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How Canadian businesses can leverage global ESG disclosure reporting – with insights from BDO Canada

By Stephanie Gilman

Published January 4, 2024 • 7 Min Read

Companies across the globe have realized that integrating ESG principles into their core operations isn’t just the right thing to do for the future of our planet and people, but also a strategic move to meet the changing preferences of consumers and investors.

As the world increases its focus on environmental and social risk management, Environmental, Social, and Governance (ESG) practices are taking center stage, transforming what are often viewed as trendy buzzwords into components of corporate strategy.

Companies across the globe have realized that integrating ESG principles into their core operations isn’t just the right thing to do for the future of our planet and people, but also a strategic move to meet the changing preferences of consumers and investors. Canadian businesses are starting to recognize the necessity of ESG strategies to access government funding and engage with a broader audience. And with this shift towards greater recognition of the value of ESG comes an increased need for ESG disclosure both internationally and here in Canada.

To navigate this changing landscape, Canadian companies can look beyond our borders, drawing lessons from countries that have forged ahead in the ESG movement. RBC spoke with BDO Canada to find out how we can harness international expertise and apply it to the Canadian business scene.

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Increased demand for ESG disclosure

The global demand for ESG disclosure has been driven by investor demand and regulatory requirements, but as Alison Joutsi, Vice President of Sustainability & ESG at BDO Canada points out, data suggests that organizations that manage sustainability risks and opportunities perform better in the long run.

“ESG practices are now being implemented by organizations to comply with upcoming regulatory requirements, but also to attract talent and appeal to a new stakeholder demographic,” she says. “We’re moving from a value perspective lens just for shareholders, to value creation for all stakeholders.”

With that in mind, disclosure is more important than ever before, offering transparency into a company’s social and environmental efforts for customers, employees, and shareholders. However global standardization is a challenge, and with multiple frameworks being used in different jurisdictions, Joutsi notes that it’s tough for investors to compare apples to apples.

“We don’t necessarily need regulations to be completely uniform across countries,” she says. “But some level of consistency is important to attract certain businesses to a country.”

To address the issue, the International Financial Reporting Standards (IRFS) Foundation created the International Sustainability Standards Board (ISSB) to develop a global baseline of sustainability disclosure standards. With the ISSB Standards endorsed by the International Organization of Securities Commissions (IOSCO), many jurisdictions are preemptively developing their strategies for enforcing these standards.

But should there be uniformity in ESG regulations from country to country for real change to happen? The answer is a nuanced one. While uniformity can be helpful in creating a level playing field, it’s not always practical.

Stephen Miller, Manager of Grants and Incentives at BDO Canada, notes that as much as there are lessons to be learned from other jurisdictions, there’s no one-size-fits-all approach to ESG disclosure.

“Different countries have different cultures as well as types of institutions, industries, and social environments,” Miller says. “You have to consider the particular challenges at both an organizational level and broader country level.”

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Global trends in ESG reporting

Despite efforts to harmonize disclosure requirements, ESG regulations still vary widely from country to country. And where some nations are at the forefront of the ESG journey, others are still finding their footing.

Among the leaders, Europe stands out with its progressive regulations, and as Joutsi and Miller note, the EU is often a good indicator of what other countries might do.

The EU recently implemented its Corporate Sustainability Reporting Directive (CSRD), which mandates ESG reporting for companies that meet specific criteria. This was followed by the European Sustainability Reporting Standards (ESRS) which outline the specific reporting requirements that these companies must adhere to. The standards cover key ESG issues like climate change, biodiversity, and human rights.

The United States takes a more fragmented approach, with various states and the Securities and Exchange Commission (SEC) driving ESG initiatives. While there isn’t an equivalent to the CSRD, US businesses are motivated to engage with ESG because of recent legislative and spending initiatives, including the Biden administration’s Inflation Reduction Act.

But Miller notes that even with guidance from governing bodies, there is a lack of tangible government support for transitioning to ESG disclosure.

Although the European Sustainability Reporting Standards (ESRS) provide businesses with a structured reporting and disclosure framework, “The European Commission won’t handhold businesses and walk them through what they need to do to meet reporting requirements,” he says. “And in the U.S., the onus is on businesses to navigate the requirements of their jurisdiction as well as engage with government incentives. They have to do their homework.”

While Canada isn’t at the forefront of ESG regulations, it’s making progress, and Canadian regulators may look to Europe and the U.S. when considering the types of regulations relevant to Canada. And, as Joutsi emphasizes, Canadian businesses should take inspiration from global jurisdictions leading the way.

“You need to consider how you’ll collect your data and ensure it’s auditable,” she says, noting that the EU has assurance requirements, starting with limited assurance, with a transition to reasonable in the coming years. “Forward-thinking business leaders in Canada can look at what European companies are doing and gradually start incorporating those principles into their business.”

Joutsi stresses that businesses should take a proactive approach and begin thinking through their governance strategies sooner rather than later.

“You can start by quantifying your carbon footprint right now,” she says. “You don’t want to wait for regulation to come into effect to start speaking to your stakeholders and collect the data you’ll need for reporting. If organizations wait for regulation, it will take too long to collect the required information needed.”

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Staying ahead of the curve with ESG integration

With the Canadian government recently introducing new incentives to encourage ESG practices, Miller urges businesses to get ahead of the curve and engage with ESG now.

“What we’re seeing is that many government support mechanisms are heavily subscribed, and if you’re a business looking to benefit from them, you’re going to have to move fast,” he says.

And as Miller points out, businesses in many sectors can benefit, not just those in traditionally carbon-intensive industries like energy and transportation.

When regulations do come through in Canada, Miller says that even for organizations and businesses that are not legally mandated to comply, it’s still worth the effort to include ESG elements in your project planning.

“This approach can unlock doors and be a differentiator,” he says. “You’ll have a stronger case for government support, and you might find that the profitability of a project is improved by integrating ESG.”

With jurisdictions around the world adopting ESG standards and regulations, and Canada expected to follow suit, Canadian businesses should take the time to consider integrating their ESG strategy into their overall business strategy.

“If you look down the road, the trend is towards a stronger ESG policy here in Canada,” Miller says. “So there’s both a challenge and opportunity for businesses.”

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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