Canadian businesses are not opposed to setting up environmental programs while also seeking financial returns. In fact, most have implemented some sustainability activities, or plan to.
Where they lag is in adopting the measurement and disclosure practices that are increasingly crucial for raising capital and keeping customers, according to new analysis of business conditions published by Deloitte and the Canadian Chamber of Commerce.
This is surprising, given the high profile that such practices have taken on as part of Canada’s target to achieve net-zero CO2 emissions along with its allies – and also given that environmental disclosure is gradually becoming mandatory internationally.
The research also found that the smaller the company – be it a hotel chain, natural resource producer or tech developer – the less likely it is to spend the money necessary to employ detailed tracking of environmental, social and governance (ESG) factors.
The results show a need for support to help small and medium-size businesses embrace reporting using recognized templates such as those developed by the Sustainability Accounting Standards Board and Taskforce on Climate-related Financial Disclosures, says Stephen Tapp, the chamber’s chief economist.
“The larger firms that have more resources, more capital, they’re about twice as likely to be undertaking environmental practices as some of the smaller firms,” Mr. Tapp said. “We can’t be forgetting small firms are a huge employer and a huge engine of growth in Canada, which should lead to government programs or transitional support to help smaller firms undertake these practices but also remain internationally competitive.”
Surveys of companies listed on public markets have shown that there is sizable take-up of ESG reporting. For example, a survey published this year by the Institute for Sustainable Finance at Queen’s University’s Smith School of Business found that two-thirds of the 222 companies on the S&P/TSX Composite Index provided greenhouse-gas emissions disclosure of various levels of detail. A lot of this is likely in response to demands for the data from shareholders.
Across the wider economy, though, reporting is lacking just as Canada gets set for the next United Nations climate summit this November in Glasgow, where the financial industry will be front and centre.
Company leaders across the country reported being generally optimistic about business prospects as Canada slogged through the (hopefully waning) pandemic, according to the chamber analysis, gleaned from a Statistics Canada survey of 16,900 employers during the third quarter. But the survey found more uncertainty has crept in since the end of June.
The economic rebound has created worries related to supply shortages and there are lingering questions about the need for office space as more employees became accustomed to working from home.
There is more certainty on the environmental front. Sixty per cent of companies have implemented some green initiatives, or intend to. Those include a range of activities, including reducing water and energy consumption, cutting down waste, using recycled materials as inputs for products, encouraging employees to adopt environmental practices and creating green corporate policies.
However, just 6 per cent measure their business’s environmental footprint, 5 per cent maintain one or more environmental certifications and just 2 per cent hire an external auditor to evaluate sustainability practices.
Companies cite a few barriers. Fifteen per cent say their customers are unwilling to pay more, 14 per cent don’t have the financial resources to implement environmental initiatives and 7 per cent say that COVID-19 has delayed plans they had developed previously.
Another drag on sustainability reporting, Mr. Tapp says, is the lack of standardization. Different investors and third-party agencies demand information using their own preferred template. Again, governments have a role to play in setting the rules, he said.
It is an issue that transcends borders. The International Financial Reporting Standards Foundation is in the process of setting up a board charged with harmonizing disclosure.
“It’s useful to be able to compare across jurisdictions and across sectors. We don’t necessarily need business to be developing on an ad hoc basis some different measures. We need government to come in and determine the standardization of some of these ESG measures and that that would help the market fall in line,” Mr. Tapp said.
Jeffrey Jones writes about sustainable finance and the ESG Sector for The Globe and Mail. E-mail him at firstname.lastname@example.org.