The Ontario Securities Commission (OSC) is taking bold steps to align its regulatory framework with the growing global emphasis on sustainability, integrating a climate-first approach into its sustainable finance strategy. At the heart of this initiative lies a renewed focus on climate-related disclosures and tackling risks like greenwashing, critical issues for maintaining investor confidence and market integrity.
Jo-Anne Matear, head of sustainable finance at the OSC, has been at the forefront of this shift. She says the regulator has emphasized transparency and accountability.
“We have long recognized the importance of understanding what material environmental and climate-related risks are facing public companies and what their potential financial impacts are,” she says. While guidance for these disclosures has been in place since 2019, Matear says evaluations of existing disclosures show a need for improvements.
The OSC's 2021 review of climate-related disclosures revealed both progress and gaps, particularly among large-cap public companies in Canada.
“92 percent of the companies in the sample disclosed climate-related risks, but only 59 percent of those risks were relevant, detailed, and entity-specific,” says Matear. “The remaining risks were boilerplate, vague, or incomplete. Likewise, while 68 percent of the risk disclosures provided a qualitative discussion of the related financial impacts, 25 percent of the risk disclosures did not address the financial impact at all, and no companies quantified the financial impact.”
Such shortcomings prompted further action, leading to the CSA's October 2021 proposal for rules aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).
Canada's engagement with international sustainability standards has also been pivotal in shaping its regulatory approach.
As Matear explains: “The International Sustainability Standards Board developed its first two standards with a view to establishing a global baseline. The Canadian Sustainability Standards Board (CSSB) launched a consultation on its version of those standards.”
While the CSSB’s consultation concluded earlier this year, the CSA continues its work on climate-related disclosures, including reviewing stakeholder feedback and monitoring global developments closely. This attention to international alignment is especially critical for cross-listed issuers in the United States, which represent a significant share – approximately 70 percent – of the Canadian equity market’s value.
“We have heard from our stakeholders on the importance of international alignment,” Matear notes, underscoring stakeholders’ desire for global coherence in climate-related regulatory frameworks.
Another key aspect of the OSC’s strategy is its focus on combating greenwashing. This practice, which involves misrepresenting sustainability-related claims or achievements, poses significant risks to investor trust.
“Greenwashing can occur throughout the sustainable finance ecosystem,” Matear warns. She cites examples like companies claiming net-zero targets without credible plans or clarity on what these targets entail. To address this, the CSA issued staff notice 51-365, offering guidance on ensuring factual, balanced ESG disclosures.
“There should be a reasonable basis for statements respecting future targets or plans,” Matear emphasizes. She further cautions issuers against using broad terms like "sustainability" or "green" without providing clear definitions to avoid misleading investors.
The OSC’s sustainable finance strategy rests on three core pillars: investor protection, thought leadership, and anticipating what’s next. Matear says this framework aligns with the regulator’s broader mission.
“One of [the] intended outcomes of our sustainable finance regulatory approach is to mitigate against the risk of investor harm from greenwashing,” she says. Protecting investors is central to the OSC’s mandate, but Matear also highlights the importance of enabling capital formation and maintaining market competitiveness in the evolving landscape of sustainable finance.
The thought leadership pillar reflects the OSC’s commitment to remaining a trusted and influential voice in sustainable finance.
“We will expand our research efforts, and we will strive to be a role model for those that we regulate,” Matear says. This includes engaging with stakeholders in new and innovative ways and ensuring the OSC stays attuned to emerging trends and issues. Future readiness, the third pillar, involves proactive measures to anticipate and address challenges in the rapidly evolving sustainable finance ecosystem.
Emerging financial products, such as green bonds and transition finance instruments, present regulators with both opportunities and challenges.
Matear acknowledges the rapid growth of green finance products, citing global data: “At the end of 2023, the outstanding amount of sustainable bonds issued by the corporate and official sectors totalled, respectively, 2.3 trillion USD and 2 trillion USD.”
She says that while these instruments can drive sustainability, their complexity, lack of standardization, and potential for misuse require careful oversight. Transparency around the use of proceeds, for instance, is critical for ensuring that these products achieve their intended impact.
To address these complexities, the OSC participates in international efforts to identify emerging risks and trends in green finance. Matear highlights the OSC’s role as a co-lead in a new green finance innovation workstream under IOSCO’s sustainable finance task force. The international research and engagement will inform the OSC’s understanding of the sustainable bond market in Canada and how it will fit into our regulatory ecosystem.
Central to the OSC’s regulatory philosophy is a commitment to fostering trust and efficiency in the sustainable finance ecosystem. Matear notes the importance of striking a balance between promoting innovation and maintaining rigorous standards.
“While investor protection is core to what we do, we’re also focused on capital formation and the competitiveness of our markets,” she says.
Looking ahead, Matear emphasizes the importance of continuing to advance the OSC’s sustainable finance initiatives. The regulator’s efforts aim not only to enhance the quality of climate-related disclosures but also to build a resilient and trustworthy sustainable finance ecosystem. By promoting alignment with global standards, where possible, addressing risks like greenwashing, and fostering innovation, the OSC is positioning itself as a leader in the transition to a more sustainable economy.
Matear’s insights underscore the significant strides the OSC has made in integrating sustainability into its regulatory agenda.
“Our ultimate goal is effective regulation of sustainable finance for competitive advantage and supporting positive change.”