CALGARY Aug. 11, 2021 – Over the past five years, the rise of Environmental, Social and Governance (ESG) reporting has been meteoric. As the hype around potential benefits intensifies, so too has the skepticism in some circles as to what it can actually accomplish. As is often the case, the reality is somewhere in the middle.
Today, the Canada West Foundation and Canadian Energy and Climate Nexus released a new report, ESG and the Canadian Energy Sector. The report found that Canada’s energy sector is increasingly taking up Environmental, Social and Governance (ESG) reporting, but not across the board and not equally among companies – and widespread confusion remains about the most effective way to report on specific ESG metrics.
Rapid changes, including international efforts to consolidate the dizzying array of ESG frameworks, guidance from regulatory bodies and stock exchanges, and efforts by companies to find what works and what doesn’t, may help clear the air around ESG reporting. Governments also have a role in supporting strong ESG performance, through publishing objective data and implementing policy frameworks that complement companies’ net-zero targets, according to the report.
The study presents the results of a semi-quantitative investigation into ESG/sustainability reporting practices across the Canadian energy industry, based on public information gathered from 149 companies across four sub-sectors: oil and gas companies, wind and/or solar providers, electric utilities and pipeline companies. The analysis found that all of Canada’s largest oil and gas and electric utility companies provide ESG reports, but the percentage drops off substantially among smaller oil and gas producers, renewable energy companies, smaller utilities and pipeline companies. While all the international majors produce a public ESG report, fewer than half provide any detailed information about their Canadian operations. Companies also take very different approaches to reporting on specific ESG topics.
The report concluded that ESG reporting may increase access to lower-cost capital, improve the company’s operational and managerial performance, lower material risks and impacts, map a path forward, and enhance brand and reputation. But alongside the hype about ESG, legitimate criticism also remains. While more and more capital is being directed by sustainability performance—a whopping $40.5 trillion globally in 2020 alone—a sizeable amount of investment is still made using only financial criteria, absent ESG. Additionally, there is doubt about whether ESG can create a meaningful difference in climate, environmental or social outcomes, or whether ESG reporting focuses on relatively trivial issues and misses the larger picture
It is important for investors, governments, NGOs and others to temper their expectations. But there is a strong business case for Canadian energy companies to embrace ESG reporting, flaws and all, and demonstrate how they intend to build successful businesses in a more sustainable world.
“Canadian energy companies are at the centre of lightning-rod issues such as climate change, environment, Indigenous rights and reconciliation, economic prosperity and sustainable energy. ESG reporting is one way for companies to tell different audiences about how they perform in these areas—but a lot of companies are still cutting their teeth on learning how to do it well.” – Marla Orenstein, co-author, Director, Natural Resources Centre, Canada West Foundation
“More Canadian energy companies are getting on board with ESG reporting, but confusion remains about how to get it right. At this critical time, companies, investors, governments and others need to have accurate, non-biased information that allows them to adopt an effective and meaningful ESG approach.” – David Milia, Director, President & CEO, the Canadian Energy and Climate Nexus
“ESG is a new acronym to an old concept, also known as ‘license to operate’, which ensures that companies have a social acceptance to carry on with their activities. This concept has an even greater role now as companies face accelerated energy transition and increased stakeholder pressures and government regulation. As globalized standardized ESG metrics are yet to emerge, this report highlights the benefits and shortcomings of ESG, and how Canadian energy companies may respond.” – Dinara Millington, co-author, Founder and CEO of 17insight Inc.