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Canada’s largest public companies falling behind on ESG: PwC Canada

Caroline Gadbois, the director of ESG reporting and assurance at PwC Canada, said there is incremental progress on ESG reporting in Canada's 250 largest public companies, though there is still significant room for improvement. (Courtesy PwC Canada)

PwC Canada reports over 70 per cent of the country’s 250 largest public companies do not obtain external assurance for their environmental, social and governance (ESG) reports, nor do they disclose climate-related financial information.

In conclusion, it finds they are making slow progress on corporate sustainability reporting.

The report, 2023 Canadian ESG Reporting Insights, applied PwC’s framework for assessing ESG reporting maturity to the public disclosures of Canada’s top 250 publicly traded companies by revenue and market capitalization.

Though companies are taking ESG reporting more seriously due to pressure from stakeholders, investors and regulators, PwC Canada found these firms are still lagging on key ESG metrics and assurance, despite the greater interest.

“The pressure comes from different stakeholders . . . When you have clients that ask you to provide some ESG data, that’s impacting the business and profitability, as well as the investors," Caroline Gadbois, director of ESG reporting and assurance at PwC Canada, said in an interview with SustainableBiz.

"There are different financial instruments on the market like green bonds and sustainability loans, and when you have this kind of financial instrument, you need to have ESG reporting in place.”

Falling behind on ESG reporting

PwC Canada found 77 per cent of the surveyed companies do not disclose a Task Force for Climate-related Financial Disclosures (TCFD) report. The TCFD is a globally-recognized framework to help public companies effectively disclose climate-related risks.

PwC Canada says most Canadian companies may fall behind mandatory reporting based on the TCFD framework.

Thirty-eight per cent of companies do not integrate their financial reporting into ESG disclosures and risk management.

The state of ESG reporting may also raise problems about credibility and trust. PwC Canada found 59 per cent of the companies only tell the positive side of their ESG reporting and 73 per cent do not obtain external assurance for their ESG reports.

Despite the urgency to reach net-zero by 2050, only 30 per cent of the surveyed companies have net-zero targets.

PwC Canada also identified gaps in integrating climate-related risk management. Only 48 per cent of the companies included in the report disclose their process for identifying, assessing and managing climate risks. Just 22 per cent include climate change scenario analysis in their ESG reporting, despite it being part of TCFD disclosure.

Reporting on ESG key performance indexes (KPIs) remained a struggle. Though half of the companies provide historical data for each KPI, 22 per cent disclose their targets, 26 per cent set specific targets, 27 per cent have clear time frames for achieving their targets and 44 per cent describe the progress toward their targets.

Gadbois said progress remains slow because Canada has no regulations for ESG reporting, unlike some European countries that fared better.

Progress on the S of ESG

Gadbois said the surprise of the report was the evolution of policies around the social aspect of ESG: “We saw an increase of the policy around LGBTQ+, so that’s good news.”

Companies outlining LGBTQ2+ inclusion policies increased from 18 per cent in 2020 to 28 per cent in 2021. But companies disclosing gender diversity policies plateaued at 56 per cent — identical to 2020 — and only 25 per cent say they can set and report against measurable targets.

Just 19 per cent have an Indigenous reconciliation action plan, though 38 per cent disclosed policies around Indigenous relations such as training and up-skilling programs in 2022 (up from 27 per cent in 2021).

Comparing industries

The report then contrasts the averages from the report across several Canadian sectors. PwC Canada looked at: banking, financial services and real estate; construction, transportation and industrial manufacturing; energy; health care; mining; power and utilities; resources; retail and consumer markets; technology; and telecommunications.

The financial sector is playing key role in ESG reporting, according to PwC Canada. Banking, financial services and real estate exceeded all the averages with 53 per cent disclosing a net-zero target, 66 per cent providing historical data for each KPI and 41 per cent producing a standalone TCFD report.

Gadbois said the financial sector is leading in ESG reporting because it has more maturity in the field. She added most financial institutions get assurance reports for their ESG report, which is not the case for other industries.

The energy sector, power and utilities and telecommunications also landed above the average. Gadbois said this was because those sectors face more government regulations, and the telecommunications sector is subject to peer pressure to lead on ESG reporting.

The underperformers were health care, mining, resources, retail and consumer markets as well as technology.

She said the gap exists because there is less peer pressure in these industries to be at the forefront of ESG reporting. Data collection might also be more difficult, but Gadbois anticipates with new regulations in the coming years, it "will help to have a strong ESG reporting for those industries."

The paths to progress

Though the state of corporate ESG reporting is still inconsistent, PwC Canada says there are positive signs ahead.

There is greater standardization of ESG reporting frameworks for a more cohesive global blueprint. Gadbois said regulators like the International Sustainability Standards Board and U.S. Securities and Exchange Commission are planning for new frameworks in coming months.

“When we have regulations in place, that will help our companies to have clear guidance to follow," she said. "At this time, we have several frameworks so it’s quite difficult for our companies to understand what they need to disclose and how regulations will help companies have a clear disclosure to follow."

The positives are that more companies are establishing net-zero targets, the finance function is stepping up to increase data collection, and adoption of ESG reporting is increasing.

"ESG is a topic we are talking about more and more, so I think the pressure from all stakeholders will increase the pressure that our companies will have to have strong ESG reporting.”

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