As investors look to understand the environmental, social, and governance risks and opportunities associated with their investments, ESG transparency and disclosure have grown in importance in recent years. This development has received more attention in Canada as regulators, investors, and businesses all work to advance ESG reporting practices.
ESG disclosure has been actively improved by the Canadian Securities Administrators (CSA), which represents the securities regulators of Canada’s provinces and territories. The CSA issued Staff Notice 51-354 Report on Climate Change-related Disclosure Project in 2018, which gave issuers advice on how to disclose information related to climate change. The report emphasized the significance of giving investors clear and thorough information on the risks and opportunities associated with climate change, and it suggested that issuers provide scenario analysis and quantitative disclosure of their exposure to climate risks.
Investor demand for more thorough ESG disclosure from companies is rising in addition to the CSA’s recommendations. The Investor Statement on Diversity & Inclusion, released in 2020 by a group of Canadian institutional investors with over $2.3 trillion in assets under management, demanded that businesses disclose their diversity and inclusion policies and practices. The updated ESG Principles and Guidance of the Canadian Coalition for Good Governance, which outlined best practices for ESG disclosure and engagement, was released after this declaration.
Canadian companies have also been improving their ESG disclosure procedures. ESG data is increasingly being included in annual reports by businesses, and some have even started publishing specific sustainability reports. The CSE25 Index, which includes the 25 largest companies on the CSE based on market capitalization and ESG disclosure, was introduced by the Canadian Securities Exchange (CSE) in 2020. Investors looking to invest in businesses with strong ESG performance use the index as a benchmark.
Despite these advancements, Canada still has room for improvement when it comes to ESG transparency and disclosure. While 97% of Canadian companies surveyed reported on at least one sustainability topic, only 48% did so for the three ESG (environmental, social, and governance) pillars, and only 18% did so for their supply chain sustainability practices, according to a report by the Global Reporting Initiative (GRI). Additionally, there is a need for greater standardization in ESG reporting, as various industries and business entities may employ various reporting frameworks or metrics, making it challenging for investors to compare company performance.
In conclusion, regulators, investors, and businesses are all working to improve reporting practices as ESG transparency and disclosure take on more significance in Canada. Although there has been progress, more uniformity and thorough reporting on all three ESG pillars are still required. Companies that are transparent and proactive in their ESG reporting are likely to be more appealing to investors in the long run as investors continue to prioritize ESG considerations.
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