Artificial intelligence is accelerating across industries, but its adoption brings environmental and regulatory considerations that many organizations have not yet evaluated. As AI workloads increase—and as companies depend more heavily on cloud and data-centre infrastructure—new environmental, ESG, and disclosure requirements are emerging at both federal and provincial levels.

Below are the environmental and compliance risks for Canadian companies to consider when deploying or scaling AI technologies.

1. Data centres are coming under heightened environmental scrutiny

Data-centre development is drawing closer attention from environmental regulators due to large energy demands, water use requirements, and local community impacts.

Companies relying on cloud or AI infrastructure should assess whether their operations – and their suppliers – raise issues related to:

  • water-taking or water-cooling requirements
  • heat emissions, noise, and physical footprint
  • greenhouse gas emissions and electricity use
  • cumulative environmental effects in sensitive regions

Data-centre impacts are increasingly being mapped into ESG assessments and may trigger regulatory obligations depending on location and scale. 

2. Environmental compliance may shift as AI optimizes industrial operations

As AI becomes embedded in manufacturing, logistics, resource extraction, agriculture and energy systems, these operational changes may alter environmental risk profiles and compliance obligations.

Examples include (but are not limited to):

  • new or increased waste streams;
  • modified production cycles that change wastewater, emissions or by-product profiles;
  • process optimization that inadvertently triggers updated permit requirements; and
  • increased throughput that falls within new regulatory thresholds.

Regulators focus on outcomes. If the environmental footprint of an operation changes because of AI-driven optimization, the compliance framework may also change.

3. ESG and climate-risk disclosure standards are evolving — even if not yet mandatory

Canada’s climate-disclosure rules are in transition. Although the Canadian Securities Administrators (CSA) have paused work on National Instrument 51-107, the obligation to disclose material climate-related risks still applies under existing securities law.  Other measures, such as the Canadian Sustainability Standards Board’s CSDS 1 (general sustainability related financial disclosure) and CSDS 2 (climate specific disclosure), are aligned with global frameworks but voluntary at this time.

Why this matters for AI users:

  • Increased electricity consumption from AI workloads may influence Scope 2 emissions.
  • Supply-chain-related emissions, including cloud and data-centre providers, may become relevant for Scope 3 disclosures.
  • Investors and lenders increasingly expect transparency on digital-infrastructure impacts, even where disclosure standards are voluntary.

Companies adopting AI should understand how their digital operations fit within emerging ESG expectations and whether climate-related risks connected to AI infrastructure may be material.

4. Sustainability and ESG-related claims around AI must be substantiated

With Canada’s amendments to the Competition Act (Bill C-59), environmental and social claims made in marketing, investor materials or public reporting must now be supported by adequate and proper testing.

This is particularly important for companies promoting AI as:

  • “energy efficient”
  • “environmentally friendly”
  • “reducing emissions”
  • “sustainable” or “low-carbon”

Unsubstantiated ESG claims can lead to investigation, administrative penalties, or reputational harm. Companies should validate environmental representations before publishing them.

What companies can do:

To stay ahead of potential regulatory challenges, consider:

  • assessing the environmental footprint of AI workloads and digital infrastructure: verify whether your AI-driven operational changes modify permitting or reporting requirements;
  • identifying what your supplier or cloud-provider practices are through an environmental and sustainability lens; and
  • validating/substantiating your public statements about sustainability, compliance or future environmental goals involving AI.

If we can leave you with one thought, it is that AI adoption must align with companies’ environmental and sustainability responsibilities – it is critical to understand implications on the ground, in your supply chains and in your public statements.

Conclusion

AI adoption without environmental oversight can create hidden compliance risks, from permitting and emissions exposure to heightened liability under Canada’s greenwashing rules. The earlier these risks are identified, the easier they are to manage.

Our Environmental Law Group works with organizations to assess AI-related environmental impacts, stress-test ESG claims and ensure regulatory readiness. If your company is integrating or expanding AI capabilities, we invite you to contact our Environment Group to explore how we can support your compliance and sustainability objectives.