United States President Donald Trump’s tariffs and the broader unpredictability of American trade policy have pushed Canada to diversify its economic relationships away from reliance on the U.S. Attracting more capital from Europe gives Canadian companies a buffer against that volatility.

Climate disclosure is one of the clearest levers Canadian companies have to make themselves attractive to European capital. European investors increasingly need credible sustainability information to meet their own reporting obligations, and Canadian companies that lag on climate disclosure risk shutting themselves out of European capital markets altogether.

After Trump’s tariffs

Our report provides preliminary evidence of this European preference for climate-reporting firms. We examined whether climate disclosures helped Canadian firms attract foreign institutional investors following Trump’s April 2, 2025 announcement of sweeping global tariffs, which he dubbed “Liberation Day.”

We chose that announcement because it created a major external shock to the markets, leading many investors to reassess the risks associated with U.S. assets and prompting some international investors to reduce their exposure to that market.

Liberation Day offered a useful test: as capital moved away from the U.S., did firms that disclosed climate data attract more of it than firms that didn’t? The answer, we found, is yes.

After the shock, firms that reported climate data experienced an almost 25 per cent increase in foreign institutional holdings compared with firms that didn’t disclose. This effect was driven entirely by European investors. The result is statistically meaningful, but the significance level is relatively modest, so it should be interpreted as suggestive rather than conclusive evidence.

We ran additional robustness tests, statistical checks meant to rule out the most likely alternative explanations. We tested whether foreign institutional investors were avoiding Canadian firms that were more financially affected by the tariff announcement and whether they were avoiding Canadian firms that did more business in the U.S. In both cases, our results held.

Europe’s investors want climate data

Climate change is top of mind for institutional investors in Europe, which has the world’s most comprehensive sustainability regulatory environment. European investors understand how climate factors affect a company’s strategy, risk management and financial performance.

For investors operating in the European Union, sustainability performance can be just as important as financial metrics in making portfolio allocation decisions.

Under the EU’s sustainable finance rules, financial market participants are required to disclose sustainability indicators, such as greenhouse gas emissions, carbon footprint, biodiversity, water, waste and social factors. The data must be collected either directly from investee companies or through research that may include third-party data and experts.

When investing in jurisdictions that operate under a mostly voluntary reporting regime, like Canada, disclosure has unique value to European institutional investors because it helps them meet their own reporting obligations.

A case for mandatory disclosure in Canada

Our findings suggest disclosure practices are already shaping where European capital is invested in Canada. It’s likely other countries with voluntary reporting regimes are seeing similar patterns.

Our report also adds to a growing body of evidence in favour of stronger climate disclosure rules. The benefits include better-informed investors, clarity on climate-related risks to financial markets and stronger incentives for companies to act on emissions.

Several major capital hubs are already strengthening their sustainability disclosure regulations, including Japan, Singapore, Australia, Chile and Mexico. In the U.S., California and New York are among several states pressing ahead with their own emissions-reporting rules despite the federal pullback on climate policy.

Savvy Canadian companies have so far been able to retain the interest of European institutional capital through voluntary disclosure. But Canadian securities regulators have the opportunity to follow Europe’s example and mandate climate disclosures for larger Canadian public companies.

Climate change doesn’t care about whether sustainability is in fashion, and the risks are growing. Among other benefits, expanding disclosures could help keep Canadian firms competitive in international capital markets going forward.

Yrjo Koskinen, BMO Professor of Sustainable and Transition Finance, University of Calgary and Prateek Sood, Research Associate, Institute for Sustainable Finance, Smith School of Business, Queen's University, Ontario

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