In this Governance Insights article, we review 10 developments that general counsel and directors of Canadian public companies, and their investors, should know for 2025 and beyond.
1. Board Oversight: Increased Scrutiny and Importance
As issuers adapt and respond to evolving and uncertain times, boards should continue to understand and manage "mission-critical" risks to ensure effective corporate oversight. High-profile incidents in 2024 involving the alleged failure of board oversight of risk management practices, together with recent Caremark litigation in the United States, highlight growing scrutiny of boards and demand a sharper focus. Boards must also grapple with an increasingly complex mix of macro risks, including potential trade wars, geopolitical risk, the effects of climate change, artificial intelligence (AI) and the growing prevalence of cyber attacks and corporate espionage. We expect that the conversation regarding the expanding dimensions of risk oversight will continue to gather steam in 2025, making it critical for boards to revisit the adequacy of their risk management policies to plan for and meet the future. For more on this topic, refer to Board Oversight (pg. 8).
2. Supreme Court Guidance on the Meaning of Material Change
Canadian public companies are required to "forthwith" announce the occurrence of a "material change." A material change includes a "change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer." Although the latter half of the definition, which speaks to the expected impact of the change on an issuer's share price, has been the subject of numerous decisions, there has been little opportunity for courts and securities regulators to consider exactly what is "a change in the business, operations or capital" of an issuer?
In two decisions of the Ontario Court of Appeal in 2023 – Markowich v Lundin Mining Corporation and Peters v SNC-Lavalin Group Inc. – the Court endorsed an expansive interpretation of "change" that captures a broad range of developments, from the significant down to "minor" accidents and equipment failures. Under this framework, whether any such change should be immediately disclosed turns not on the nature or substance of the change but rather on whether it would reasonably be expected to have an impact on the share price.
In 2024, the SCC granted leave to appeal the decision in Lundin and agreed to hear from numerous interveners on the issue.1 The hearing took place on January 15, 2025, and the Court's decision is expected in the coming months. The SCC's reasons are likely to address whether the Court of Appeal broadened the scope of an issuer's disclosure obligations beyond what the legislature intended, and to also offer guidance on the meaning of "change in the business, operations or capital of the issuer." Regardless of the result, Lundin will contribute significantly to shaping the legal framework for the way issuers communicate with investors.
3. Continued Shareholder Activism and the Scope of Target Defensive Measures
Activism activity in Canada 2024 was consistent with historical levels. Notably, we saw two high-profile activist campaigns in 2024 (Gildan and Dye & Durham) whereby the investor achieved a decisive victory, in each case resulting in a wholesale change of the board – a feat rarely achieved even once in a single year.
In 2024, the market also observed Canadian boards responding to activists by adopting new and creative uses of defensive measures, including a defensive private placement in the face of an ongoing activist "withhold" campaign (Mithaq) and a 15% trigger poison pill (Bitfarms). Although not all of these defensive measures, such as the 15% trigger poison pill, were ultimately successful, they are reflective of two trends and concerns that we think will continue to play out in 2025 and beyond. First, our securities law infrastructure and guidance regarding the scope of acceptable defensive measures need a refresh to address changes in the public M&A and activism markets in Canada that have transpired over the last two decades. Second, securities regulators should consider broadening their scope of intervention and providing streamlined solutions for certain disputes; forcing market participants to seek redress by applying to securities tribunals – or worse, backlogged courts – is not always a viable option for many disputes given the compressed timeframe in which contested M&A and proxy contests play out.
For a more detailed discussion of Canadian activism in 2024 and trends to watch for in 2025, see our Governance Insights article, A Review of Shareholder Activism in Canada for 2024: Key Decisions and Trends to Watch for in 2025.
4. Managing AI Technologies Risk and Disclosure
The use and development of AI technologies by issuers has unsurprisingly drawn the attention of regulators and corporate governance advocates. In late 2024, the Canadian Securities Administrators (CSA) released two staff notices that address the subject, highlighting the obligation of issuers to disclose their use or development of AI systems, and the risks to their businesses arising therefrom, if such use, development or risks are material. At the same time, the CSA has warned against the growing prevalence of "AI washing," a practice of making overly promotional statements to capitalize on investors' increasing interest in the technology. Proxy advisory firm Glass Lewis has amended its voting guidelines to focus on how boards are overseeing the use and development of AI systems, while the CSA has expressed its expectation that issuers should adapt their risk management procedures to account for the rapidly evolving technology. For more on this topic, refer to Managing AI Technologies (pg. 9).
5. Greenwashing: New Competition Act Provisions and CSA Warnings
The growth in investor and consumer attention to environmental, social and governance (ESG) matters has invited regulatory scrutiny of the use of overly promotional and misleading environmental claims by issuers, both in their marketing to consumers and in their disclosure to investors. Businesses should expect continued scrutiny of "greenwashing" practices from the Competition Bureau and the CSA in 2025. Issuers can proactively address regulatory scrutiny by reviewing their environmental claims for vague or overly broad statements and replacing them with specific and substantiated claims. For more on this topic, refer to Greenwashing on (pg. 11).
6. Slow Progress Towards Mandatory Climate Disclosure
Canada made slow progress in 2024 towards implementing mandatory climate disclosure.
In October 2024, the federal government announced its intention to amend the Canada Business Corporations Act (CBCA) to mandate climate disclosure for large, federally incorporated private companies. The scope of the proposed disclosure has not been confirmed; nor has there been any indication whether similar amendments will be made by any of the provinces to their corporate statutes. The federal government has stated that it will seek to harmonize the CBCA climate disclosure with the CSA's climate disclosure rule, which has remained in draft since 2021.
In December 2024, the Canadian Sustainability Standards Board (CSSB) issued its final voluntary Canadian Sustainability Disclosure Standards – CSDS 1, which relates to sustainability disclosure broadly construed, and CSDS 2, which relates specifically to climate disclosure. Notwithstanding the extensive comments received during public consultations, the final CSSB standards are nearly identical to those issued by the International Sustainability Standards Board, furthering its objective of providing a global baseline of sustainability disclosure standards.
In a statement released concurrently with the CSSB standards, the CSA confirmed that it continues to work towards a mandatory climate disclosure rule for Canadian public companies, and that it will consider both CSDS 2 and the feedback received during the CSSB consultations, and may include modifications appropriate for the Canadian capital markets.
The CSA also indicated that, given the interconnectedness of the markets, it will be carefully considering developments in the United States. The mandatory climate disclosure rule adopted by the U.S. Securities and Exchange Commission (SEC) in March 2024 has been subject to numerous legal challenges and most commentators predict that the SEC's climate disclosure rule will not survive the Trump administration. The precarious fate of the SEC's climate disclosure rule leaves the CSA with the difficult task of finding a balanced approach that reasonably responds to investor demands for consistent, comparable and decision-useful disclosure, while not imposing a Canadian climate disclosure regime that departs too greatly from the approach taken by our neighbours to the south.
7. Shareholder Proposals: Virtual Meetings, Climate Change and Anti-ESG
The 2024 Canadian proxy season featured a number of developments in ESG-related shareholder proposals, including proposals targeting issuers' virtual shareholder meeting policies and procedures, climate-change related proposals and so-called "Anti-ESG" initiatives. We expect that shareholder attention to virtual shareholder meetings will be sustained in 2025, as regulators and corporate governance advocates continue to issue guidance on best practices for issuers to ensure that effective shareholder participation in a virtual setting is made possible and accessible. Climate-related proposals, however, may retreat in 2025 as anti-ESG advocacy spreads from south of the border. For more on this topic, refer to Shareholder Proposals (pg. 12).
8. Diversity at Canada's Public Companies
In October of 2024, the CSA released a 10-year review of disclosure regarding women on boards and in executive positions. The report echoes a refrain that has become familiar to constituents of the intersection of corporate governance and diversity and inclusion (D&I). While representation by women on boards and in executive positions at Canada's TSX-listed companies has demonstrably increased over the past decade, progress has been greatest at Canada's largest companies – and appears to be slowing. Unfortunately, the CSA's 10-year review did not provide an update on the status of proposed diversity disclosure rules released in 2023. The D&I pushback playing out in the United States has created a backdrop against which to observe whether Canadian legislation proceeds or stagnates in 2025. For more on this topic, refer to Diversity at Canada's Public Companies (pg. 14).
9. Canada's Anti-Slavery Regime: First-Year Report
Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act (Supply Chains Act) created a stir when it came into force on January 1, 2024, after limited consultation and no concurrent guidance. All Canadian-listed public issuers, and other entities doing business in Canada (or having a place of business or assets in Canada) that meet minimum worldwide size thresholds (assets, revenue, employees), are required to report under the Supply Chains Act. After receiving considerable criticism of the legislation, the federal government asked companies to simply report whatever information was in hand and confirmed that enforcement actions would not be taken against non-compliant entities. Reports are publicly available, however, meaning that the weight of public scrutiny may propel disclosure and the development of industry practices forward. For more on this topic, refer to Canada's Anti-Slavery Regime (pg. 15).
10. Canada Tax Policy: Expect a Change of Course
Although the federal government has introduced considerable tax legislation in recent years, national and international political developments leave the future of some of the most noteworthy proposals in doubt. Canadian companies should be prepared for significant changes in the Canadian tax landscape in 2025.
Arguably the most significant development in 2024 was the federal government's spring budget proposal to increase the capital gains income inclusion rate to two-thirds, from one-half (effectively imposing a one-third increase in the tax on capital gains). The proposal spurred intense activity, with many taxpayers taking steps to trigger gains before June 25, 2024, the scheduled effective date for the change. However, the legislation has not yet been made law and, with a federal election imminent and the Conservative Party's publicized opposition to the change, it is possible that the proposal will never come into effect. The Canada Revenue Agency, consistent with its normal practice, is currently applying the proposed changes as though they were in effect, but taxpayers should carefully consider how capital gains are reported in light of the uncertainty regarding the proposed amendment to the inclusion rate.
The federal government also recently introduced two new taxes, each operating outside the income tax regime: the Global Minimum Tax (GMT) and the Digital Services Tax (DST). The GMT is part of an international effort to impose a 15% minimum corporate tax on large multinational groups, and the DST imposes a tax on revenues generated from the provision of certain online services to Canadian residents. Although these changes are now largely in force, they have faced fierce opposition and provoked retaliatory threats from the United States. In light of the anticipated reopening of trade negotiations with the incoming U.S. administration, it is possible that these new taxes will be repealed or significantly curtailed in 2025.
Footnote
1. Davies is acting for the Mining Association of Canada as intervener in the Lundin case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
