Canada issued a strong warning to its businesses against economic or financial involvement with illegal Israeli settlements in the occupied West Bank and East Jerusalem, citing mounting legal, financial and reputational risks.

Global Affairs Canada and the Canadian Trade Commissioner Service urged Canadian companies to avoid activities that directly or indirectly support or facilitate settlements or related violence.

The advisory covers investments, financial transactions, procurement, purchases and tourism connected to settlement activity.

Ottawa reiterated its position that Israeli settlements in the occupied West Bank and East Jerusalem are illegal under international law and represent a major obstacle to a two-state solution.

The government said settlement expansion and extremist settler violence contribute to instability, raise human rights concerns and undermine prospects for a lasting Israeli-Palestinian peace agreement.

Canadian authorities warned that businesses linked to settlements could become involved in disputes over land, water, minerals and other natural resources. Companies could also face increased scrutiny from investors, business partners and civil society groups.

The government called on companies operating abroad to conduct enhanced due diligence across their operations, supply chains, business relationships and end users to ensure they do not contribute directly or indirectly to adverse human rights impacts.

Businesses that identify such risks should consider measures ranging from reassessing or suspending their activities to terminating them altogether, the advisory said.

Ottawa also warned that companies failing to participate in good faith in Canada's voluntary dispute resolution mechanism for responsible business conduct could lose support from the Trade Commissioner Service and potentially from Export Development Canada and the Canadian Commercial Corporation.