadian capital markets when it comes to climate-related risks. Investors are being asked to commit capital without having a full picture of what they are buying because of a gap in sustainability disclosure that has existed for years. While some companies are sharing their ESG efforts, it’s usually those with strong stories. Other firms remain silent, leaving analysts without the information they need to properly assess risk.

At the same time, some firms that once disclosed climate-related information are pulling back. The Fall Economic Statement Implementation Act, 2023 (Bill C-59), which included amendments to the Competition Act that aimed to combat greenwashing, heightened concerns about regulatory uncertainty and potential litigation. For some companies, that led to greater caution in sharing information that could attract scrutiny.

This is the tension at the centre of the sustainability and climate-related disclosure debate. Investors need clear, consistent information to assess risk, while companies face growing concerns about how this information might be used.

A new briefing note from the Institute for Sustainable Finance (ISF) examines how disclosure rules shape markets and what that means for policymakers, investors and corporate decision-making in Canada.

How Canada stacks up globally

Canada is still relying on a voluntary approach to climate disclosure. While there was momentum toward implementing a formal framework a year ago, the Canadian Securities Administrators paused the initiative in April 2025, citing political and economic shifts. The result is a fragmented landscape, with inconsistent and, in some cases, less detailed reporting.

While Canada has been on pause, the trend globally is moving towards standardized sustainability reporting frameworks, particularly in Europe and Asia, and surprisingly even the U.S.

That means Canada is now lagging key trading partners, says ISF Research Associate Prateek Sood, who wrote the report under the guidance of ISF Research Director Yrjö Koskinen.

“Even though the U.S. is mostly a voluntary system, some states, such as California, have more advanced regulation. On aggregate, the U.S. is actually ahead of us in sustainability disclosure,” Sood says.

As Mark Carney’s government moves to reduce Canada’s reliance on the U.S., driven by trade volatility, protectionist pressures and the need to build more resilient supply chains, the focus has shifted to deepening ties with Europe, Asia and other markets. In that context, stronger, more consistent disclosure becomes critical to earning investor confidence and competing for global capital.

“In Europe, investors take sustainability disclosure very seriously. If we want to attract investors from Europe, we need to move forward here,” Sood says.

Looking to the past to guide the future

To understand how disclosure mandates shape markets, Sood reviewed major reforms, including the 1964 U.S. OTC rules, the Sarbanes-Oxley Act, the Dodd-Frank Act and the adoption of the International Financial Reporting Standards (IFRS).

Historically, these reforms typically followed periods when markets discovered that critical information was missing, often during times of financial disruption which cause bankruptcies and recessions. When disclosure improves and becomes standardized, investors can better assess risk. This leads to more accurate pricing, stronger confidence and more efficient markets.

However, these reforms come with trade-offs. Compliance costs can be high, especially at the start and for smaller firms, and some companies may face short-term pressure as markets reprice risk. Overall, the research shows that while mandatory disclosure creates upfront costs and uneven impacts, it tends to strengthen markets over time by improving transparency, reducing uncertainty and encouraging better corporate behaviour.

The case for mandatory disclosures

Weak disclosure creates risks by leaving investors with incomplete or inconsistent information. Selective reporting increases information gaps and forces markets to rely on assumptions, which can lead to mispriced risk and reduced confidence. For analysts, the lack of reliable data makes it harder to assess exposure to climate and transition risks.

For example, a beverage company might rely heavily on a single water basin but fail to report that the region is becoming drier. When local authorities impose water restrictions, production drops suddenly, catching stakeholders off guard.

Stronger, standardized disclosure improves the informational environment. It supports more accurate forecasts and more efficient allocation of capital. While mandatory disclosure brings upfront costs, it tends to strengthen markets over time by reducing uncertainty and improving transparency.

Mandatory disclosure also reshapes incentives. It rewards companies that report transparently and perform well, while creating pressure for others to improve. Those that fail to adapt may face higher financing costs and lower valuations, while those that do can benefit.

Evidence from the U.S. shows that disclosure requirements can drive measurable change. One study of the GHG Reporting Program found that when emissions data were made public, firms reduced facility-level emissions by nearly 8 per cent. Public disclosure allowed companies to compare themselves to peers, which in turn pushed them to invest in lowering their carbon intensity.

Sood emphasizes that a phased approach is critical. Starting cautiously allows markets to adapt, with costs declining over time as firms build capability, aligning with international standards and managing compliance costs.

Transparency strengthens markets

The takeaway is clear: when risks are visible and comparable, markets function more effectively.

And the timing is right as Canada’s recently announced Taxonomy and Transition Planning Council can reinforce disclosure efforts by defining what counts as sustainable or transition activity, helping investors make sense of reported data and compare companies on a more consistent basis.

Mandatory sustainability disclosure is not a cure-all, but it is a foundation for better decision-making, stronger market confidence and a more competitive Canada.