(left to right: David Frost, Partner; Claire Sung, Partner; Sabrina Chang, Associate; Juliet Watts, Articling Student; Liam Peet-Pare, Articling Student; McCarthy Tétrault, LLP)
The 2025 Canadian proxy season was defined by shifting ESG expectations and priorities, increased scrutiny of executive compensation, an unequivocal move away from virtual-only shareholder meetings and growing focus on AI governance. This article explores the key trends that defined the 2025 season and offers practical insights for companies and IROs preparing for the 2026 proxy season.
ESG Reporting and Governance: A Shifting and Fragmented Regulatory Landscape
Turbulent geopolitical and macroeconomic events, coupled with changing regulations, were the hallmark of 2025. The change in presidential administration and the accompanying rollback of diversity, equity and inclusion (DEI) and other ESG initiatives in the U.S. resulted in Institutional Shareholder Services Inc. (ISS) indefinitely suspending diversity considerations when making voting recommendations for directors at U.S. companies, and the United States Securities and Exchange Commission (SEC) halting national enforcement of its mandatory climate-related disclosure rules. In Canada, practices diverged from the U.S., with the Canadian securities regulators maintaining their commitment to enforcing existing DEI-related disclosure standards for Canadian companies, and both ISS and Glass Lewis acknowledging such commitment by keeping their Canadian benchmark Board diversity guidelines unchanged. However, the Canadian securities regulators pressed pause in April 2025 on their development of a new mandatory climate-related disclosure framework in Canada, adding great uncertainty for companies navigating voluntary, non-harmonized sustainability frameworks in an increasingly complex and fragmented regulatory landscape. Adding to the complexity of sustainability reporting were the more stringent rules introduced by the Canadian Competition Bureau on greenwashing, for which final guidelines were released in June 2025.
The year 2026 looks to be a continuation of the dichotomy that marked the Canadian and U.S. regulatory landscape in 2025, posing a challenge especially for Canadian companies listed on U.S. stock exchanges that have to continue to balance conflicting regulatory and market expectations.
Tips for 2026:
While continuing to track new developments in environmental, social and governance (ESG) reporting and governance practices across the jurisdictions in which you operate, understanding the priorities of your investor base and taking a proactive and strategic approach to engaging with your key investors will become even more critical against the backdrop of a fragmented regulatory landscape. Investor priorities will dictate voting outcomes.
Executive Compensation: Intensified Scrutiny Amid Rising CEO Pay
While companies received strong say‑on‑pay support in 2025, with approximately 93% shareholder support on average, investor scrutiny of executive compensation continued to intensify against the backdrop of rising CEO pay. Proxy advisory firms flagged pay-for-performance alignment and transparency around discretionary awards as ongoing concerns, and investors scrutinized internal pay equity, demanding greater transparency around how internal metrics influence executive compensation decisions. The year 2025 also saw the continued trend of institutional investors diverging from the voting recommendations of ISS and Glass Lewis when voting on executive compensation and say-on-pay matters.
Tips for 2026:
Greater transparency and accountability around executive compensation practices and disclosure are the continuing themes as we look ahead to the 2026 proxy season. Strategic engagement with key investors on executive compensation will be just as important, especially given the diverging voting patterns of certain institutional investors. A case in point is companies with failed say-on-pay resolutions in 2024 that enhanced their disclosure on executive compensation practices and engaged purposively with investors received stronger support in 2025.
Annual Meeting Format: Sounding the Death Knell for Virtual-Only Meetings
In 2024, the Canadian securities regulators issued their updated guidance on shareholder meeting format, recommending that companies consult and follow accepted best practices relating to the conduct of virtual meetings, including considering holding hybrid meetings to allow both in-person and virtual participation. The year 2025 saw the continued downward trend of virtual-only meetings, with investors emphasizing meaningful and transparent engagement and ease of participation as key reasons for pushing back against virtual-only meetings. A review of the meeting formats adopted by a majority of S&P/TSX Composite companies in 2025 indicates that the accepted best practice now is to move away from virtual meetings and instead hold hybrid or in-person meetings.
Tips for 2026:
Tracking participation metrics and closely reviewing feedback from key shareholders following the annual meeting will help determine the optimal meeting format for your specific shareholder base. Whichever meeting format your company chooses, it should allow shareholders to easily access the meeting and effectively exercise all of the rights that they are entitled to at the meeting.
Heighted Expectations for AI Governance: Increasing Oversight and Disclosure
Once seen as an area of emerging risk, Artificial Intelligence (AI) risk management became a mainstream governance topic in 2025. Glass Lewis introduced new guidelines and expectations around Board oversight of AI, and AI became the topic of shareholder proposals for the first time, with Mouvement d’Éducation et de Défense des Actionnaires (MÉDAC) submitting proposals to 14 major Canadian companies, including all major banks, to adopt a voluntary code of conduct for AI technologies developed by the federal government. While shareholder support for the proposals was relatively low, the expectation going forward is that companies will have established and provide more transparent disclosure around comprehensive risk management frameworks that align with the scale and impact of their AI activities.
Tips for 2026:
Materiality of AI to a business, and by extension materiality of risks around AI, will depend on whether you are a developer, implementor or end-user of AI solutions. An assessment of the role of AI in your company, and the accompanying risks and opportunities, will help in the implementation and development of a tailored governance framework that promotes clear accountability of AI risks, with ultimate oversight responsibility assigned to the Board of Directors.
Shareholder Activism: Persistent but Evolving
This was another busy year for shareholder activism, with activist campaigns continuing to largely target ESG and compensation practices. What distinguished 2025 from 2024, however, was the decrease in support for shareholder proposals on average, and new guidance introduced by the SEC in February 2025 that enhances SEC scrutiny of certain engagement activities conducted by passive investors, especially around ESG, Board composition and executive compensation matters. The SEC guidance puts certain engagement efforts undertaken by a passive investor with a U.S. company at risk of being seen as trying to change or influence the control of the company, which would, in turn, trigger onerous disclosure obligations on the part of the investor. The impact of the SEC guidance on companies has been mixed, though a majority of U.S. or U.S.-listed companies have reported a meaningful change in their engagement with institutional investors, including reports of investors who have shied away from proactive outreach to companies, adopted a discuss-only-if-prompted approach in meetings with companies or stopped sharing their views with companies altogether. Given the value of proactive and meaningful engagement between a company and its investors, it will be interesting to note what changes, if any, we see in shareholder engagement strategies in 2026 and what impact this may have on Canadian companies.
Tips for 2026:
Efforts to initiate timely and tailored direct engagement with investors on strategic topics of interest to both sides are still key to building stronger shareholder relationships, which will help reduce risks of activist campaigns targeting your company. Equally important to better understanding the drivers and behaviour of your investor base are indirect ways to engage with investors, including meeting with proxy advisory firms, monitoring proxy voting principles and guidelines put out by your institutional investors, and studying shareholder voting patterns. Internally, continuously assessing your company’s vulnerabilities and ensuring clear, consistent, purposeful and robust disclosure around key governance practices and topics will help you in your efforts to get ahead of potential investor concerns and approach the 2026 proxy season with confidence.
David Frost is a Partner at McCarthy Tétrault LLP. This article was written by: Claire Sung, Partner; Sabrina Chang, Associate; Juliet Watts, Articling Student; and Liam Peet-Pare, Articling Student, at McCarthy Tétrault LLP.