If adopted, the 21BA would basically do three things:

• Require corporate directors and officers to focus not just on profit, risks and opportunities, but also on their company’s social and environmental impacts;
• Require businesses to report on their social and environmental impacts, using one of several frameworks for impact reporting (such as the GRI, the CSRD or the B Impact Assessment); and
• Allow certain people to initiate court proceedings if they believe a company is not living up to its purpose.

The fiduciary duties of corporate directors provide the basic framework for key business decisions. Fiduciary duties allow directors significant latitude in managing their business as they see fit but – under current Canadian law – they must place the interests of the corporation above all other considerations. In practice, the “best interest of the corporation” typically means the best interest of shareholders.

As Professor Carol Liao writes:

A large majority of [corporate law] practitioners felt that even if there was a theoretical difference between “best interests of the corporation” and “best interests of the shareholders,” the difference was “largely indistinguishable” in practice because a business case could be made that best interests of the corporation equated to the best interests of the shareholders.

The same reality exists in the U.K., where Jeff Twentyman and George Murray, of law firm Slaughter and May, write:

It is open to directors to have regard to, but ultimately set aside, [other] stakeholders’ interests if judged to be in members’ interests overall – and is generally interpreted as affording primacy to the interests of shareholders. (…) Many practising lawyers, amongst others, seem wedded to a belief that this model of directors’ duties is the only viable model, and must be interpreted as requiring shareholder primacy.

Chris Turner, campaign director of the Better Business Act in the UK, neatly summed up the importance of focusing on fiduciary duties:

The U.K. is not unusual. In the United States, directors are fiduciaries and owe duties of care and loyalty to the corporation and its shareholders. In practice this means that directors are permitted to consider the corporation’s impact on other parties, but again only insofar as these serve the interests of shareholders. In fact, on both sides of the Atlantic, companies can choose to undermine wider interests, if they see doing so as in shareholders’ interest and within the law.

122 (1) Every director and officer of a corporation in exercising their powers and discharging their duties shall

(a) act honestly and in good faith with a view to the best interests of the corporation; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

In recent years, many companies have stated that they consider “environmental and social factors” when making decisions and pursuing the best interest of the corporation. In most cases, however, these environmental and social factors are analyzed as financial risks and opportunities for the corporation, not as the corporation’s impacts on society or the environment.

Unfortunately, this focus on risks and opportunities for the corporation misses the bigger sustainability picture. We must move away from this narrow lens to a broader evaluation that also includes the corporation’s impacts on society and the environment. This is sometimes referred to as “double materiality”. Here is how Deloitte defines this double materiality concept:

As well as understanding environmental and social influence on a company’s value, regulators, consumers and society as a whole should also be able to understand each company’s impact on the environment and social wellbeing. These are not the same thing, because poor conduct by a company may not affect financial returns in the short, medium or even long term despite it being unacceptable in the realm of sustainable development. In fact, historical evidence of this is plentiful: because of society’s systemic failure to internalize environmental and social costs, poor corporate conduct on environmental and social matters has sometimes been rewarded with higher corporate profits or higher investment returns at the expense of the deterioration of planetary resources and social equity.

The European Union’s Sustainable Finance Disclosure Regulation, adopted in 2019, requires investors to disclose not only risks to themselves, but also their adverse impacts on both the planet and society. This ‘double materiality’ concept acknowledges the fact that risks and opportunities can be material from both a financial and non-financial perspective. Double materiality recognizes that companies and financial institutions must manage and take responsibility for the actual and potential adverse impacts of their decisions on people, society and the environment.

As law firm Davies explained:

It is not clear why the amendment was considered necessary, or whether it will result in any change in the behaviour of the boards of CBCA corporations, since the principles stated in BCE are well-known and frequently applied by Canadian courts.

It’s worth noting that the 2019 changes to the CBCA resemble amendments made to the UK’s Companies Act in 2006 (though Canada’s amendments were much less significant). In the UK, the result of these amendments was to “enshrine a shareholder-first approach while nodding to other constituencies” as Labour MP Margaret Hodge and Conservative MP Jonathan Djanogly wrote in April 2022:

After much debate, including between the two of us at the despatch box, parliament settled on a compromise. We enshrined a shareholder-first approach while nodding to other constituencies. We called it Enlightened Shareholder Value.

As currently drafted, the Companies Act is widely understood to say that the task of directors is to return as much profit as possible to shareholders. The law allows directors to consider other stakeholders when making decisions, but this can only be done in the course of pursuing the success of the company for the benefit of the shareholders. This is the default position of “shareholder primacy” for all companies.

Having shadowed one another, we’re both now firmly of the view that this was a fudge that needs urgent re-examination. Considering the needs of employees, the environment and local communities should no longer be optional. We believe that the directors of our businesses should work to ensure that the interests of shareholders are advanced alongside those of wider society and the environment.

Indeed, a 2020 Navigator survey found that:

• 84% of Canadians believe that businesses should put the interests of other stakeholders on par with the interests of shareholders;
• 65% of Canadians want government to force businesses and corporations to put environmental and stakeholder considerations on par with profits or shareholder return while making decisions.

Even Canadian business leaders agree. In 2022, a survey of 500 Canadian business leaders found that 63% of them agreed that “the purpose of a corporation should be to benefit all its stakeholders, including shareholders, employees, suppliers, the communities where it operates, and the environment.”