For the good of the planet, and their business, Canadian firms need to rise to the climate-reporting challenge

With this summer’s smoky skies, deadly floods, and record-shattering heat waves dominating the news headlines, public concern for action on climate change is rising along with the thermometer. One vital but likely underappreciated step toward cutting Canada’s greenhouse gas emissions is going be ensuring that the corporations responsible for those emissions are accurately disclosing them. From there, credible net-zero plans and profitable investments in climate solutions can follow. Ryan Riordan is director of Research at the Institute for Sustainable Finance. Photograph courtesy of Institute for Sustainable Finance Most of the heavy lifting on reducing emissions is going to happen in the private sector. And Canadian regulations for mandatory climate-related disclosures need to catch up to other jurisdictions, such as in Europe and the United Kingdom. How does emissions reporting work? Consider a homeowner who wants to reduce the family’s carbon footprint and, in the same effort, save some money on energy costs. They’d first want to get a handle on where emissions are coming from to see what investments will have the biggest impact. How much do you use your car? How good is your home's insulation? Do you have a gas furnace or a heat pump? There’s a lot to consider. Now, imagine doing the same exercise for one of Canada’s largest businesses, and you can begin to see one of the biggest challenges to decarbonizing whole sectors of the economy. A corporation’s emissions can come from its own operations, say a vehicle fleet or industrial process; from purchased electricity, heating and cooling; or from the emissions of its customers and suppliers. For financial institutions, regulated by the Office of the Superintendent of Financial Institutions (OSFI), the biggest source of emissions is likely hidden in their investment portfolios. Simon Martin is ISF’s Senior Research Associate. Photograph courtesy of Institute for Sustainable Finance Like our homeowner above, corporations have incentives to account for emissions, and develop net-zero plans. It will be important for attracting domestic and foreign capital. Australia, for example, is moving very fast in this area and is a direct competitor with a similarly resource-heavy economy to ours. Investors and lenders are worried about their own climate targets, as well as the long-term implications of holding stranded assets that become obsolete as the world decarbonizes. Climate change will bring risk and uncertainty that business leaders need to prepare for. How is corporate Canada doing? You might be surprised by the progress to date. Research by the Institute for Sustainable Finance shows that, at least for Canada’s public firms, the majority are disclosing their greenhouse gas emissions to some degree—particularly bigger, higher-emitting firms. Disclosing firms cover 91 per cent of the total market capitalization of the S&P/TSX Composite Index. As well, the number of firms with targets for reducing emissions has been growing, with 57 per cent of Index-listed companies disclosing some kind of climate target. There is still improvement needed in the areas of verifying emissions, setting more ambitious climate targets with more detailed plans to meet them, and linking sustainability goals to executive compensation. There are also certainly bad actors more committed to greenwashing their image than taking real climate action. A lack of consistent standards and regulations makes life easier for them. Even for well-meaning efforts, emissions data are often of poor quality and hard to compare between firms. However, to their credit, many companies are taking the plunge despite these challenges, and refining their methods each year. What can Canada do? Global standards and guidelines are being refined and harmonized, and Canadian firms should be paying attention. The recent release of the International Sustainability Standards Board’s climate-related reporting standard was a major step forward in creating a single rulebook so that companies can produce quality climate reports that can be compared with other firms. On the regulatory side, OSFI has issued guidelines for Canada’s biggest financial institutions to report on climate-related risk beginning late next year. And the Canadian Securities Administrators (CSA) has for some time been working on guidelines for mandatory climate reporting by Canadian companies, although early drafts left room for improvement. The CSA will likely strive to keep pace with the United States Securities and Exchange Commission which is expected to soon release its regulations for climate risk assessments, net-zero target setting, and emissions disclosures. Another step should be for the federal finance department to move quickly to adopt the recommendations of the Sustainable Finance Action Council for a green and transition taxonomy—a set of guidelines to ensure the effectiveness of investments in climate solutions. With agreed standards and clear regulations, corporate greenwashing is about get a lot harder. And corporations that are ahead on climate reporting will reap the benefits of avoiding future climate risks, enhanced access to capital, and new opportunities in a cleaner economy. Ryan Riordan is director of Research at the Institute for Sustainable Finance (ISF). Simon Martin is ISF’s senior research associate.