CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP
4.3 Shareholder or Parent Company Liability Shareholders may be exposed to liability where they have active management, care or control of the prop - erty, business or financing relevant to environmental- risk management and the corporation fails to comply with its environmental obligations; a shareholder that is also a secured creditor may face additional expo - sure. For parent companies, liability for environmen - tal violations by subsidiaries is possible but gener - ally arises only where the corporate veil is pierced, or through broad statutory provisions that can reach shareholders or parent companies that own, control or manage contaminated property. 4.4 Social Context The first is sustained domestic and international pres - sure to act, reinforced by IPCC conclusions, interna - tional negotiations, and mounting evidence of climate impacts on health and safety, the economy, natural resources and ecosystems. Related to this is Parlia - ment’s movement to recognise the right to a healthy environment, reflected in the 2023 amendments to CEPA (Bill S-5, SC 2023, c. 12) – the first recognition in federal law that every individual in Canada has a right to a healthy environment – with the implementa - tion framework following in 2025. The second is an affordability and competitiveness counter-narrative that has lately gained the upper hand. Cost-of-living concerns, crystallised in the “axe the tax” campaign against consumer carbon pricing, culminated in the removal of the federal consumer fuel charge in April 2025. In parallel, an energy-security and industrial-competitiveness narrative – sharpened by international trade tensions – is pressing govern - ments to pair emissions reduction with growth and major-project development.
ject or asset assessed alongside other environmental risks. While there are regimes for assessing a project’s impact on climate change, or climate change’s impact on a project, these do not impose any transactional diligence obligation. However, in carbon-exposed sec - tors such as oil and gas, power generation and heavy industry, climate due diligence has become effectively standard, and a purchaser of shares or assets will typi - cally review the matters set out below. Carbon-cost exposure is usually the central focus. For a large industrial target, the primary focus relates to compliance under federal and provincial OBPS regimes – the applicable standard, any excess-emissions obli - gations, and the extent to which carbon costs can be passed through in offtake and commercial contracts – together with compliance under the CFR. For upstream oil and gas, additional diligence considerations relate to methane regulations, including the abatement capital expenditure needed to meet the tightening 2028–2030 requirements, and the status of the federal-provincial equivalency agreements. Closely related to these com - pliance considerations is diligence on carbon credits and offsets: the existence, validity and transferability of compliance units, surplus credits and offset credits, which may be material assets or liabilities depending on the target’s compliance position. A purchaser will also review the target’s permits and approvals, including any IAA designation or approval status and the conditions attached to federal approv - als, alongside the relevant provincial authorisations. These are assessed together with the physical cli - mate risk (such as flood, wildfire and extreme-weather exposure) and transition climate risk (regulatory, mar - ket and technology shifts) over the life of the asset, and the stranded-asset and decommissioning or abandonment liabilities that those risks may acceler - ate. ESG-disclosure exposure is an increasingly impor - tant strand of diligence, including greenwashing risk: the June 2024 amendments to the Competition Act introduced specific provisions on environmental rep - resentations, reinforced by an expanded private right of access to the Competition Tribunal, which heighten the risk attached to a target’s environmental and cli - mate claims.
5. Transactions 5.1 Due Diligence
In Canada, there is no general legal requirement to con - duct climate-change due diligence in M&A, financing or property transactions. It is therefore absorbed within a broader, risk-based environmental review rather than conducted as a stand-alone exercise, with the climate and environmental risks arising over the life of a pro -
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