What climate governance means for Canada’s construction industry in the net zero era

In June 2025, the Canadian Construction Association (the ‘CCA’), in partnership with the Canada Climate Law Initiative (the ‘CCLI’), released a report titled ‘Building Resilience: A Guide to Climate Governance for Canada’s Construction Sector’ (the ‘Report’). The Report is particularly timely, noting that ‘Canada has been, and is still, warming at a rate that is double the global average’. In recent years, the country has experienced a series of extreme climate events, including record-breaking floods and rainfall. Among the most significant was the extraordinary rainfall in November 2021, which caused widespread damage and led to the collapse of major road infrastructure across the Southern Interior and Lower Mainland.

With the Canadian Net-Zero Emissions Accountability Act becoming law in 2021, Canada has committed to achieving net-zero emissions by 2050. Given that the construction sector accounts for nearly 30% of the country’s operational and embodied carbon emissions, the Report highlights the urgent need for strategic climate governance reforms to align the industry with national climate goals.

The risks to the Canadian construction industry

Physical risks

Assessing physical risks, such as extreme weather events, flooding, and wildfires, is critical for the construction sector. The Report defines a physical risk as ‘the risk of physical damage or disruption to people, property, or productivity as a result of changes in climate patterns’. These changes may be acute or chronic, with the former being event-driven, such as floods, tornadoes, or hurricanes, and the latter being akin to longer-term shifts, such as sustained higher temperatures, rising sea levels, melting permafrost, heat waves, or more frequent precipitation.

Physical risks affect worksite safety and productivity, project timelines, construction methods, material performance (for example, concrete setting, steel lifting and joining, and equipment operability), supply chain reliability, project feasibility in high‑risk locations, and the longevity and maintenance cycles of completed assets. In parallel, insurers are grappling with uncertain and evolving hazard data, stressed catastrophe models, capacity constraints, and premium adequacy, which is already reshaping coverage availability, pricing, and terms and, in turn, the risk allocation, contracting, and economics of construction projects. With ‘insured damage from severe weather events alone’ in Canada exceeding $3.1 billion in 2023 and 45% of construction projects being impacted by weather-related events, this is a fundamental issue.

Transition risks

Likewise, the construction sector will need to evaluate and adapt in the face of transition risks, i.e. risks arising from the transition to a lower-carbon economy, which include:

• tightening national, provincial, and municipal requirements that raise performance standards, mandate or incentivise whole‑building life‑cycle assessments (‘LCAs’), and require disclosure and reduction of both operational and embodied carbon;
• procurement rules that favour low‑ or zero‑carbon materials and designs, with verification via Environmental Product Declarations or LCAs;
• market shifts as clients, investors, and financiers require credible climate strategies, data, and targets to prequalify and bid;
• technology shifts to lower‑carbon materials and methods (for example, lower‑carbon concrete and steel, mass timber, off‑site/modular), requiring upskilling and new supplier relationships;
• reputational and legal risks in the event of climate claims being found to be inaccurate or misleading.

These dynamics will affect project planning, design choices, scheduling, supply chains, costs, insurance, contracting, and competitiveness. Given that the construction sector is responsible for a substantial share of global greenhouse gas emissions, regulators will continue to target the sector to close the gap to net zero.

Importantly, the Report warns that failure to account for climate risks could expose companies to legal liability, particularly where unaddressed risks contribute to financial loss or reputational damage. Standard boilerplate clauses (for example, force majeure, relief, or supervening events) may offer legal comfort where climate‑related events are no longer viewed as ‘unforeseeable and preventable’. Parties should therefore consider climate‑specific drafting, clear allocation of carbon and resilience obligations, and evidence‑based risk assessments and disclosures.

Leadership and governance

Against this background, and at the heart of the Report, is a call for climate leadership at board level – irrespective of whether corporations and / or specific projects are subject to specific climate-related regulations. Directors and senior executives are urged to treat climate risks and opportunities as core business issues.

Section 102(1) of the Canadian Business Corporations Act (the ‘CBCA’) provides that ‘the directors shall manage, or supervise the management of, the business and affairs of a corporation’. Section 122 of the CBCA confirms that this involves consideration of both the environment and the long-term interests of the corporation – directors are therefore obliged to consider the climate as part of their management / supervision responsibilities; failing to do so could amount to a breach of a director’s fiduciary duty of care to the corporation under s122(1) of the CBCA, which requires directors to ‘exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances’.

As the Report notes, the standard of care is an objective standard, which is to be assessed against the standard of what a reasonable person in similar circumstances would do – this includes both the specific factual circumstances of the corporation and the ‘prevailing socio-economic conditions’. Therefore, a director’s personal views on climate change and / or the related risks facing the corporation, are irrelevant to the fact that directors must ‘start taking steps to address the impacts of climate change and the net-zero transition their companies may face’.

Whilst the above relates to all corporations, irrespective of their size and / or the number of directors, the federal government has announced its intention to amend the CBCA to mandate climate-related financial disclosures for large, federally incorporated privately-owned companies, albeit it remains unclear as to what information will need to be disclosed and the threshold for what is considered to be a ‘large’ company.

Regulatory landscape

Like many countries, Canada’s regulatory framework to climate change and the transition to net-zero is influenced by its commitment to the United Nations Framework Convention on Climate Change and the Paris Agreement, with responsibilities distributed across federal, provincial, and municipal levels.

Federal regulations

The federal government has set a target of net-zero emissions and a climate resilient buildings sector by 2050, with an interim target of a 40% reduction in emissions by 2030. Central to this is the federal government’s ‘Canada Green Buildings Strategy’, which aims to achieve a greener buildings sector and address climate-related risks through: (i) accelerating retrofits; (ii) building green and affordable from the state; and (iii) shaping the building sector of Canada’s future.

In line with the ‘Canada Greening Government Strategy’, which was launched in 2017 and updated in 2024, companies bidding for federal operations will also need to be able to calculate their operational and embodied carbon emissions and to set and track emission reduction targets to remain competitive. Further federal legislature of note is the CBCA that governs the formation, governance, and duties of directors and officers of corporations incorporated federally in Canada. As mentioned above, the Canadian government is seeking to amend the Act to mandate climate-related financial disclosures for large, federally incorporated privately-owned companies, aligning these requirements with those set by Canadian securities regulators.

The Canadian Securities Administrators have separately recently proposed National Instrument 51-107 Disclosure of Climate-related Matters which would require publicly listed companies to disclose specific information about their climate-related risk management. Its aim is to standardise and enhance climate-related reporting, ensuring that companies provide transparent and comparable information to investors and stakeholders, although its implementation has been paused for the time being.

Provincial regulations

Under the ‘Pan-Canadian Framework’, all provinces and territories, save for Saskatchewan, have committed to develop and adopt net-zero energy ready model codes by 2030. British Columbia and Quebec have both enacted legislation aimed at increasing the use of wood as a construction material – British Columbia’s Wood First Act, which was enacted in 2009, aims ‘to facilitate a culture of wood by requiring the use of wood as the primary building material in all new provincially funded buildings, in a manner consistent with building regulations’. The Report notes that other provinces and territories, including Ontario, are expected to follow suit.

Municipal regulations

Municipalities like Toronto and Vancouver have declared climate emergencies and adopted comprehensive climate action plans, including revising local construction standards and permitting processes. In addition, Toronto, Vancouver, and Montreal have signed up to the ‘Net-Zero Carbon Buildings Accelerator’ and ‘Clean Construction Accelerator’ of the C40 Cities Climate Leadership Group, committing them to zero emission construction sites by 2030. Within Toronto specifically, all city-owned construction projects are now required to calculate / report their embodied emissions.

Next steps for construction companies

The Report is a timely and strategic guide for Canada’s construction sector, offering a clear roadmap for integrating climate governance into corporate practice. It positions climate risk not just as an environmental issue, but as a governance, legal, and financial imperative. As Canada’s construction sector now takes meaningful steps to align itself with global trends and the push towards net-zero, the Report is also keen to emphasise the opportunities available for the Canadian construction sector, which ‘has a powerful opportunity to be a catalyst for climate action and innovation’. The Report notes that the net-zero transition of the construction value chain has the potential to unlock an estimated $1.8 trillion worldwide – Canadian businesses can therefore position themselves strategically and develop climate change-related capacities to increase their competitiveness in the global market.

The Report recommends that corporations and their directors take steps now to align themselves with net-zero goals and ensure that their corporate strategies are consistent with Canada’s climate commitments. For those companies that are not already subject to mandatory requirements, whether as part of their projects in Canada or as a result of working overseas, voluntary compliance with existing guidelines  ‘can position companies ahead of the curve by establishing reporting measures and practices” whilst simultaneously “improv[ing] the company’s trust and transparency throughout the construction value chain, with their clients and stakeholders, and move the company into a more competitive position when bidding on projects’. Companies will therefore need to develop their knowledge, skills, and capacities to remain competitive. Likewise, embedding climate resilience into procurement, design, and construction processes now, and making sustainability a foundational principle rather than a reactive measure, will allow companies to plan for and adapt to the changing landscape of the Canadian construction sector.

Should you require any assistance with the issues raised in this article, including in respect of any current or future projects, please contact the authors. For more information on ESG-related developments and other decisions, please visit our website or sign up to our mailing list for future updates.