Introduction: The anti-ESG movement and climate governance

Institutional investors have fundamentally changed how they manage climate-related risks over the past two decades. This shift towards sustainable finance is driven by the material financial impacts of climate change, exemplified by wildfires in British Columbia and Manitoba, and a $100 million settlement regarding Hawaiian Electric’s role in the 2023 Maui wildfires. However, a politically organised anti-ESG movement has emerged in the United States, reframing climate-risk management as “woke capitalism”. This report analyses how these disruptions create cross-border challenges for Canadian investors operating in integrated North American markets.

The anti-ESG backlash: Origins, actors and mechanisms

The anti-ESG movement is a diverse coalition of state legislators, fossil fuel interests, and free-market organisations. It challenges the premise that climate constitutes a financially material risk. The movement gained momentum in 2021 when Texas passed a bill banning financial institutions from boycotting fossil fuel companies. Over 370 anti-ESG bills were introduced across 40 US states between 2021 and 2024. Media coverage of the movement surged in the US, peaking in 2023, whereas Canadian coverage has grown more modestly and focuses primarily on regulatory developments.

Political risk as a material consideration

For US investors, political risks such as state divestment threats from Texas and Florida have become direct considerations. This creates a perverse dynamic where political factors may override financial risk assessments. Despite this, more than three quarters of asset managers are now using ESG scorecards as part of their risk management processes. Fund selectors report that many managers are taking a “business-as-usual” approach to sustainability, treating it as a core risk-mitigation tool rather than a values commitment.

The Canadian financial landscape: Governance challenges in an integrated market

Canadian pension funds, including Ontario Teachers’ Pension Plan (OTPP) and la Caisse de dépôt et placements du Québec (La Caisse), are global leaders in climate-risk management. However, Canada’s deep integration with US capital markets exposes these institutions to anti-ESG spillover. This includes US asset managers exercising proxy voting authority over Canadian securities and Canadian funds holding US assets subject to state-level restrictions.

Institutional governance architecture

Canadian pension fund models emphasize long-term value creation and independence from short-term political interference. This allows governance discussions to focus on financial materiality rather than political palatability. Despite these structural advantages, the integration with US markets creates governance distortions that extend beyond US borders.

Asset manager voting on Canadian securities

A significant channel for spillover involves US-based asset managers applying revised, politically influenced voting guidelines to Canadian firms. BlackRock’s support for climate proposals fell from nearly 47% in 2021 to 4% in 2024, while Vanguard supported no environmental or social proposals during the 2024 proxy season. This results in weaker climate-risk governance at Canadian companies even when Canadian institutional investors maintain their support for stronger oversight.

Canadian investors’ U.S. holdings

Canadian pension funds must determine how to exercise voting rights on US securities in a hostile political environment. Surveys found that 93% of Canadian investors continued integrating ESG considerations into their strategies following the 2024 US election. However, there is growing cautiousness regarding collaborative engagement, as the US House Judiciary Committee framed co-ordinated stewardship as a form of anti-competitive collusion, coining the term “climate cartel”.

Asset management relationships

Canadian asset owners often delegate portfolio management to US managers who may have scaled back climate-risk governance. This creates a governance gap between the Canadian fund’s fiduciary obligations and the manager’s behaviour. Some Canadian funds have addressed this by specifying explicit climate voting requirements in asset management mandates, though this requires more active oversight.

Traditional fiduciary duty principles (Canada)

Canadian corporate law permits directors to consider material ESG factors. The Canada Business Corporations Act (CBCA) imposes duties of loyalty and care, as affirmed by the Supreme Court in Peoples v. Wise and BCE v. 1976 Debentureholders. These decisions clarify that directors may consider the interests of shareholders, employees, and the environment. Section 122 of the CBCA was amended in June 2019 to confirm that considering material ESG factors falls within the proper scope of director duties.

Sustainability, climate-risk and ESG disclosure in Canada

The Canadian Securities Administrators (CSA) proposed mandatory climate disclosure rules (NI 51-107) in 2021 but paused these efforts in April 2025, following a similar move by the US SEC. Concurrently, the Canadian Sustainability Standards Board (CSSB) issued voluntary standards (CSDS 1 and CSDS 2) in December 2024, aligned with international frameworks. These provide a principled basis for disclosure grounded in financial materiality.

Greenwashing

Amendments to the Competition Act in June 2024 introduced provisions to combat greenwashing, requiring environmental claims to be based on an “adequate and proper test”. In response to investment uncertainty, Bill C-15 was introduced and received Royal Assent on March 26, 2026. This bill replaced the requirement for internationally recognised methodology with a standard of “adequate and proper substantiation” and narrowed private enforcement for business activity claims.

Regulatory framework support

Prudential regulators have continued to advance climate expectations. The Office of the Superintendent of Financial Institutions (OSFI) finalised Guideline B-15: Climate Risk Management in March 2025. These guidelines drive annual reporting for regulated financial institutions and reinforce the position that climate risk is a material financial risk requiring active governance.

Conclusion: The future of climate risk governance in Canada

While the anti-ESG movement challenges institutional resilience, Canadian governance frameworks have proven resilient due to strong legal foundations and a focus on financial materiality. Maintaining this resilience will require continued governance discipline, substantive expertise, and a clear articulation of the fiduciary rationale for climate-risk oversight as climate risks continue to intensify.