A safe harbour is a rule that shields corporations from legal liability for the results of actions or statements made in good faith.

Safe harbour protections can play a crucial role in not only increasing the level of climate-related voluntary disclosures, but also the quality of those disclosures, by limiting the liability of companies with respect to the forward-looking information (FLI) required in various climate disclosure standards and frameworks.

Recent consultation submissions on reporting frameworks and mandatory disclosures have demonstrated that the protections offered through climate-related safe harbours are greatly sought after by companies across Canada. In July 2024, in the Canadian Sustainability Standards Board’s (CSSB’s) Canadian Sustainability Disclosure Standards (CSDS) 1 and 2 exposure draft consultation, 33 of 169 participants urged the creation of safe harbours to protect companies making good‑faith, forward‑looking climate disclosures. Similar requests were made by 32 of 211 submissions to the Competition Bureau’s Bill C‑59 (Greenwashing Bill) consultation in the fall of 2024.

Canadian issuers remain caught between investors clamouring for detailed Scope 3 emissions estimates, scenario analyses and net‑zero roadmaps and a liability regime that has the potential to treat any inaccuracy, however well‑reasoned, as potential misrepresentation. Consequently, companies are withdrawing their previous climate-related disclosures and limiting future voluntary disclosures substantially, depriving markets of forward‑looking insights just as climate risks accelerate.

Safe harbour regimes in the United States (US) and Australia offer useful illustrations of how safe harbours for FLI in Canada can work in practice to reduce litigation risk to disclosing companies and, therefore, open up the voluntary climate disclosure landscape in Canada again.

The litigation risk barrier to climate disclosures

Certain elements of climate disclosures, such as Scope 3 emissions and scenario analysis, rely heavily on FLI, estimates and assumptions, third-party disclosures, fallible data, and fluctuating methodologies. Major reporting recommendations and standards, such as the Task Force on Climate-Related Financial Disclosures (TCFD), International Financial Reporting Standards (IFRS), and CSDS, require these elements, raising concerns for disclosing companies regarding their liability for uncertain, incomplete and assumption-based information.

John McKenzie, CEO of TMX Group, whilst speaking at the Alberta Securities Commission’s (ASC) ASC Connect conference in 2023, highlighted that there is a “liability regime” around the requirement on Canadian companies to disclose FLI “that needs to be resolved”. At the same conference, ASC’s General Counsel, Katrina Prokopy, further emphasized that there is “potential uncertainty or unreliability of disclosure in relation to Scope 3 emissions and scenario analysis”, and that “could lead to significant issuer liability exposure, for issuers and for the directors and officers, if their climate-related disclosure was inadvertently, despite having been made in good faith, proved to be inaccurate and inadvertently became, or could be argued to be, a misrepresentation under Securities laws”’. All this culminates in companies being less willing to disclose, whether voluntarily or mandatorily, climate-related information.

Litigation is a risk for companies disclosing any information not based on fact, which could be construed as a misrepresentation under securities law. Firms fear that potentially inaccurate, but honest, projections will culminate in securities commission complaints, activist complaints, or class action lawsuits. The litigation risk and uncertainty surrounding climate-related disclosures have been exacerbated by the introduction of Bill C-59. This has led to numerous companies withdrawing their voluntary climate disclosures (deemed “greenhushing” or the “chilling effect” on freedom of expression. See Bill C-59 and freedom of expression: A legal deep dive into the Competition Act amendments and the constitutional challenge). The introduction of safe harbours won’t rectify the situation with the Competition Bureau’s Greenwashing Bill; however, Bill C-59 does serve as a strong demonstration of how greater uncertainty around the potential for litigation can impact a firm’s willingness to disclose much-sought-after investor information.

Interestingly, Parts 4A and 4B of NI 51-102 on Continuous Disclosure Obligations specifies that FLI, including future-oriented financial information (FOFI) and financial outlooks, should not be disclosed by reporting issuers unless there is a reasonable basis for doing so (i.e. material information), that the statements are based on reasonable assumptions and are limited to a timeframe that can be reasonably estimated. Moreover, if FLI is disclosed, it must be accompanied by disclaimers that identify the FLI, caution the reliability of FLI, detail all assumptions and processes used in developing the FLI, and provide details on how and when the FLI is updated. However, the Canadian Securities Administrators (CSA) Companion Policy 51-102 does emphasize that the CSA considers FOFI and financial outlooks to be material. Moreover, FLI can be deemed greenwashing under securities law if an issuer “does not indicate what is included in its net zero target and if the issuer has no credible plan to achieve such a target”.

This raises cautionary concerns for reporting companies when disclosing climate-related FLI. NI 51-102 does not detail how FLI in the context of climate disclosures should be treated. Moreover, some reporting issuers have raised concerns that it is difficult to ensure reasonable assumptions and timeframes, given the ambiguity surrounding climate change and its impacts over prolonged time horizons.

Over the years, the CSA has issued observations and guidance on climate-related reporting matters in various staff notices. CSA Staff Notice (SN) 51-354: Report on Climate change-related Disclosure Projectobserved that Parts 4A and 4B of NI 51-102 constrained issuer’s ability to disclose scenario analysis and that FLI required by certain standards and frameworks is “of a nature and extent which would be difficult to accommodate under existing securities laws in Canada”. However, this did not prevent the CSA from reiterating a year later in SN 51-358: Reporting of Climate Change-related Risk and five years later in SN 51-365: Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2024 and March 31, 2023, the need for any climate-related FLI information, including targets “to reduce GHG emissions or disclosure of an issuer’s assessment of the potential business implications of climate change-related risks and opportunities under various scenarios”, to adhere to the requirements under Parts 4A and 4B of NI 51-102.

Useful examples for Canada: Jurisdictions that have safe harbour provisions for forward-looking information

The US and Australia offer two distinct safe harbour models for FLI. The US, having paused its mandatory climate disclosure rules, only offer safe harbours in the broad securities context, whilst Australia has introduced specific safe harbours in the form of “modified liability” requirements specific to climate disclosures on an interim basis.

The United States

The US has developed a securities disclosure framework that includes “safe harbor for forward looking statements, to encourage issuers to disseminate relevant information to the market without fear of open-ended liability.” 

Rules 175 and 3b-6 of the Securities Act of 1933 and Securities Exchange Act of 1934 (Exchange Act), respectively, provide a safe harbour for FLI disclosures made in Securities and Exchange Commission (SEC) securities filings that are made in good faith, with a reasonable basis, and correctly reported.

However, Sections 27A and 21E of the Securities Act and Exchange Act, respectively, introduced by the Private Securities Litigation Reform Act of 1995 (PSLRA), expand the application of safe harbours beyond the purview of securities filings to written and oral forward-looking statements, irrespective of the disclosure method.

Furthermore, the “bespeaks caution” doctrine is enshrined in case law and provides a safe harbour for FLI disclosures that provide a sufficiently cautionary statement that delineates the risks that could materially impact the outcome of the FLI disclosures. The statement must be meaningful and bespoke to the disclosure, as boilerplate language will not suffice. In deciding whether a meaningful cautionary statement falls within the purview of the bespeaks caution doctrine, the courts will consider whether the statement reduces the materiality of FLI or negates the justification of a reasonable investor to rely on the FLI when making investment decisions. However, interpretation differences between materiality and justifiable reliance by the US circuit courts have promulgated some uncertainty with this safe harbour.

Importantly, the SEC’s Final Rule: The Enhancement and Standardization of Climate-Related Disclosures for Investors, adopted in 2024, included “a safe harbor for climate-related disclosures pertaining to transition plans, scenario analysis, the use of an internal carbon price, and targets and goals”, which aligned with the existing safe harbour protections detailed above. The fate of the SEC’s climate disclosure rule is yet undetermined following lawsuits contesting the rule’s legitimacy, and a complete withdrawal of any defence of the rule by the SEC in 2025.

Australia

On 1 January 2025, Australia adopted mandatory climate disclosure standards that align with IFRS S1 and S2. The Australian standards deviate from the IFRS in several ways, one of which being the inclusion of a provisional 3-year safe harbour for protected statements contained in sustainability reports or the auditor’s report on the sustainability report in recognition “that there will be a period of transition as reporting entities continue to build their capability”.

The Australian Securities and Investments Commission’s (ASIC) Regulatory Guide 280 on Sustainable Reporting (RG 280) specifies that protected statements include climate-related statements made about the future and statements about Scope 3 emissions, transition plans, and scenario analysis that are made in compliance with the sustainability standards. Any statements made outside of those two reports, made voluntarily (i.e. beyond the requirements of the climate disclosure standards), or that are cross-referenced from the sustainability report into other disclosures, reports, or filings are not protected.

How safe harbours reduce litigation risk and support voluntary disclosures

Despite the current tariff conundrum, the US is still Canada’s closest trading partner. It is, therefore, a compelling argument that Canada should seek to be comparable with the US safe harbour rules. This would improve economic relations, simplify reporting requirements and disclosure protections for dual-listed companies, facilitate cross-border business operations and investment, foster transparency in corporate communications, and reduce litigation risk.

The US is highly litigious. This was emphasized by Toronto Stock Exchange’s CEO John McKenzie, who asserted that Canada needs to “integrate and potentially differentiate from the US” as “we do not want to have a gap between what happens in the Canadian market and what happens in the US market… since the US is a much more litigious market”.

Securities litigation risks in the US are immense, with 229 federal securities class action suits filed in 2024, compared to only 14 in Canada in the same year. These figures are likely to rise in 2025 as scrutiny of company disclosures intensifies. This trend is already witnessed as securities litigation risk for US public companies rose by $1 trillion in the fourth quarter of 2024. 

Even though Canada is not as litigious as the US, litigation risk is a real concern. Any erroneous reporting can have significant legal and financial repercussions, which instills a reticence in the disclosure of climate-related FLI, as demonstrated by Bill C-59. With the SEC Rule and the CSA NI 51-107 paused, we need disclosure now more than ever. And offering safe harbours for the challenging areas of climate-related disclosures could offer, perhaps not a panacea—as Bill C-9 still lurks around the corner, but a concrete compromise. Safe harbours could help ensure that investors have adequate levels of decision-useful information around climate-related risks and opportunities, whilst providing the company with some assurance that well-intentioned and reasonably verifiable disclosures that turn out to be less than true are not cause for expensive and extended legal action.

This compromise, with its culminated increase in voluntary climate disclosures and decision-useful information, would increase market efficiency as FLI is “the most valuable information shareholders and potential investors could have about a firm” as it demonstrates “the company’s own assessment of its future potential”. The importance of safe harbour provisions in Canada is expounded by the ASC’s General Counsel, Katrina Prokopy, who indicated that ASC is aiming “to achieve balance and proportionality through carefully crafted legislative safe harbours or defenses from liability for primary and secondary market statutory liability” by “looking at our existing civil liability regime and our defenses to liability under our current framework and considering what may need to be adapted or added or tweaked to specifically address the climate-related disclosure”.

Designing effective safe harbours in Canada

To benefit from the full potential of safe harbour provisions, policymakers should ensure that these key principles derived from both the US and Australian models are observed when designing and implementing climate-related safe harbours for FLI in Canada.

Comprehensive coverage

Safe harbour provisions do not have to be the purview of securities regulators but can be incorporated into corporate legislation as well. By ensuring all public communications are encompassed by the safe harbours, both public and private companies can be encouraged to voluntarily disclose.

Statutory clarity

FLI should be clearly defined in securities and corporate legislation to explicitly reference climate-relevant information, including Scope 3 emissions, scenario analysis, and transition plans.

Substantive cautionary legends

Require cautionary language that transparently outlines methodologies, key assumptions, data limitations, and material uncertainties. Prohibit boilerplate disclaimers.

Regulatory oversight

Empower regulators to review whether issuers meet safe harbour criteria and to enforce substantive language standards, ensuring that protections are not abused.

Conclusion

With no mandatory climate-related disclosures in sight for Canada, the impetus must move more towards garnering disclosures from companies on a voluntary basis. Achieving this is not impossible, as companies in Canada have demonstrated a willingness to voluntarily disclose climate-related information in annual and sustainability reports for years. However, the increase in claimant litigation and shareholder activism has made companies more aware of the potential for litigation, whilst Bill C-59 has caused companies to doubt the veracity and viability of those voluntary disclosures, leading to greenhushing.

Safe harbour provisions may not provide complete safety or certainty in terms of Bill C-59, but they can offer companies a small level of protection for good faith, verifiable climate disclosures. By shielding companies from potential litigation related to FLI where the projected facts do not materialize, safe harbour provisions would encourage businesses to share financial forecasts, strategic plans, and other projections without fear of legal consequences for factors beyond their control. When companies no longer withhold information from investors due to litigation risk, investors benefit through improved quantity and quality of decision-useful disclosures. Cautionary statements can ensure that investors are fully informed of the possibility that projections may not be fully realized, ultimately contributing to a more predictable and stable investment environment where investment decisions are based on reliable and comprehensive information.