Feds can charge environmental offenders

The Government of Canada may use its power over criminal law to enforce limits on greenhouse gas emission, according to an authority on constitutional law.

Peter Hogg, professor emeritus at Osgoode Hall Law School and scholar in residence at Blake, Cassels & Graydon LLP, argues in a new report, released by the C.D. Howe Institute, that Parliament is within the bounds of the law to use criminal charges to deter and penalize offenders of the recently approved Regulatory Framework paper — in which the federal government proposes to impose limits on greenhouse gas (GHG) emissions by large industrial emitters.

Under the new legislation, regulatory limits will vary from sector to sector with each regulated firm choosing its specific compliance option. For example, a regulated firm may reduce emission levels to prescribed levels; make contributions to a climate-change technology fund; or comply through a cap-and-trade system.

“While the federal government is proposing to limit greenhouse gas emissions by large industrial emitters, the looming question is whether it has the legal authority to implement the regulations,” explained Hogg.

Through an examination of court decisions on similar issues, Hogg concluded that Parliament did have precedence to legally enforce the GHG emissions regulations through the use of the criminal court system.

“The emphasis is on Parliament’s criminal-law power, because that is the constitutional basis for the current Canadian Environmental Protection Act (CEPA),” explained Hogg. CEPA came into effect in 1999.

“We have said all along that environmental issues are fundamental to a company and to the measurement of risk inherent in a company,” said Gary Hawton, CEO of Meritas Mutual Funds. “I can’t say whether criminal charges should be brought against a company, but the fact that the government can press charges should compel more advisors and investors to re-think the issues involved in corporate decision-making.

“Considering many investors and advisors still think that environmental factors are not to be considered in determining the fundamental aspect of the risk-reward ratio, and that there are now penalties for non-compliance, means that the general shift in attitude will force investors to rethink their choices.”

Earlier this year, the Ontario Securities Commission (OSC), Canada’s oldest market regulator, issued Staff Notice 51-716, which signalled a shift in the regulator’s mindset. Rather than examine disclosure matters, the OSC declared its intention to require environmental financial disclosure. It also alerted corporations to anticipated future enforcement of environmental infractions.

In an unrelated event, a panel of accountants and analysts from PricewaterhouseCoopers (PwC) gathered in Toronto at the start of summer to advise business executives that the greening of corporate finance can no longer be considered a fast fad or temporary trend.

“Corporate social responsibility is now a mainstream paradigm,” said Peter Johnson, director with the sustainable business solutions practice at PwC. “It is applicable to all sectors and all businesses and during all stages of a company.”

The Social Investment Organization (SIO), a national association for socially responsible investment (SRI) that includes 36 financial institutions, has continually expressed its support of the initiatives of government, industry, individual investors and corporations in addressing these issues.

In an interview earlier this summer, executive director Eugene Ellman stated that the recent changes to industry regulation, federal law and cultural attitudes will enable executives and investors to gain more insight into the vulnerabilities and advantages each company and each industry faces, in relation to the environment and GHG emissions.

Ellman continued by saying that demands for companies to identify their environmental risks, and then document these findings, will enable investors to make more informed decisions.

“In the long term, these reports could cause investors to sell their positions, or reduce their positions in companies that are ill-prepared to deal with environmental issues,” said Ellmen. “However, these reports could also show opportunities for investors to increase their positions. The process of reporting can also serve as an early warning on environmental matters. Either way, more transparent information will mean less litigation.”

While advisors contacted were reluctant to comment on the potential effect of the government’s ability to use criminal litigation against emission violators, questions were raised about the viability of criminal proceedings. Some advisors stated that while the government may be constitutionally able to use criminal legislation to enforce its emissions regulatory framework, they thought the issue would be “litigated to death” — ending up in the Supreme Court, rather than finding a solution.

Originally published on Advisor.ca on August 21, 2008