As investors want to know more about how companies are dealing with climate change and other sustainability issues, Canadian companies are responding.
In 2018, fewer than half of the members of the S&P/TSX Composite Index released a dedicated ESG (environmental, social and governance) report, according to Millani, a Montreal-based consulting firm. That figure rose to roughly three-quarters of index companies by 2022.
This has happened as investors and companies sorted through many competing global ESG disclosure standards and developed a consensus on which ones to adopt. The number of companies specifically using standards developed by the Swiss-based Task Force on Climate-Related Financial Disclosures (TCFD) has increased 113 per cent since 2019.
“A year ago, two years ago, I would have said this is a slog, this is hard work,” says Milla Craig, Millani’s chief executive officer. “But what I would also say is most Canadian companies know this is the No. 1 issue on top of the minds of investors and institutional investors – and that they need to have a strategy behind this.”
Companies are issuing these extensive disclosures in dedicated ESG or sustainability reports, often several months after their annual report and yearly shareholders’ meeting. Many of the key disclosures are making it into companies’ shareholder proxy circulars, and they are now part of the criteria for The Globe and Mail’s Board Games corporate ranking, done in partnership with Toronto consulting firm Global Governance Advisors.
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One question, worth two points, examines whether a company makes clear how its board considers climate issues, including identifying board committees responsible for climate policy and other committees that consider climate-related issues as they review strategy, risk management and operating performance.
Another two-part question, worth one point for each part, requires a company to have at least one director with climate expertise and to provide climate-related education sessions to their boards.
A total of 13 companies in this year’s ranking received the maximum possible four points. Many were in the resource sector, where climate-related disclosure is common because of the companies’ impact on the environment. AltaGas Ltd., Cameco Corp., Cenovus Energy Inc., Hudbay Minerals Inc., Parkland Corp., Suncor Energy Inc., Torex Gold Resources Inc. and West Fraser Timber Co. Ltd. all received four points.
The group also includes companies outside the sector: Canadian National Railway Co., Gildan Activewear Inc., iA Financial Corp. Inc., National Bank of Canada and RioCan REIT received four points.
“It’s not surprising to see it in some of those industries like materials and in the energy sector,” said Tony Spizzirri, the Global Governance Advisors partner who oversees Board Games scoring. But, he said, financial and real estate companies “say a lot about it as well.”
Of the 219 companies scored in Board Games in 2023, 122, or 56 per cent, received full two-point credit for disclosing how the board oversees climate matters. Forty companies received one point for having a director with climate expertise. And 58 companies, or 26 per cent, received one point for board climate training.
Many companies made broad disclosures about ESG expertise or training, but left unclear whether directors had specific expertise or received training in climate-change issues. Companies did not receive credit for those disclosures.
There were 76 companies, slightly more than one-third, that received no points across the three climate criteria.
Companies “need to be looking at climate change as risk,” says Elizabeth Dove, executive director of the UN Global Compact Network Canada, a group that promotes 17 United Nations sustainable development goals.
“So, it is alarming to see so many companies, based on the data you found, with boards without climate-change expertise or meaningful discussion,” she said. “To investors it may signal an absence of medium-term perspective – because climate-change impacts are not a long-term thing – or denial of the evidence that is immediately before us.”
David Milstead