Sheep roam at BluEarth Renewables Burdett Solar Facility project, County of Forty Mile, near the hamlet of Burdett, Alta on Oct. 4, 2022.Guillaume Nolet/The Globe and Mail
Toby Heaps is chief executive of Corporate Knights.
The concept seems a bit quaint now, but it used to be common to picture good corporate citizenship as a three-legged stool. Getting things right required solid materials and a steady balance between the newly conceived-as-equal environmental, social and economic legs.
It’s a good metaphor to revive when looking at the analysis – encompassing companies of all types with annual revenues of $1-billion or more – that underlies Corporate Knights’ just-released 2023 ranking of Canada’s Best 50 Corporate Citizens.
The Best 50 themselves – led this year by Innergex Renewable Energy – continue to perform impressively across the 25 sustainability-related metrics on which the ranking is based.
But the stool looks a little shakier when we pull the lens back to look at corporate Canada as a whole.
Carbon emissions are probably the single most scrutinized component of the environmental leg of corporate citizenship. Happily, they’re trending down, even if not as fast as they need to. Let’s call that a wobbly leg. And on social metrics such as proportionate compensation and cash taxes paid, the leg is under intensifying strain and threatening to snap.
The economic leg, premised on investing in assets categorized as sustainable, is pretty solid and becoming more so – although it’s not sufficiently buttressed by policy supports and incentives, or by parallel investments by government.
Let’s delve more deeply into how comfortably we’re sitting, and how we could stabilize our position.
On average, companies in the full cohort assessed (and who reported data across a three-year period) earned $700,000 for every tonne of carbon emitted in 2019 and $1-million in 2021. Inflation played a role in that improvement, but Scope 1 and 2 carbon emissions (originating from a company’s own operations and from its purchased energy, respectively) did drop from 269 million to 247.9 million tonnes between 2019 and 2021. That’s an encouraging 4-per-cent annual decline – although it’s less than the 5 per cent the UN Climate Change secretariat has told us we need to be hitting.
The federal government could help greatly by closing the woefully wide exemptions in the carbon pricing system, which have seen major emitters such as Suncor incur an average carbon cost of about $2.10 a tonne in 2020 – or about one-fourteenth the full carbon price.
On social performance, and within the full cohort, average CEO pay jumped 18 per cent from 2019 to 2021, and average employee pay only 4 per cent. Profits meanwhile were up 74 per cent and cash taxes paid only 33 per cent. The NDP has just introduced a motion calling for tax measures to address pay disparities, but where is the shareholder determination to exercise meaningful say-on-pay? And where is the government determination to reverse the long-standing trend toward extracting more tax from people and less from corporations (3.5 times more, as per our analysis of a few years ago)?
Meanwhile diversity at the board and executive levels is improving sluggishly, leaving us 25+ years away from proportionate racial representation in executive ranks. Voluntary initiatives such as BlackNorth (which promotes specific actions to address anti-Black racism in the corporate context) are helpful, but need to be coupled with strengthened disclosure requirements, of the kind being considered by the Canadian Securities Administrators, and by a firmer commitment to diversity as a factor in public procurement.
Coming back to the more stable economic leg of the stool: Long-term economic strength hinges on investing more in sustainable assets (think renewable energy generation and other value creation that contributes to decarbonization and circularity), and earning more revenues from similar activities.
Fully a third of investments made by the Best 50 Corporate Citizens last year qualified as sustainable, and for this year’s Best 50 that jumped to half – an encouraging trend also evident in the economy as a whole. Among the full cohort of companies assessed, sustainable investment rose 124 per cent from $17.1-billion in 2019 to $38.3-billion in 2021.
But we need governments to amplify corporate efforts with a robust suite of supportive policies and substantial public investment. The last federal budget was pitched as a green one, but by our calculations committed only $386-million in new money in the current fiscal year, or 0.02 per cent of GDP, to address the climate investment gap, which the budget quantified at up to $115-billion a year.
So while the broad acceleration in corporate sustainable investments is very good news, current governmental efforts in support of it are not equal to either the competitive realities of the U.S. Inflation Reduction Act, or to the scale of the transformation we need to achieve. This cries out for some turbocharging.
At the end of the day, there’s reason for mild despair in this year’s findings. Each of the three legs of that old sustainability stool could use some shoring up – maybe quite a bit in fact. But the tools to do so are readily at hand, and if government and corporate Canada choose to take them up, I’m confident we’ll see considerably greater stability across the Canadian economy.