Bill S-285, the 21st Century Business Act, which was recently introduced in the Senate without the support of any political party, proposes to amend the Canada Business Corporations Act (CBCA) to give legal force to the idea that corporations have positive social and environmental obligations.
The proposed amendments prescribe an expanded purpose for every CBCA corporation linked to the fiduciary duties of directors and officers. The proposed amendments also require CBCA corporations, whether publicly listed or privately held, to publish an annual report outlining the corporation's impacts on broader society and the environment.
Change of Purpose and Duties
If adopted, Bill S-285 will add a new section to the CBCA stipulating that the purpose of a corporation is "to pursue its best interest while also operating in a manner that:
(a) benefits the wider society and the environment in a manner proportionate to its size and the nature of its operations; and
(b) minimizes any harm that the corporation causes to the wider society and the environment, with the objective of eliminating such harm."
The new purpose is embedded into the fiduciary duties of directors and officers, requiring each to act honestly and in good faith with a view to the best interests of the corporation while ensuring that the corporation operates in a manner that is consistent with its expanded purpose.
The Supreme Court of Canada's decision in BCE Inc. v 1976 Debentureholders, as codified in the CBCA, affirmed that directors and officers may take into account the impact of corporate decisions on various stakeholder groups, such as employees, creditors, consumers, governments and the environment, but the law does not currently require consideration of these factors.
Bill S-285 would make it mandatory for directors and officers to consider prescribed stakeholder constituencies, including the environment, when acting with a view to the best interests of the corporation.
The practical impact of Bill S-285 on the decisions of corporate boards and officers is difficult to determine at this time. Certainly, the proposed requirements to consider and to at least minimize harm to external stakeholders such as the environment and the wider society and then to report on how these stakeholders' interests were considered may widen the scope of data reviewed and the stakeholders with which management and/or the board engages. Ultimately, the intent of Bill S-285 is to impact the decision making process of management and the board.
Reporting Requirements
The proposed amendments would also require all CBCA corporations to annually report to their shareholders and the public their social and environmental impacts.
While regulations which are not yet available will prescribe the exact content of the report, the introducing senator's Bill S-285 webpage proposes that CBCA corporations may report on their social and environmental impacts using one of several frameworks for impact reporting, such as the Global Reporting Initiative, the European Commission's Corporate Social Responsibility Directive (CSRD) or the B Impact Assessment.
It is unclear at this time if the regulations to be adopted to implement Bill S-285 will permit a corporation to use the Canadian Sustainability Standards Board's Canadian Sustainability Disclosure Standards (CSSB Standards), once finalized, as a basis for disclosure for its annual report. For more information on the CSSB Standards, please refer to our in-depth analysis here. The interoperability between Bill S-285 and any mandatory climate disclosure requirements to be adopted by the Canadian Securities Administrators for Canadian reporting issuers also remains to be seen.
Accountability for Non-Compliance
If the proposed amendments to the CBCA are not complied with, a "complainant" can bring a litigation action, on behalf of the corporation, to seek redress for wrongs done to the corporation, also known as a "derivative action". In the context of the proposed amendments, a shareholder could, for example, bring a derivative action against the corporation's officers or directors alleging that they breached their fiduciary duty by failing to adhere to the purpose of the corporation.
The proposed amendments also expand the definition of "complainant" to deem any person who brings a derivative action for failing to comply with the new purpose and duty of care as a "complainant", with the result that any person can validly bring a derivative action so long as they comply with the other conditions precedent under the CBCA. The expanded definition of complainant opens a pathway for new stakeholders who were previously barred from bringing a derivative action.
A Global Trend
Bill S-285 is motivated by a broader international movement towards redefining corporate responsibilities to include social and environmental considerations. The United Kingdom, France and the European Union (EU) have all introduced initiatives to integrate broader societal goals into corporate governance through the Better Business Act initiative, the French Loi PACTE and the Corporate Sustainability Due Diligence Directive (CSDDD), respectively.
The French Loi PACTE, which requires corporations to consider the social and environmental stakes of their activities and gives them the option to adopt an expanded purpose, became law in 2019.
However, the UK Better Business Act initiative launched in 2021 and has yet to be introduced as a bill in the UK House of Commons. Final approval of the EU CSDDD, which would require companies to identify any environmental and social harms in their supply chains (similar to the Fighting Against Forced Labour and Child Labour in Supply Chains Act, which is discussed in more depth here), has also been postponed numerous times due to lack of sufficient support.
Note that Bill S-285 is a public bill introduced by Senator Julie Miville-Dechêne1 and does not have the official endorsement of any political party. As such, it may face more challenges in becoming law.
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Footnotes
1 Senator Miville-Dechêne also presented Bill S-211, against forced labour and child labour in supply chains, which became the Fighting Against Forced Labour and Child Labour in Supply Chains Act.
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