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How to navigate the ESG space as an investor

Retail Sustainability Conference focused on importance of standards and data

From left, Sarah Thompson, managing director of sustainable finance at Royal Bank of Canada; Jonathan Duguay-Arbesfeld, the managing director of investments at the Canada Infrastructure Bank; Samer B. Kamal, CEO of Minus Global International; Michael Jantzi, member of the International Sustainability Standards Board; Alyson Slater, managing director of sustainable investment and public markets at Manulife Investment Management. (Tyler Choi, Sustainable Biz Canada)

Leading figures from Canada’s ESG data and finance sectors sought to offer advice about navigating the challenges surrounding ESG-focused investing at the Retail Council of Canada's (RCC) inaugural Retail Sustainability Conference.

Michael Jantzi, a member of the International Sustainability Standards Board (ISSB) and founder of Sustainalytics recalled the time he spoke at RCC events over a decade ago and mostly saw confusion in the crowd when he mentioned ESG. Now everyone is well aware of ESG in an “exciting and messy time.”

Despite the fogginess around ESG, there are ways to address the challenges, he added.

“It’s going to take collective action, collective efforts to build capacity building, and that’s what I find exciting. We’re all playing our part in that, we all have our roles. It’s just about timing and whether or not that urgency is picked up.”

Preparing for impending ESG standards

At the 'Decoding ESG Reporting for Tomorrow’s Investors' event, Jantzi summarized the state of sustainability disclosures, and the importance of communicating sustainability to investors, lenders and other firms.

Two ISSB standards were announced in June 2023 with a focus on decision-useful information that is financially material to a business. Frameworks and standards such as the Task Force on Climate-related Disclosures and Sustainability Accounting Standards Board were consolidated within the ISSB so Canadian businesses would have alignment on which disclosure framework to use.

The first standard is IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, which establishes a conceptual framework for sustainability-related disclosures of risks and opportunities to investors. Going a step further from other sustainability disclosures, IFRS S1 expects disclosures to include how risks and opportunities affect current and anticipated financial results.

IFRS S2 revolves around disclosures for climate-related risks and opportunities, such as business resiliency in the transition to a low-carbon economy. It encompasses reporting on Scope 1, 2 and 3 greenhouse gas emissions as well.

The Office of the Superintendent of Financial Institutions, Canada’s bank regulator, will be aligning its climate disclosures with IFRS S2.

Jantzi said the ISSB is well on its way of "reaching our objective of being a global benchmark or global baseline for sustainability disclosures around the world.”

The standards were endorsed by International Organization of Securities Commissions (IOSCO), a global association of securities regulators. Jantzi called it an important endorsement because the ISSB believes the sustainability disclosures will be regulated in jurisdictions like Canada. The IOSCO stamp of approval can commence this process by indicating the standards are fit for capital markets.

To ease the disclosures process, ISSB is creating a digital reporting taxonomy that will launch on Jan. 1, 2024, which is also when the standards will be effective.

How investors are supporting ESG

At the ‘Unlocking ESG Success: The Investor Perspective’ event, representatives of investing companies spoke about how ESG is becoming embedded into investing, and the obstacles impeding the sector.

Alyson Slater, the managing director of sustainable investment and public markets at Manulife Investment Management, said ESG is integrated into its financial decision-making and its engagement as a shareholder. She has met clients who want to align their capital with climate solutions and the low-carbon economy.

Manulife, she said, boosted the automation of its compliance teams, which screens for ESG factors and will flag a company if there is a lack of disclosures.

The Canada Infrastructure Bank’s (CIB) Jonathan Duguay-Arbesfeld, a managing director of investments, said it is ultimately an impact investor representing one shareholder: the federal government, which has given it a multibillion-dollar mandate to reduce greenhouse gas emissions.

“We’re willing to find paths and ways to make that happen,” Duguay-Arbesfeld said.

The CIB is structuring its financing to incentivize companies to go further on decarbonization through deep retrofits. If a client seeks better rates on funding for a retrofit, it needs to be more ambitious about its greenhouse gas reductions.

The importance of data

A persistent matter raised by the panelists was the struggle to obtain more accurate ESG data.

Jantzi, who also spoke at the 'Unlocking ESG Success' event, said investors want to understand a company’s exposure to the value chain through its Scope 1, 2 and 3 greenhouse gas emissions, especially Scope 3.

Slater described the current period as the “greenwashing era,” with difficulties in aligning capital with green principles and systemic challenges. With greater scrutiny from clients and regulators, there is a need for proof, with more data and transparency as a key part of the solution.

Duguay-Arbesfeld said the public needs to be better educated overall.

“I think everyone knows something is wrong, something has to be done,” he said. People are shocked when they hear about actual recycling rates, he noticed, which shows there is room to improve for ESG education.

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