Information provided by companies on environmental, social and governance (ESG) issues is not always clear or relevant to investors. Accountability for ESG criteria could take a giant leap forward in 2022, and part of the efforts in this direction will be in Montreal.
There is a lack of uniformity in the information voluntarily disseminated by Canadian companies, notes Roger Beauchemin, President and CEO of Addenda Capital. As an example, he describes his team’s efforts to compare two Canadian pipeline operators. One included its subsidiaries in its ESG report, the other did not. “It takes a lot of work. We could not compare with the data provided. We must then engage in discussions with management and dig deeper and understand. “
Last spring, the Canadian Securities Administrators (CSA) reviewed the practices of 48 large Canadian companies from different industries. In this sample, 92% presented information on the risks associated with climate change. On the other hand, “only 59% of the information presented on the risks was relevant, detailed and specific to the entity, and the rest was boilerplate, vague or incomplete”, concluded the organization, which brings together the authorities of the provincial markets.
A new international organization in Montreal
This is why the creation of the International Sustainability Standards Board (ISSB), announced within the framework of the COP26, in November, gives rise to great hopes. The ISSB must set environmental financial disclosure standards for all companies, globally. Its headquarters are in Frankfurt, Germany, but the organization will also have an office in Montreal, which is slated to open at the start of the year.
The results of its work are expected by the end of 2022. “What this standard will allow to do, if everyone adopts it, is that everyone will report the same cases”, explains Marie- Josée Privyk, Head of ESG Innovation at Novisto, a platform that helps companies analyze their data in order to adopt ESG practices. “So it’s comparable, it’s measurable. We can do an analysis from that. “
The fact that the IFRS Foundation oversees the ISSB “is not trivial”, adds the expert. The nonprofit created IFRS accounting standards, which have become a standard for accounting for companies in 166 countries. “It is sure that this will make it possible to consolidate the other standards and repositories. “
New rules in 2022
Having uniform standards would pave the way for a more restrictive regulatory framework, believes Mr.me Privyk. “What is happening at the same time is that there is a mobilization of regulators to make sustainability disclosures mandatory. Decisions or reflections in this direction are taking place in the United Kingdom, the European Union, the United States and New Zealand, in particular.
In Canada, the CSA have introduced draft regulations regarding disclosure by publicly traded companies about climate change. The consultation period is open until January 17. “We are looking for comparability with more substance,” explains Hugo Lacroix, superintendent of securities markets at the Autorité des marchés financiers. That’s what investors have told us, they need more comparable information. “
With respect to the mandatory nature of ESG disclosure, the CSA have submitted two options for consultation. Companies may have a choice between disclosing certain information and having to justify why they do not. The second option is to force them to disclose their direct greenhouse gas emissions, which in the jargon is called “field 1 emissions”.
The CSA also plan to issue a new guideline for mutual funds that advertise themselves as having ESG characteristics. It should be published in the winter of 2022 and it will draw on the work of the CFA Institute carried out earlier this year, says Lacroix.
With this guideline, the market authorities would not intervene in the definition of what would constitute a good or a bad ESG strategy, nuance Mr. Lacroix. “We will give examples of good practice on all the elements that the funds must already fully explain and disclose in the document they provide to investors. It is not an intervention where they are told: “This is what sustainable finance or an ESG product is.” “
The guideline could still “be very beneficial” for individual investors, believes Marie-Justine Labelle, responsible investment practice leader at Desjardins Société de placement.
She notes that “several funds” identify themselves as ESG, but that the use of the acronym does not mean that the strategy meets the expectations of savers in terms of sustainable development and social responsibility. The publication of a guideline could help make the information clearer for investors, she said.
“Sometimes all ESG means is that when an ESG criterion can have an effect on the financial performance of the company, it is considered as a whole in the investment decision, but it does not mean not to say that it is just companies which have good practices which are in this fund ”, warns Mme The beautiful.
Avoid wall-to-wall
With the effort to standardize ESG data, it will be necessary to avoid falling into a wall to wall and leave room for human reasoning, warns Bouchra M’Zali, professor in the Department of Strategy, Social and Environmental Responsibility of the School of management sciences, affiliated with UQAM. “There needs to be a degree of malleability in the stakes, because we cannot standardize everything. “
She gives the example of child labor. She cites the case of a company that split the schedule of its child employees into two stages. Half of the day devoted to work and the other half to schooling paid by the employer.
However, this way of doing things would probably not pass the test of an inflexible evaluation grid, even if the company were to fill a need in a country where there was “no social safety net for families”. “I’m afraid that we pick up things that are good in the North, that we can hardly apply in the South”, explains the professor, who also holds the African Chair of innovation and sustainable management, associated with the Mohamed VI University, Polytechnic, in Morocco.