Most Canadian companies have taken to heart the message they need to report their environmental, social and governance (ESG) initiatives. That’s good news given that new regulatory requirements are right around the corner.

When it comes to ESG reporting, “Canadian companies have shown they’re listening and taking action,” says Sarah Marsh, partner, national ESG report and assurance leader, PwC Canada. “More companies have sustainability and ESG reports than ever.”

But what many organizations don’t fully grasp are exactly what disclosures they need to include in their reporting, how to gather that information, ensure it is credible and how to report them.

This lack of clarity is leading many to miss key opportunities with stakeholders who are increasingly seeking comprehensive and measurable ESG reporting. Investors, customers and employees need these metrics to make key decisions — and they’re not satisfied with meaningless statements that are not action-oriented or could be perceived as greenwashing. At the same time, regulators are ramping up their ESG reporting requirements.

The U.S. Securities and Exchange Commission, European Commission and the Canadian Securities Administrators have either already developed or are expected to issue new climate-related disclosures aligned to the Task force on Climate-related Financial Disclosures (TCFD) imminently. PwC is seeing these ESG reporting expectations go well beyond public companies and financial firms as investors and supply chains continue to push ESG initiatives into the private markets. Although these disclosures could be mandated in 2024, Marsh notes 59 per cent of Canadian businesses don’t mention the TCFD principles in their reporting, according to PwC’s 2023 Canadian ESG Reporting Insights report. “There is work to do,” adds Marsh.

Taking a holistic approach

The first thing is that companies should leave behind any siloed approach to ESG reporting they may have employed in the past, says Marsh. Currently, 84 per cent of businesses don’t integrate their ESG performance with financial and risk management reporting, according to the PwC Canada ESG report.

Instead, they need to view the non-financial metrics of ESG elements such as climate change, diversity and inclusion, health and well-being and supply chain management holistically — and report them collectively. “Being clear on that is such an important stepping stone,” says Marsh. “If you’re not able to do this, investors will be challenged to make that investment.”

Organizations also have to stop viewing ESG reporting as a promotional opportunity. While adherence to ESG guidelines certainly puts organizations in a positive light, highlighting vague achievements without providing evidence of concrete sustainability efforts in a firm’s financial reports can backfire.

“This is not a marketing document,” says Marsh. “These are risks that impact your business in both financial and non-financial ways.” She says companies that fully understand that this approach is linked to value creation have the best success with investors. They avoid accusations of greenwashing and prevent reputational fallout.

Targets need credible action plans

Canadian companies also have to identify exactly what ESG targets they want to set and draw up a definitive plan on how to meet those targets, and within what timelines, as per the regulatory requirements. This might involve making a net-zero commitment by tracking greenhouse gas emissions or integrating nature and biodiversity risk disclosures — or by reporting on diversity and gender and LGBTQ2+ inclusion or adopting an Indigenous reconciliation framework.

Part of this process should also be determining what members of the organization will be tasked with these ESG initiatives. Increasingly, businesses are employing the finance function to lead their ESG reporting, capitalizing on their risk management and data collection expertise, as well as familiarity with ever-changing regulatory targets. Marsh says that integrating ESG teams with finance teams for reporting or with operations teams for performance improvement can help organizations successfully identify and address the risks and opportunities facing their organization.

But there still may be a need to bring in external experts. Only 29 per cent of Canadian firms are currently obtaining external assurance of their ESG reports. This means that many are not bringing a gravity and sense of credibility to their ESG disclosures, which stakeholders are looking for. They are also not obtaining critical benchmarking information from external providers about their competitors, which would provide them with key insights on how to improve their own ESG reporting.

Given 2024 is just around the corner, Canadian organizations have no time to lose in developing robust ESG reporting targets. Those who don’t comply with the TCFD disclosure requirement could be subject to regulatory enforcement and potential litigation.

But more importantly than running afoul of regulators, comprehensive ESG reporting may offer firms a competitive advantage, with stakeholders seeing them in the best possible light. 

“This report is for the capital markets and needs to be investor grade,” says Marsh. “But it also has to resonate with other stakeholders inside and outside your organization.

“It has to tell a story about what you’re doing and why.”

This story was created by Content Works, Postmedia’s commercial content division, on behalf of PwC Canada.