From Voluntary to Mandatory: Key developments in ESG regulation in 2023

December 20, 2023

The expression ‘what gets measured gets done’ is commonly used in the world of investment management when referring to an effective way to prompt action. The significant growth in responsible investment (RI) regulatory developments in recent years is a clear example of this expression in practice. Much of it is centred around mandating companies to provide more disclosure regarding ESG risks so that investors can make more informed decisions. Several new RI regulations have been announcd this year, and more are expected in 2024. Policy advocacy is one of the four pillars of BMO Global Asset Management’s (BMO GAM’s) stewardship strategy, the others being engagement, proxy voting and industry collaboration. In this article, we summarize the major regulatory developments in 2023, the significance/implications, and how our RI team at BMO GAM has used our knowledge and investor perspective to help shape these regulatory events.

Passage of Modern Slavery Bill S-211

What is it?

In May 2023, the Canadian government enacted legislation to combat modern slavery in companies’ supply chains. Bill S-211, an Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff (the ‘Act’), will be in force on January 1, 2024. The first reports under the Act are due May 31, 2024. The purpose of the Act is to implement Canada’s international commitment to combat forced labour and child labour by imposing reporting obligations on (i) government institutions producing, purchasing, or distributing goods in Canada or elsewhere; and (ii) certain business entities producing goods in Canada or elsewhere or importing goods produced outside Canada.

The Act requires that on or before May 31 of each year, government institutions and entities report to the Minister of Public Safety and Emergency Preparedness on the steps taken during the previous financial year to prevent and reduce the risk that forced labour or child labour is used (i) in the case of government institutions, at any step of the production of goods produced, purchased or distributed by the government institution; and (ii) in the case of entities, at any step of the production of goods in Canada or elsewhere by the entity or of goods imported into Canada by the entity.


Similar acts have been adopted in the UK, the U.S., Australia, France and Germany 1. This particular Canadian Act and similar acts around the world are significant because they push companies to fully understand their supply chains and therefore identify risks; and they help to prevent child and forced labour, which has been occurring recently even in developed countries like the U.S 2. Although entities with material supply chain risk may already be engaged in due diligence and reporting exercises, the Act is likely to capture many entities that have not previously considered potential modern slavery issues. With reports under the Act due in less than a year, such entities will need to turn their minds to compliance.

BMO GAM’s role in developing the Act

BMO GAM commented on the draft legislation with recommendations to widen the scope from forced and child labour to include all material human rights issues, to report on all human rights due diligence outcomes, and to create accountability for companies that are lagging.

While the Act is a good starting point, we believe it can go further to more closely align with regulation in other regions that address additional human rights issues. Currently, the Act mainly mandates reporting on the steps taken to prevent and reduce the risk that forced labour and child labour is used. However, similar Acts in other regions have gone farther in prescribing that companies do human rights due diligence as per the UN Guiding Principles on Business and Human Rights (UNGPs). This mandates that a robust process is followed to understand, prevent and mitigate human rights risks connected to business activities. The Canadian Act is much like the one in the U.K., which is currently being revised to potentially mandate the content of modern slavery statements and introduce penalties for non-compliance 3.

ISSB’s new disclosure standards

What is it?

The most significant development in responsible investment so far this year was the release in June, 2023 of two new disclosure standards by the International Sustainability Standards Board (ISSB). The first standard covers sustainability-related risks and opportunities that companies face over the short, medium, and long term, and the second covers specific climate-related disclosures.

These eagerly awaited standards were developed over the course of 18 months based on feedback from a variety of global market stakeholders, including G20 and G7 political leaders, the International Organization of Securities Commissions (IOSCO), the Financial Stability Board (FSB) as well as investors, companies, policy makers and market regulators.


These new standards bring several significant benefits to both investors and companies. Firstly, they focus on information that is material, proportionate and decision-useful to investors. They are also designed for companies to provide sustainability-related information alongside their financial statements in the very same reporting package. Additionally, the standards consolidate existing initiatives, such as the taskforce for climate-related financial disclosures (TCFD) recommendations, sustainability account standards board (SASB) standards, the climate disclosure standards board (CDSB) framework, and Integrated Reporting Framework and World Economic Form (WEF) metrics. This reduces duplicative reporting and helps companies to benefit from the investments they have already made in sustainability disclosures 4.

BMO GAM’s role in influencing the standards

BMO GAM submitted a comment letter during the consultation process and for the most part, we applaud the content of the finalized standards. It is our hope that future iterations of the standards include an expanded definition of materiality such that it extends beyond just the impact on enterprise value. It is our view that a broadened definition of materiality, which includes consideration of companies’ impacts on environmental, social and economic systems such as ‘sesqui’ or ‘dynamic’ materiality would better serve the long-term and diversified needs of investors. Universal owners in particular (e.g., pensions and investors in index-linked products), who own a bit of everything and account for the majority of globally traded equities, have a vested interest in maintaining the health of these systems. The ISSB has however chosen a single materiality focus, with the main argument being that a broadened definition of materiality would be too ambitious and take away from the urgency of addressing the current climate crisis 5.

What’s next

The focus is now on the implementation of these standards. The ISSB is currently working with global jurisdictions and companies to support adoption, and there have already been some announcements regarding adoption. The UK government announced plans to create ‘UK Sustainability Disclosure Standards (SDS)’ for companies to use to report on sustainability and climate-related risks, and these will be based on the new ISSB standards. Also, the Canadian Securities Administrators (CSA), the Canadian Sustainability Standards Board (CSSB) and the Office of the Superintendent of Financial Institutions (OSFI) both made explicit reference to the ISSB’s new standards. One powerful early endorsement has come from the IOSCO, the global industry organization for securities regulators. The IOSCO will proceed to call on their members, which represent 95% of the global financial markets, to incorporate the standards in their respective regulatory frameworks. There are however some questions as to how these standards will work with the SEC’s upcoming climate disclosure rule. There may be some disagreement about the requirement to disclose Scope 3 emissions.

SEC climate disclosure rule

What is it?

The next highly anticipated climate-related regulatory development is the SEC’s new climate disclosure rule, which is expected to be announced in 2024. It is meant to standardize the way U.S. public companies make climate-related disclosures, allowing investors to better clarify exposure to risk and potential impact on the company. The proposed rule requires companies to disclose annually how they are assessing, measuring, and managing climate-related risks, including those regarding:

  • Greenhouse gas (GHG) emissions, Scopes 1, 2 and material Scope 3 (reported to an auditable standard);
  • Disclosure of climate-related risk, impacts, targets and goals;
  • Systematic management of offsets and Renewable Energy Certificates (RECs)
  • Articulation and management of a transition plan; and
  • Finance-grade reporting aligned with TCFD
The proposed rule includes some flexibility around Scope 3 emissions reporting, including an exemption for smaller reporting companies 6.


If adopted, these proposed instruments will support investors by helping to close the data gap, enabling better evaluation of a company’s current and future climate-related risks as part of their investment decisions.

BMO GAM’s contribution to rule development

BMO GAM submitted a comment letter expressing support for the proposed rule. We believe it is appropriately progressive, and we hope that the SEC ‘stands its ground’ with regards to the inclusion of Scope 3 emissions and climate scenario analysis. Due to the extensive feedback received during the comment period and the current political polarization about responsible investment in the U.S., the general expectation is that the finalized rule will be somewhat different from the proposed rule.

TNFD biodiversity framework

What is it?

The Task Force for Nature-related Financial Disclosures (TNFD), a biodiversity-related framework, announced recommendations in September, 2023. This framework is designed to allow businesses and investors to assess and manage financial exposure to biodiversity-related risks. The idea is that investors will use the TNFD reporting guidelines to evaluate how investee companies manage exposure to impacts and dependencies on biodiversity, much like investors are currently using TCFD reporting to evaluate companies’ climate risks. The TNFD recommendations include disclosure on:

  • Board and management’s roles in overseeing, assessing, and managing nature-related dependencies, impacts, risks, and opportunities;
  • Disclosure of such actual and potential impacts on the organization’s operations, strategy, and financial planning;
  • Description of how such impacts are identified, assessed, and managed; and
  • What metrics and targets are used to track performance on biodiversity


The development and implementation of this framework is significant because better understanding of relationships, dependencies, impacts on natural capital, the value of thriving ecosystem services, and how to assess such risks is greatly beneficial to investors. Specifically, it helps investors better inform their company engagements and discussions, proxy voting, risk monitoring, and general investment decision making 7.

BMO GAM’s contribution to framework development

Our RI team at BMO GAM commented on the draft framework with regards to materiality linkages, criteria requirements and certain biodiversity term definitions. Overall, we are happy with the quality and content of the finalized disclosure recommendations. We are pleased that, consistent with our feedback, guidance was expanded on engagement with Indigenous groups, local communities and affected stakeholders. We hope that future guidance will further expand on how to measure and interpret certain biodiversity terms (e.g., high integrity ecosystems, rapid decline in ecosystem integrity) and areas where the company is likely to have significant potential impacts and/or dependencies. We believe this will allow for more comparability when assessing risks in high-impact areas.
This has been a very eventful year for RI regulation. The focus has been mainly on climate-related regulation, though Canada’s passage of Bill S-211 regarding Modern Slavery was a very significant social equality-related development. For the most part, we are satisfied with the scope of the regulations but, based on our viewpoint in the investment industry, we have voiced recommendations regarding Scope 3 emissions, scenario analysis, definitions of materiality and materiality linkages. Our materiality-related recommendations are particularly important for moving beyond a risk-only ESG lens to a more holistic sesqui materiality focus on the health of environmental, social and economic systems. While the ISSB has chosen to adopt a single materiality focus, and we understand their argument, we believe that many issuers’ reporting will still be impacted by the European Union’s corporate sustainability reporting directive (CSRD), which does require a double materiality lens, and this may influence future iterations of the ISSB standards 8. In general, we expect more regulation in the near and mid-term as the RI industry matures and we at BMO GAM will continue to contribute our viewpoints to encourage the highest quality disclosure to support sound investment decision making.


Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements.


These are not recommendations to buy or sell any particular security.


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