Many of Canada's largest companies are lagging their global peers in reporting on key corporate social responsibility metrics even as a growing number of global investment funds are demanding more data for their investment decisions.
A report looking at companies listed on the world's leading stock exchanges shows Toronto Stock Exchange companies ranked 24th out of 45 exchanges for their reporting on environmental, social and governance (ESG) factors. The Helsinki Stock Exchange placed first, followed by Euronext Amsterdam, the Copenhagen Stock Exchange, the Australian Securities Exchange and the London Stock Exchange.
Toby Heaps, chief executive officer of Toronto-based research firm Corporate Knights, which prepared the study in conjunction with British insurance firm Aviva PLC, said all of the top 10 exchanges in the report operate in countries with mandatory rules requiring companies to report on key corporate responsibility factors.
Britain, for example, announced in 2012 that all publicly listed companies had to include carbon emissions data in their annual reports. Canada has no such reporting requirements, which Mr. Heaps says risks making Canadian firms less attractive for global investors with a focus on sustainability.
"When you have tens of billions of dollars of portfolios that are moving on this data, it's reached a level where [disclosure] is becoming problematic now," he said. "It's no longer a PR or communications indicator – carbon numbers are becoming a hard part of the analysis for a growing group of investors."
Global investment funds with assets totalling $62-billion (U.S.) have made formal commitments through the Portfolio Decarbonization Coalition to reducing the carbon footprint of the companies in their portfolios, typically by choosing the most efficient companies in each industry sector, while funds managing another $500-billion of investments have some carbon reduction targets, Mr. Heaps said. Funds with over $6-trillion in assets have promised to report on the carbon footprint of the companies in their portfolios, he said.
As a result, Mr. Heaps said investors need hard data on ESG criteria, and in many countries it is not available.
"You have investors who have these huge gaps where over one third – and in some cases two-thirds – of large companies are not reporting their carbon emissions … Can you imagine if we had to guess what dividends were, or what the price of the stock was?"
The study included companies with market capitalization of at least $2-billion and examined their reporting on seven common social responsibility metrics: energy use, greenhouse gas emissions, water consumption, waste production, employee turnover, injury rate and payroll costs.
It found 37 per cent of large listed companies globally report on their greenhouse gas emissions, while 22 per cent disclose water consumption and just 12 per cent report on their rate of employee turnover.
In Canada, 59 per cent of the 145 large companies studied disclosed greenhouse gas emissions, while 21 per cent reported water consumption and 16 per cent reported on employee turnover.
Mr. Heaps said one reason Canada has not improved further on disclosure is that there is little pressure coming from large institutional investors, who are not lobbying regulators, such as the Ontario Securities Commission, for mandatory disclosure rules.
"I don't think that the OSC or the finance ministry in Ontario have heard enough directly from the large asset owners and managers saying: 'Hey, we're having trouble implementing some of our strategies because there's a dearth of data,'" he said.
While European countries have been the leaders on disclosure rules, Mr. Heaps said some countries in Asia, such as Singapore and Hong Kong, are now moving to introduce standards, while in Canada "we really risk being left behind."