ESG Reporting in Canada: Here is What You Need to Know
By Ushma Doshi
2nd May 2022
Canada is witnessing an apparent shift from greed to green with the growing expectations of communities and companies. ESG Reporting in Canada has grown notably in the past few years making it common for companies to be transparent about their sustainability metrics. It is the power of sustainability and ESG reporting that makes all organizations do good things both- within and outside the walls of its company.
Drivers of ESG in a Canadian Organization:
Increasing Stakeholder/ Investor Demands : Capital providers are prioritizing companies that provide a strong ESG Strategy. 81% of Canadian investors integrate ESG principles into their investment approach and decision making while 91% of banks monitor ESG guidelines
CEO Priority : CEO’s are driving their attention towards reporting ESG numbers. 55% of CEO’s believe that ESG factors are critical to drive long term growth.
Employees : 51% of employees do not prefer to work for a company that does not have a strong ESG strategy and 83% of employees will be committed to the company that allows them to contribute to ESG issues.
Brand Reputation : 1 in 3 consumers will reconsider brands based on their sustainability report. Moreover, 70% of customers would pay an additional 5% for a green product of the same standard.
ESG Disclosures by Canadian Public Companies:
Mandatory ESG Disclosure
Currently, there are no specific requirements mandating environmental and social disclosures under the Canadian Securities Legislation. However, Recently, the CSA published a comprehensive guide aimed to help issuers understand what environmental information must be disclosed in their continuous disclosure documents. Here, Issuers are expected to disclose “material” information, which includes that information which if omitted or misstated would influence an investors decision to buy, sell or hold a security.
Issuers must include both qualitative and quantitative factors in determining the “materiality” of the information.
The materiality of facts must be considered in all contexts.
Issuers must consider the timing of the impact expected to occur.
Issuers must also consider the magnitude of the impact.
Incase of confusion of whether the information is material or not, issuers must hold a proclivity towards the material side and must disclose the information.
Additionally, in the Management’s discussion and analysis section (MD&A), issuer are expected disclose material information that might not have been included in the financial statements but are likely to affect the issuer’s future performance
In an Annual Information Form(AIF) , the issuer must describe what environmental and social policies have been implemented that are fundamental to its operations.
Voluntary ESG Disclosure:
Voluntary ESG Reports provide important information to a company’s stakeholders. However, this disclosure can not replace the mandatory disclosure that is expected to be disclosed in the continuous disclosure documents as mandated by the securities legislation. The Canadian Coalition for Good Governance in the Directors’ E&S Guidebook has some recommendations companies can follow while disclosing Voluntary ESG Metrics
Must convey all crucial considerations related to governance, strategy, and risk management with careful details, context, additional information, and metrics based on the investor needs.
ESG metrics must always be clear and measurable. They must also be forward looking as well as comparable.
Companies must describe the reporting framework chosen and the reason behind the same.
Describe and quantify how the E&S reporting is different from the financial reporting. Providing an additional verification form the board in charge regarding the E&S information.
ESG Reporting Frameworks in Canada
Global Reporting Initiative : The GRI is the go-to guidance for most Canadian Companies. A major percentage (43%)of Canadian Companies report in accordance with this framework. This framework helps companies understand their impacts on the environment, economy, society and on human rights, further increasing their transparency on sustainable development. The GRI system comprises three series of standards, namely: Universal Standards, Sector Standards and Topic Standards.
United Nations Sustainable Development Goals : This has emerged as an internationally adopted reporting framework. 21% of reportes referenced the UN SDG and reported against it. A company's policies must voluntarily align with the UNited Nations Global Compact's Ten Principles as well as the 17 UN SDG’s.
Carbon Disclosure Project : It is a global voluntary initiative which helps companies report information indicating whether they impact or are affected by climate change. This disclosure helps publicly traded companies seek support from public investors. CDP helps multiple companies disclose their information via their database while offering advice on how to do the same.
Task Force on Climate Related Financial Disclosures : The TCFD released climate- related financial disclosure recommendations aimed to help organizations provide comprehensive information to support capital allocation in 2017. This disclosure is structured around four crucial areas namely, governance, strategy, risk management and metrics and targets. In June 2019, about 36 Canadian Companies who adopted these recommendations for voluntary climate-related financial disclosures.
International integrated Reporting Council : The IIRC has developed a framework aimed for preparing an integrated report communicating about the company's strategy, governance, performance and prospects about the environment.