CANADA Law and Practice Contributed by: Laura Duke, Will Shaw and Emma Russell, Lawson Lundell LLP
was developed in accordance with the International Capital Market Association Green Bond Principles. The proceeds of issued green bonds are used to finance eligible green expenditures under categories such as clean transportation, energy efficiency, terres- trial and aquatic biodiversity, and renewable energy. In March 2023, the SFAC issued a new taxonomy framework on transition finance and green finance, which contains ten recommendations addressing the merits, design and implementation of a green and transition finance taxonomy for Canada. The frame- work recommends publishing a complete and detailed taxonomy by the end of 2025. Private green financing arrangements are also avail- able in Canada and may be developed in accordance with various unlegislated standards. Environmental due diligence is typically conducted on M&A, finance and property transactions in Canada. The level of due diligence required varies according to the level of risk that a particular property and/or indus- try may present – for example, a property used as a gas station or dry cleaner generally poses a higher risk. The general trend is towards increasing environ- mental due diligence. In a share sale, the assets and liabilities of the target company move to the purchaser – meaning that the purchaser will absorb any outstanding environmental liabilities for historic environmental damage or breach- es of environmental law. 17. Transactions 17.1 Environmental Due Diligence In an asset sale, the purchaser typically does not inherit the pre-acquisition environmental liabilities associated with the purchased assets. However, by law, the pur- chaser may inherit liability for the pre-existing environ- mental condition of the assets ‒ especially in the case of a contaminated site. A purchaser may also be liable where it takes over an ongoing situation of regulatory non-compliance.
Typically, a purchaser of Canadian shares or assets will request any of the relevant environmental studies, reports, permits and orders, key correspondence from regulatory authorities and other critical environmental documents from the vendor. A purchaser can also: • search public registries for information regarding the target company’s environmental compliance; • conduct interviews with senior environmental employees of the target company; and/or • obtain an environmental audit or site assessment. Private companies may provide Phase I and Phase II environmental site assessments, with Phase I assess- ments consisting of database and visual searches and Phase II assessments consisting of site inspection, sample collection and analysis, and recommendations regarding the site and potential remediation. 17.2 Disclosure of Environmental Information There are no “typical” environmental warranties, indemnities or similar provisions in a share or asset sale; the allocation of risk depends on the contract negotiated by the parties. It is common in Canadian business transactions to include representations, war- ranties and indemnities that will affect the allocation of environmental risk and liability. These provisions may address the state of the property, the absence of contamination, and the company’s environmental compliance status. Often, such warranties and indem- nities will be time-limited. As regards sales of real property, in some jurisdic- tions, provincial legislation requires that a vendor who knows or should know that the property has been used for an industrial or commercial purpose provide a site disclosure statement to a prospective purchaser. More commonly, the requirement to dis- close environmental information to a purchaser is built into Canadian contracts. Robust representations and warranties regarding the property or the company’s environmental status will create liability on vendors where those statements prove untrue. 17.3 Key Issues in Environmental Due Diligence Assessing permitting is often a key issue in environ- mental due diligence. It is important for a purchaser to
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