This article was written by Jeffrey Jones, David Milstead, Mark Rendell, and Kathryn Blaze Baum, and was published in the Globe & Mail on September 26, 2020.

Despite an avalanche of new corporate reports on climate change, it’s still hard for investors to tell who’s helping and who isn’t

Canadian companies are churning out thousands of pages of disclosures each year about the environmental issues they face, including climate change. The people reading them, such as the investment managers at the giant Caisse de dépôt et placement du Québec, will put billions of dollars into the ones that get it right.

But there’s a big problem: The level of disclosure and standards companies use to report on a sprawling range of issues, from their records and ambitions for reducing carbon emissions to potential costs to their businesses from policy changes, are all over the climate map.

“The state of disclosure is highly variable … there are some good disclosures in Canada, very good ones, and there are some who are not good at all,” says Bertrand Millot, the head of Climate Risk and Issues for the Caisse.

Climate: Canadian companies must make an effort on disclosure, or face losing favour as global capital flows elsewhere

“We’re a very bottom-up investor, we do thorough analysis of the companies that we invest in, and climate is part of that picture. When you see companies are not thinking about it, that’s certainly a red light.”

Investors are demanding more and more information from companies about how their operations affect the environment – and how the environment affects them. So far, the companies have struggled to respond, choosing competing standards of disclosure or simply offering up little information at all.

The bar, however, is being raised again. Big institutional investors are now expecting not just historical data, but clear disclosure on what companies will do and face in the future when it comes to climate risk. And they’re expecting the disclosure from companies in all industries, not just in sectors long understood to have large impacts on the climate, such as energy or mining.

Canadian companies – many of which lag global peers in disclosure – are finding they will have to spend time, money and effort reporting on those issues as part of a total environmental, social and governance, or ESG, disclosure package. Otherwise, they face losing favour as global capital flows to where climate-risk disclosure is best. And as those companies struggle to respond to investor concerns, in many ways, their job keeps getting harder, because the standards for reporting keep getting more diverse and complex.


Some of Canada’s leaders in fulsome disclosure – and therefore, the ones that spend the most time and expense grappling with it – are companies in the oil patch that are often embroiled in the heated debates over emissions and climate change. They have already been stung more than any others as major global financial institutions have trumpeted decisions to pull their investments over environmental concerns, especially carbon emissions.

Deutsche Bank said this summer it would no longer finance new oil sands projects, while Zurich Insurance Group said it would exit as lead insurer for the $12.6billion Trans Mountain oil pipeline expansion project. In May, Norges Bank Investment Management, Norway’s sovereign wealth fund, said it would no longer invest in the Canadian oil sands sector because of what it called “unacceptable greenhouse gas emissions.”

The companies and the Alberta government were quick to dispute the data Norges used to arrive at its decision, calling it flawed. But for any industry that relies on a broad base of investors for capital-hungry operations, this is the worst possible outcome in a world of intensifying focus on ESG issues. Good disclosure is key to convincing investors that corporations are not only operating responsibly, but also managing their exposure to huge future costs and legal battles – though even that may not convince some divestment advocates.

Two of the companies spurned by Norway’s sovereign wealth fund – Suncor Energy Inc. and Cenovus Energy Inc. – have poured major corporate resources into reporting, both as supporters of the international Financial Stability Board’s Task Force on Climate-related Financial Disclosures, or TFCD. Their reports delve into minute detail, such as scenarios for their businesses based on scales of potential carbon prices and global temperature limitation goals. The reports also spell out the roles of directors on ESG issues and targets for reducing greenhouse gases over the next decade and beyond.

The industry is not naive when it comes to what it faces with a skeptical world in working toward cutting emissions both on a per-barrel and absolute basis, says Martha Hall Findlay, the former politician and think-tank director who signed on as Suncor’s chief sustainability officer early this year. “We totally recognize that it’s not all wonderful. We have really big challenges, especially GHG [greenhouse gases], ahead of us, so that kind of disclosure can be tough,” she says.

Suncor has 25 employees dedicated to gathering data and producing its ESG report, not including numerous others through the company’s operations who contribute.

Pension funds and other institutions, meanwhile, are demanding that level of disclosure as their pension plan members and investors in their funds focus on ESG issues. Indeed, most institutions now have dedicated ESG staff, says Al Reid, Cenovus’s executive vice-president of Stakeholder Engagement, Safety, Legal and General Counsel.

“For years you would talk to a portfolio manager when you did an investor call and they might ask you a few sustainability questions and they might not,” Mr. Reid says. “Increasingly, the ESG side of the house, the people that are advising, are probably getting a seat at the table. They are saying, ‘We need this information to make the investment decision that we want to make. How much, how soon, does this company do better, is it doing worse?’ ”


New data show that ESG disclosure practices are still very much in flux. Canadian corporations still lag their U.S. counterparts by a wide margin in disclosing climate risks. According to Montreal-based ESG consultancy Millani, 66 per cent of companies in the S&P/TSX Composite Index published a sustainability report in 2019, compared with 90 per cent of the S&P 500. Many now call them ESG reports.

Of those that published a sustainability report, Millani said, the disclosure varies widely and the companies adhere to different standards. About two-thirds used what is called the Global Reporting Initiative, or GRI, to guide their report, while about onethird used an ESG framework from the Sustainability Accounting Standards Board, or SASB.

Many climate-related considerations are quantifiable, but to date, there have been simply too many ways of quantifying them, says Jim Leech, former chief executive of the Ontario Teachers’ Pension Plan Board, one of Canada’s largest institutional investors. “It’s a Wild West show – still,” Mr. Leech says.

“At the end of the day, investment decisions are made by a whole bunch of people and institutions where they have a spreadsheet and they plug in the various parameters. Heretofore, they haven’t really had a column that allows them to plug in on ESG – maybe on governance, but not on environment and social,” says Mr. Leech, who is on the advisory board for the Institute for Sustainable Finance at Queen’s University.

One of the biggest dilemmas in the field for companies is what to provide disclosure about, says Andrew MacDougall, a lawyer with Osler, Hoskin & Harcourt LLP, who specializes in corporate climate-risk reporting. “When we have conversation[s] with our clients, that’s the hardest challenge because you do have a variety of reporting standards that are out there that look for quite a bit of information. And they don’t all take the same approach in terms of reporting.”

That, however, is changing, as the Caisse, every major Canadian pension plan, the country’s six major banks and its three major life insurers have endorsed the framework from the TCFD, seen as the current international gold standard for reporting. The TCFD issued its first recommendations in 2017, with billionaire and former New York mayor Michael Bloomberg and former Bank of Canada and Bank of England governor Mark Carney leading the effort to arrive at consistent financial risk reporting by companies to provide information to investors, lenders, insurers and others.

The framework has four major categories and 11 subcategories of climate-related disclosure. More so than some other standards, the TCFD requires forward-looking disclosure about climate plans and future impact.

“We need to move beyond headline carbon data to consider transition risk,” says Richard Manley, the head of sustainable investing at the Canada Pension Plan Investment Board. The CPPIB, which manages $434-billion in assets, was a founding member of the FSB task force. “The impacts are far more far-reaching across the industrial complex,” Mr. Manley says.

The Caisse’s Mr. Millot says, “We are really looking at what the company is going to do about this issue. What’s it done in the past is important, but for climate change, it’s really the future we’re looking at.”

The Canadian Coalition for Good Governance, a group of major Canadian institutional investors, endorsed the TCFD framework earlier this year, says the coalition’s executive director, Catherine McCall. “It’s important that we be part of the solution, and this is the one of the best frameworks out there. I think that companies are becoming increasingly aware of TCFD, and we’re bringing it up in our engagement meetings with them, and there seems to be a desire to start along that path.”

And it is a path, or a journey, Ms. McCall says.

“You could start very simply and provide a narrative description of the different disclosure elements that they asked for,” she says. “So I think that as companies realize that it’s not this huge thing that they have to comply with right away, there’s more willingness to get on board and start slowly and and move along.”

A January study by CPA Canada, an umbrella group for accountants, examined the disclosures of 40 unnamed large companies listed on the Toronto Stock Exchange and found that while 98 per cent provided some disclosure in at least one of the four major TCFD categories, only one company disclosed in all four and the corresponding 11 subcategories. On average, companies disclosed in 4.2 of the 11 subcategories.

“I think that we’re still in the early stages, quite frankly, of evaluating climate risk across our portfolios,” says Alison Schneider, the vice-president, responsible investment for Alberta Investment Management Corp., the province’s public-sector investment manager. “And that’s a function of the availability of the climate data that’s out there.”


The gradual pace of adoption has raised the question of whether Canadian regulators or lawmakers will play a role in pushing the issue forward. And so far, there have been signs that it will happen.

Canadian securities regulators are paying more attention, although to date the issue has been dealt with within the framework of existing securities law, rather than by introducing new disclosure requirements.

Last summer, the Canadian Securities Administrators (CSA) published guidance for public companies. Instead of asking them to publish specific information about environmental risks following a set standard, the CSA said companies should disclose climate risks in their annual information form and regular management discussion and analysis forms if those risks are “material” to the business.

This means ESG disclosure remains voluntary, and any requirement to report climatechange-related risk is companyspecific.

Author: Ray Nakano

Ray is a climate activist living in the City of Toronto. He is a also a member of the Order of Inter-Being which follows the teachings of Thich Nhat Hanh.