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Stantec Inc. chief executive Gord Johnston looks out from the company's Calgary studio space. The firm plans to bring its operations to net zero carbon emissions by 2030.

Photography by Jeremy Fokkens/The Globe and Mail


Stantec Inc.’s CEO, Gord Johnston, made a bold declaration this past February: The company pledged to hit net zero carbon emissions by 2030. That’s two decades ahead of what’s spelled out in the Paris Agreement, whose goal is to limit the rise in global temperatures to 1.5 C and mitigate the worst effects of climate change.

The Edmonton-based engineering and architecture firm has made several ambitious environmental commitments over the years, and hitting them has put it in a global league for sustainability. Yet just a few years ago, European investors were the only ones demanding detailed data on Stantec’s plans for assessing and dealing with climate risk.

That has changed. Since the start of the pandemic, investors (including a consortium of asset managers representing more than a third of all money under management globally) have zeroed in on efforts to deal with society’s vulnerabilities. Climate is a longstanding one, and Mr. Johnston says his company’s push to net zero – reducing greenhouse gas emissions throughout a company’s value chain and offsetting any that can’t be eliminated – became part of that discussion.

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“It is something we have been asked, absolutely,” he says. “ ‘What would your plans be? How would you get there? And importantly, how would you define it?’ ”

That last question is the big one. Despite the fact the net zero club is growing fast – as banks, oil producers, airlines and, as of last week, Canadian retailer Indigo, sign on in the hopes of signalling they care about climate change – there are no enforced standards on what actually constitutes net zero. To have real impact, these targets must be scientifically based and consistent. Yet corporate declarations are all over the map. Some plans target the full suite of greenhouse gases, from in-house emissions to electricity inputs to those released after the products leave the store. Others leave out the emissions created when consumers use the final product (known as Scope 3 emissions). Some assume future technological breakthroughs that will make hitting net zero possible.

Deadlines vary wildly, too. Indigo is aiming for 2035. Vancouver City Savings Credit Union (Vancity) is looking to 2040. TD Bank, Enbridge Inc. and Kirkland Lake Gold, meanwhile, have set their targets at 2050, in line with the Paris Agreement. That’s so distant that many executives currently in charge will be long into retirement.

And some of these commitments are merely “ambitions” – in other words, the targets are aspirational, not guaranteed.

“It’s a bit of a Wild West out there right now,” Mr. Johnston says.

Plants hang by the empty desks at Stantec's office.

These efforts aren’t merely altruistic. With the imperative to act on climate change growing, more and more investors are demanding limits to the financial risks it poses – and directing capital accordingly. They’re wary of vague, potentially insincere pledges, however, so increasingly they’re using sophisticated climate data to make buy-and-sell decisions, and questioning the commitments underpinning targets. How much of corporate spending is going toward achieving net zero? How much of an executive team’s compensation is tied to specific milestones? In other words, are these efforts legitimate or just greenwashing?

“We are building out our own climate strategy and what net zero means for us,” says Jamie Bonham, director of corporate engagement at NEI Investments, which manages $9-billion in assets in its responsible investing portfolios. “A core part of our plan is definitely to increase the number of companies in our portfolio that are committed and aligned with a credible net zero target. And there’s a lot that hinges on that word credible.”

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Canada’s record leaves much room for improvement. A new study by the Institute for Sustainable Finance at Queen’s University’s Smith School of Business (which has funding from the Big Five banks) found that of the 222 companies on the S&P/TSX Composite Index, just 60, or 27 per cent, have published absolute emissions targets. That lags both the United States and the United Kingdom.

Of the companies that have set targets, 51 have specific total emissions goals, and eight have announced net zero target for between 2030 and 2050 (though a few have declared targets since the research wrapped up).

Those that disclose emissions data tend to be larger and have deeper pockets, representing 87.8 per cent of the market capitalization on the TSX index. Just nine companies have published what the researchers deemed to be very detailed information, including the types of greenhouse gases emitted and by which business units, along with historical data and areas targeted for reductions.

“The easy thing is just to come out and say, ‘Net zero by 2050,’ ” says Kevin Quinlan, senior adviser at Manifest Climate, which provides software to track and disclose climate impacts. “I think most companies recognize that if they say that without backing anything up, they’re going to face a lot of heat.”

That leaves companies in a bind: If they don’t announce net zero targets, they could take a reputational hit and lose investors. But the same applies if they do and fail to meet those targets. They might even face legal trouble if they’re deemed to have acted in bad faith.


Canada vs. The World: Targets

Canada’s publicly traded firms are far behind their peers

on the S&P 500 and FTSE 100 indexes when it comes to

setting climate targets.

Have stated climate targets

Do not have stated climate targets

33%

53%

27%

47%

73%

67%

TSX

S&P 500

FTSE 100

COMPANIES

COMPANIES

COMPANIES

TSX Market: Climate Targets

Have post-2020 climate targets

Do not have post-2020 climate targets

27%

44%

50%

50%

56%

73%

TSX COMPANIES

MARKET CAP

% OF EMISSIONS

BY TOTAL GROUP

Emissions reduction target characteristics

Absolute targets

51

Intensity targets

20

More than one target (overlap)

-11

Total

60

Absolute targets

2021-2025

21

2026-2030

15

2031-2050

13

Other

2

IntensIty targets

11

2021-2025

9

2026-2030

the globe and mail, source: isfcanada.org

Canada vs. The World: Targets

Canada’s publicly traded firms are far behind their peers

on the S&P 500 and FTSE 100 indexes when it comes to

setting climate targets.

Have stated climate targets

Do not have stated climate targets

33%

27%

53%

47%

73%

67%

TSX

S&P 500

FTSE 100

COMPANIES

COMPANIES

COMPANIES

TSX Market: Climate Targets

Have post-2020 climate targets

Do not have post-2020 climate targets

27%

44%

50%

50%

56%

73%

TSX COMPANIES

MARKET CAP

% OF EMISSIONS

BY TOTAL GROUP

Emissions reduction target characteristics

Absolute targets

51

Intensity targets

20

More than one target (overlap)

-11

Total

60

Absolute targets

2021-2025

21

2026-2030

15

2031-2050

13

Other

2

IntensIty targets

11

2021-2025

9

2026-2030

the globe and mail, source: isfcanada.org

Canada vs. The World: Targets

Canada’s publicly traded firms are far behind their peers on the S&P 500 and FTSE 100 indexes when it comes to setting climate targets.

Have stated climate targets

Do not have stated climate targets

27%

47%

73%

33%

53%

67%

TSX

S&P 500

FTSE 100

COMPANIES

COMPANIES

COMPANIES

TSX Market: Climate Targets

Have post-2020 climate targets

Do not have post-2020 climate targets

27%

73%

50%

50%

56%

44%

TSX COMPANIES

MARKET CAP

% OF EMISSIONS

BY TOTAL GROUP

S&P/TSX Composite Index Firms with Emissions Reduction Targets

Emissions reduction target

characteristics

IntensIty targets

Absolute targets

11

2021-2025

21

Absolute targets

51

2021-2025

9

2026-2030

15

2026-2030

Intensity targets

20

2031-2050

13

More than one target

(overlap)

-11

Other

2

Total

60

the globe and mail, source: isfcanada.org


Companies might not have a choice for much longer, as major investors amplify calls to explain how they’ll survive in a low-carbon economy.

The world’s largest fund manager, BlackRock Inc., did just that in January, when CEO Larry Fink warned that companies in its portfolios that don’t show progress will face proxy votes against management – or even potential divestment.

BlackRock is part of a group called the Net Zero Asset Managers initiative, which as of late March had signed up 73 investors, representing US$32-trillion in assets, to pressure companies in their portfolios to adhere to Paris Agreement climate goals. The group also includes Brookfield Asset Management, Fidelity and Vanguard Group, and is aligned with the UN’s Race to Zero campaign. Its members follow strict criteria that help ensure they‘re making commitments, setting interim targets and taking actions that are “consistent with the science.”

The prospect of achieving net zero is far less arduous for a company such as Stantec than for carbon-intensive oil and gas producers or airlines.

The first step in Stantec’s plan is to reach carbon neutrality by next year – that is, reducing emissions in its own operations and offsetting any remaining greenhouse gases it generates with renewable energy certificates and carbon offsets. To get to net zero, Stantec plans to move from offsets to alternatives that directly produce renewable energy or cut carbon dioxide. It also hopes to help its clients – including those in the fossil-fuel sector – with the expertise it gains.

For those companies, reaching net zero could involve far more drastic measures, including shifting capital spending and exiting businesses that generate large CO2 volumes. And that could lead to write-downs. Others are plowing money into research aimed at breakthroughs. Oil sands producer Cenovus Energy, for instance, has said it plans to reach net zero by 2050, but warns the goal is predicated somewhat on its belief in human ingenuity, since meeting it will require technology that’s still in its infancy or doesn’t even exist yet.

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A Royal Bank of Canada sign is shown in Toronto's financial district.

Nathan Denette/The Canadian Press

Most banks, meanwhile, are set to begin reporting “financed emissions” from client companies, a tricky mathematical exercise. It involves ascribing greenhouse gas volumes emitted by companies and projects they lend to in various asset classes. Canada’s biggest banks have signed on to the Partnership for Carbon Accounting Financials (PCAF), which is developing ways to quantify financed emissions on top of those the banks generate from their own operations.

This year, Royal Bank of Canada and Bank of Montreal announced net zero targets and committed to pouring hundreds of billions into sustainable finance. But they’ve been criticized by environmental groups, which are calling for an end to any financing of fossil-fuel companies as a tenet of net zero targets. In an annual ranking by the Rainforest Action Network, called “Banking on Climate Chaos,” RBC ranked fifth among the world’s banks in financing fossil fuel development from 2016 to 2020. (It trailed JP Morgan Chase, Citi, Wells Fargo and Bank of America.)

RBC and other major banks reject the idea of defunding fossil-fuel producers – they can have more impact and cause less disruption to the economy, they say, by using their resources to improve their environmental performance rather than cutting them off. BMO is launching an institute to serve as a clearing house for science, analytics and technical expertise for clients’ risk management and adaptation. Bank of Nova Scotia has created its own net zero research fund.

In March, Air Canada said it was aiming for net zero by 2050, but had set an interim goal “to ensure meaningful progress”: a 20-per-cent net emissions reduction from flights by 2030 (from 2019 volumes) and 30 per cent from ground operations. It also committed to spending $50-million on low-carbon fuels and other initiatives. It plans to announce more details soon.

Those kinds of interim targets are vital, says Michael Caputo, managing partner at Calgary-based Lane Caputo Compensation Inc. “It’s important that companies demonstrate progress toward this ultimate goal, and that could be measured in milestone achievement over three to five years,” he says.

Net zero announcements have even more weight if they’re tied to executive compensation. The Queen’s study found that 15 companies on the composite index linked executive pay to emissions reduction targets, and another 27 offered some climate-related incentives. At Stantec, Mr. Johnston says the carbon-neutral pledge is part of his “CEO scorecard,” which includes various environmental, social and governance (ESG) metrics.

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The Big Five banks all tie portions of their executive pay to ESG criteria, including climate initiatives such as net zero plans. Canadian Imperial Bank of Commerce hasn’t set a specific net zero target, but it has implemented a range of climate-specific programs, including signing on to PCAF.

Vancity, a member-owned financial co-operative, aims to be net zero in 19 years, though its path is easier than some. Vancity doesn’t finance the fossil-fuel industry, so there’s no large group of clients requiring massive transition. As for executive incentives, they’re currently tied broadly to “people, planet and profit” objectives. The credit union plans to set interim emissions targets in the coming months, and those might play directly into compensation, says Jonathan Fowlie, who leads Vancity’s climate initiatives. “But without that clear, tangible short-term target, we’re relying instead on the existing long-standing one, which does put [environmental] impact on the scorecard executives are paid against.”

The Suncor Energy logo is seen at their Calgary head office.

Chris Wattie/Reuters

In the oil and gas sector, emissions goals don’t typically figure into CEO compensation. But that could change. Institutional investors and proxy advisers are increasingly asking for ESG factors to be included in say-on-pay votes, and climate considerations are expected to play a bigger role. NEI Investments is a member of Climate Action 100+, a global group of 570 investors that’s pushing major emitters to take action on climate change. That includes shareholder pressure to tie executive pay to climate-related goals at such companies as Canadian Natural Resources, Suncor Energy, Teck Resources and Enbridge.

“A lot of these asset managers have said, ‘It’s great that you’re issuing a 100-page sustainability report, but tell us what’s really important to you from a longer-term strategic viability standpoint,’ ” Mr. Caputo says. “There are few better ways of demonstrating what’s strategically important than making a material component of the CEO’s compensation contingent upon its achievement.”

The tough part is linking pay to the Scope 3 emissions that are outside a company’s control. “I think companies would be very concerned around making hard commitments to reduce Scope 3 emissions and tying executive compensation to that,” says Martin Grosskopf, vice-president at AGF Investments and manager of the mutual fund company’s sustainable investing strategies. “Because if it’s beyond the sphere of what you can control, how do you define that in terms of hard comp and hard success?”

The regulatory world looks to be on a collision course with the climate fight. In March, the U.S. Securities and Exchange Commission denied a request by two U.S. oil companies, Occidental Petroleum and ConocoPhillips, to quash shareholder votes seeking to force them to detail Scope 3 emissions. This would entail tallying emissions from consumer use of their fossil fuels. This, after Occidental became the first major U.S. oil company to target net zero emissions by 2040.

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Mark Carney is the former governor of both the Bank of Canada and the Bank of England.

Tolga Akmen/Pool via REUTERS

Clearly the eyes of the scientific world are taking a critical look at net zero declarations. Mark Carney, the former governor of the Bank of England and Bank of Canada, and now vice-chairman at Brookfield Asset Management, is leading the push to shift financial structures to decarbonize the global economy. He says the world will need investments of at least US$100-trillion to make the industrial transitions necessary to meet the Paris goal.

At Brookfield, which has pledged to hit net zero by 2050 or sooner, Mr. Carney manages an impact fund that could eventually have more than US$50-billion in assets aimed at transforming the operations of energy companies, utilities, tech firms and other industrials.

But even he found himself in an uncomfortable spot this year after positing that Brookfield is already at net zero, if you count emissions it avoids by having a massive portfolio of renewable energy projects. Climate experts asserted that wasn’t valid accounting – owning renewables doesn’t cancel out emissions from Brookfield’s fossil fuel assets. On Twitter, Mr. Carney backtracked: “I have always been – and will continue to be – a strong advocate for net zero science-based targets, and I also recognize that avoided emissions do not count towards them.”

Brookfield spokesperson Claire Holland says the organization is employing “science-based emissions reduction strategies, investing aligned with the transition to net zero, and measuring and reporting on emissions consistent with GHG Protocol and PCAF standards.”

A priority in the corporate and investing worlds is standardizing disclosure of climate-related investments, risks and corporate governance under the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), a process Mr. Carney spearheaded. Among its requirements: explaining what role executives and directors play in assessing environmental risks, and how they’re integrated into overall corporate risk management. The guidelines demand companies assess the future impact from various climate change and policy scenarios.

In its recent report, the Ontario Capital Markets Modernization Task Force recommended corporations be mandated to adhere to the TCFD standard. The United Kingdom and New Zealand have already created regulations to phase in mandatory disclosure consistent with the TCFD. A similar push specifically for net zero plans could be net on the horizon, Manifest’s Mr. Quinlan predicts.

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“I don’t know if it’s something you’ll see explicitly addressed in the TCFD. But it seems to be becoming an implicit requirement of firms from at least some of their suppliers of capital,” says Sean Cleary, executive director of the Institute for Sustainable Finance at Queen’s and a co-author of the climate disclosure study.

If companies fail to meet their net zero plans, the problems could go beyond a reputational shellacking. From a legal standpoint, public companies already face rules and regulations around forward-looking information. They’re required to detail the factors that went into devising them and to disclose that forecasts could vary materially from actual results.

“In this case, the key question is whether the issuer has a reasonable basis for believing it can achieve the target in that disclosed timeframe,” says Andrew MacDougall, a lawyer with Osler, Hoskin & Harcourt LLP who specializes in climate risk reporting. “If it does not, securities regulators could take enforcement action.”

He points out there’s also the risk of court action if investors suspect a company didn’t actually believe its net zero target was achievable when it was announced. Shareholder lawsuits and proxy fights by activist investors also loom over companies that fail to live up to environmental targets.

Indeed, some have held off on setting targets, even as they pour resources into technology aimed at reducing emissions. Suncor, Canada’s largest oil sands producer, faces a massive challenge: not just cutting emissions, but convincing the public it’s committed to doing so. It set a goal in 2016 to reduce emission intensity by 30 per cent by 2030 through carbon capture and storage, and by using and developing low-carbon and renewable power.

Intensity is a measure of emissions per barrel produced, rather than an absolute corporate target, which gets tougher to hit if output increases. Suncor is on track to meet its target, but it has yet to announce a net zero pledge, says Martha Hall Findlay, its chief sustainability officer.

“It’s not because we haven’t been involved in the disclosure scene for years. It hasn’t been because we don’t understand where we need to go. It’s not because we don’t support Canada’s commitments to Paris. We absolutely do,” she says. “But that flood [of announcements] has also resulted in some skepticism: Is there greenwashing? How do we know what you say you’re going to do is credible? That kind of thing is really important to Suncor, so we’re making sure that when we make commitments, we know we can, and we know how.”


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What does emissions ‘scope’ mean?

The Greenhouse Gas Protocol puts emissions into three broad categories:

  • Scope 1: Direct emissions from sources owned or controlled by the company (for example furnaces, vehicles or chemical production)
  • Scope 2: Indirect emissions from the consumption of purchased electricity, heat or steam
  • Scope 3: Other indirect emissions, including those resulting from the extraction and production of purchased materials and fuels; those created when a product is used by consumers; transport-related activities in vehicles not owned or controlled by the company; and waste disposal

Source: Science Based Targets initiative, a partnership between CDP, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature


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