Navigating ESG Clauses in Commercial Contracts: What Alberta Businesses Should Know
Written by: Ravdeep Bajwa, Student-at-Law
Environmental, Social & Governance (“ESG”) considerations are rapidly becoming standard in commercial agreements across Alberta. Once limited to major corporations or specialized industries, ESG obligations now appear in everyday contracts involving suppliers, contractors, tenants, lenders, and service providers. For many businesses, these clauses introduce new risks, responsibilities, and compliance expectations. Understanding them before signing is essential.
What Are ESG Clauses?
ESG clauses are contractual provisions requiring a party to meet defined environmental, ethical, or governance standards. They commonly address:
Environmental: Net-zero targets, waste reduction, carbon-reduction commitments, and sustainable sourcing.
Social: Human rights protections, workplace safety, and diversity commitments.
Governance: Anti-bribery, anti-money laundering, and transparent reporting obligations.
These clauses appear in a wide range of agreements, including supply contracts, service agreements, commercial leases, financing documents, and purchase and sale agreements. Common requirements include maintaining ESG certifications, adhering to ethical codes, reporting on sustainability metrics, or permitting audits by the other party. Some agreements also provide for suspension or termination if ESG obligations are breached, demonstrating the seriousness these clauses now carry.
Why ESG Clauses Are Becoming Common
Large companies, financial institutions, and insurers are under pressure to demonstrate responsible and sustainable business practices. As a result, they push these requirements down to the businesses they work with. This can impact Alberta companies in several ways:
Financing: Lenders may require ESG representations or reporting as part of loan conditions. A high ESG performance can lead to greater property values and lower property operating costs.
Insurance: Insurers may assess premiums or coverage based on ESG risk exposure.
Supply Chain: National and international customers often require documentation confirming ethical sourcing or environmental compliance.
Reputation: Some ESG clauses allow termination if a party’s conduct results in reputational harm — a broad standard that can be difficult to manage.
The Evolving Landscape of ESG in Alberta
ESG clauses now play a role in aligning businesses with evolving expectations related to emissions reduction, Indigenous partnerships, and transparent governance. They can influence financing opportunities, competitiveness in procurement processes, and compliance with emerging disclosure frameworks.
A notable example in Alberta highlights this trend: under provincial environmental legislation relating to greenhouse gas emissions reduction, the province recently filed charges against a carbon offset firm for providing false information related to carbon offsets and acting as a third-party assurance provider without the necessary qualifications. This marks the first time a Canadian province has charged a third-party verifier, underscoring the importance of accurately verifying carbon offsets and using qualified professionals.
Key Considerations for Alberta Businesses
Clarity and Enforcement: Draft ESG clauses with precision to avoid ambiguity. Define measurable targets and specify remedies for breaches.
Alignment with Law: Ensure compliance with Canadian corporate law and Alberta’s ESG framework. Directors’ fiduciary duties increasingly encompass ESG risk oversight under the Canada Business Corporations Act.
Future-Proofing: Anticipate regulatory trends, such as mandatory climate disclosures and anti-greenwashing provisions, which are gaining traction federally.
Commercial Balance: ESG obligations should complement, not conflict with, the contract’s primary purpose. Overly burdensome requirements can strain relationships and increase costs.
Practical Tips for Businesses
Avoid vague, catch-all obligations such as “comply with all ESG standards.” Request reasonable notice and a cure period for any alleged breaches. Confirm that reporting requirements align with your operational capacity and do not require disclosure of sensitive information. Where possible, negotiate for mutual ESG commitments so both parties are held to similar standards. Integrating ESG clauses strategically can enhance credibility, attract investment, mitigate legal risks, and strengthen supply chain resilience
Need Help Navigating ESG Clauses? SB LLP is Your Trusted Edmonton Law Firm
ESG clauses are now an integral part of modern contracting. With careful review and strategic negotiation, Alberta businesses can manage risk, protect their interests, and meet evolving industry expectations. SB LLP can assist with reviewing and tailoring ESG-related provisions to support your commercial objectives. For further information on ESG factors, please contact SB LLP to speak with a member of our Commercial Real Estate group.
