16 minute read
CLIMATE ACCOUNTING
Canadian companies jockey to stay ahead of evolving landscape for sustainability reporting requirements
Arc’teryx chief of staff Drummond
Lawson was part of the team
that started to shift Arc’teryx
toward reducing greenhouse gas
emissions • CHUNG CHOW GLEN KORSTROM
Fast-growing Vancouver outdoor-gear maker Arc’teryx’s executives have long been aware that increasing sales translate into a greater burden on the environment.
Drummond Lawson, chief of staff at Arc’teryx and executive responsible for sustainability, remembers the company having an epiphany about five years ago that set it on its current course as a corporate leader in reducing its environmental impact.
“There was this penny-drop moment,” he says. “We started saying, ‘Actually, our success is part of what’s creating these increased impacts on the environment.’”
Arc’teryx is one of countless companies taking action to reduce corporate contributions to climate change.
What is fueling corporate ambition to lead change is the likelihood that governments, or securities exchanges, will require entities to take action, and to alert stakeholders about the environmental risks companies face.
Lobbying efforts are afoot to have Minister of the Environment and Climate Change Jonathan Wilkinson require federally regulated companies, publicly accountable enterprises and Crown corporations to disclose climate-related financial risks.
Specifically, the aim of some climate change activists is to require those organizations to adhere to a global framework recommended by the Task Force on Climate-related Financial Disclosures (TCFD).
The TCFD is a voluntary organization, but Canadian Climate Law Initiative (CCLI) principal co-investigator Carol Liao says she believes that regulations mandating that companies and other organizations adhere to the TCFD framework, and its recommendations, are around the corner.
Governments in New Zealand and the U.K. have already started to require that companies disclose climate-related financial risks, she says, adding that she believes that it is just a matter of time before this requirement becomes law in Canada.
The international Financial Stability Board, based in Switzerland, created the TCFD in late 2015 to develop voluntary, consistent, climate-related, financial-risk disclosures for companies to use when providing information to investors, lenders, insurers and other stakeholders.
The TCFD then released its final recommendations in June 2017, after consulting global stakeholders.
Its recommendations aim to make markets more transparent and spur capital investment into a lower-carbon economy, as envisaged by the Paris Agreement on climate change.
To help executives stickhandle the legalities of the TCFD framework, the CCLI provides free advice, Liao says.
She equates that advice to being “like a sourdough starter for their climate journey.”
Corporate directors and officers already have an obligation to be proactive, and to critically evaluate and address financial and other risks – as well as opportunities – associated with an evolving climate, she says. “Canadian courts have given judicial notice that climate change is real,” says Liao. “Not many people know that, but judicial notice is when a fact is so well known, and proven, that it cannot be reasonably doubted. So you don’t need to prove to Canadian courts that climate change exists. The courts have already accepted that fact as evidence.”
Court acceptance that climate change is real means that executives could be sued if they do not provide a duty of care to their companies by being open about climate-related financial risks.
Shareholders, for example, could sue if they suffer losses after corporate fortunes tank when executives should have given the public a heads-up.
Liao says some major risks for executives to contemplate, and reveal publicly, include ones that relate to regulatory policies changing. Supply chains could be disrupted, causing shortages and possibly a lack of water, she says.
Warnings to investors should also consider the
Carol Liao is a principal co-investigator at the Canadian Climate Law Initiative, which provides free advice to executives on
how to navigate evolving climate-change reporting requirements • CHUNG CHOW
potential for extreme temperature changes and sea level rises, as well as what those phenomena might mean for employee safety or employees’ abilities to commute.
Companies face the risk of litigation, as well as reputational damage, if they do not take action to navigate the changing climate, she adds.
As for Arc’teryx, its journey to being leader in reducing its impact on global climate change was hastened by the World Resources Institute (WRI) announcing that it planned to create a set of rules for how apparel brands could set sustainability targets based on climate science.
The WRI started working with the Sustainable Apparel Coalition (SAC) – the apparel, footwear and textile industry’s advocate for sustainable production – as the two organizations sought to build guidance for the industry as a whole. “We thought that this was such a good idea that we came on as one of the early partners,” Lawson says.
He adds that the SAC was an effective partner to help the WRI transform the apparel sector because SAC has representation from global giants, such as Nike, Adidas and H&M.
The sector guidelines created by the WRI-SAC partnership were based on science-based targets, which was important because companies could trust that suggested actions would genuinely do some good.
“The science-based targets are very clear rules to say, ‘Are these climate actions by a given company sufficient for them to be on a stable climate trajectory?’” Lawson explains.
That ideal trajectory would be for a company to cause greenhouse gas emissions that will not contribute to global warming greater than 1.5 degrees Celsius of temperature change by 2030, which is the basis of the Paris Agreement.
Arc’teryx’s commitments as part of the science-based targets are to reduce Scope 1 and Scope 2 greenhouse gas emissions by 65% by 2030, compared with what it produced in 2018.
Scope 1 emissions are direct emissions, such as those from a chimney on a factory, while Scope 2 emissions are ones that may take place elsewhere but result from
CANADIAN COURTS HAVE GIVEN JUDICIAL NOTICE THAT CLIMATE CHANGE IS REAL Carol Liao Principal co-investigator Canadian Climate Law Initiative
corporate activity. For example, using electricity at an owned or controlled factory would be a Scope 2 emission.
Arc’teryx’s other commitment is to reduce Scope 3 greenhouse gas emissions by 65% per unit of value added by 2030, from what it produced in 2018.
Scope 3 emissions are indirect emissions, such as those produced by a company that supplies zippers or down.
The key with the Scope 3 target is that Arc’teryx can still increase sales and grow its business – it just aims to reduce emissions by 65% on each subsequent sale.
So far, Arc’teryx has made some concrete steps to meet these targets.
One thing the company has done is buy 100% renewable energy credits. Those are different from buying carbon offsets, because the purchases actually finance renewable energy that is pumped into energy grids, Lawson explains.
Another initiative Arc’teryx has embarked on is the use of lower-impact materials. For example, the company is increasingly buying materials that have dye incorporated directly into the polymer. This differs from buying products that have a neutral colour and have to be dyed.
Energy efficiency is another prong in the company’s emission-reduction plan, and includes next-generation air conditioners and lower-emission lighting.
Finally, Arc’teryx has started a program that Lawson calls its “circular economy.”
The retailer allows customers to sell items back to the company at its stores, at a discounted rate. The items are then sold via a partner online in the U.S.
There is a goal to have these sales be offered to customers in B.C. but so far, the company’s partner, Trove, does not have operations in Canada. “We build our products to a very high standard of durability, and oftentimes they will outlast the first users’ interest in them,” Lawson says. “In our books, that’s a great thing because there’s another user waiting and we want to build an easy marketplace to get the product on to its next use.”
McMillan partner Stephen Wortley (left) and associate Ravi Bains lead the
firm’s new practice group, focused on ESG and sustainability • ROB KRUYT
BRIEF
UNIQUE ESG LAW GROUP LAUNCHES IN VANCOUVER
New practice group caters to international market
The number of companies offering sustainability-focused services and advice has exploded, as boards, corporate leaders and investors increasingly focus on environmental, social and corporate governance (ESG).
Fasken, McCarthy Tétrault, Borden Ladner Gervais and Norton Rose Fulbright are just a few of the many Canadian law firms that house climate change, sustainability, environmental or ESG practice areas, and all have at least one partner in Vancouver.
Last month, McMillan LLP was among the latest to launch an expanded ESG and sustainability practice group. The group is led by two Vancouverbased lawyers who say the group is unique in its approach.
“We will be setting up a one-of-a-kind-in-Canada practice dedicated exclusively to sustainability and ESG,” says Ravi Bains, a McMillan associate and one of group’s leaders alongside Stephen Wortley, partner, capital markets and securities.
To Bains’ knowledge, McMillan is the first Canadian law firm to offer ESG services to an international market.
The group will support entrepreneurs tackling issues related to climate change, help large companies become more sustainable, work with capital providers looking for exposure in the sustainability space and offer government relations, among other services.
“In my experience, a lot of these companies are looking for not only opportunities in British Columbia and the United States, but are looking for advisors that provide that international reach to other markets,” says Wortley.
“Those companies have to have an ESG mindset,” Wortley adds. “The whole cleantech ecosystem in Vancouver is something that really requires lawyers that are comfortable in ESG to advise them.”
THE ROAD TO 100%
B.C.’s new vehicle emissions mandate will help pave the way for emissions-free vehicle sales in 2040
TYLER ORTON
A2020 road trip from Vancouver to Prince George proved markedly different from a year earlier for Michael Stanyer as he rolled through the province in a Volkswagen e-Golf.
He’d made the nearly 800-kilometre journey countless times after moving from B.C.’s north to the Lower Mainland.
The 2019 trip was made in a longer-range electric vehicle (EV), but there was a key difference: the fast-charging infrastructure dotting the landscape had notably filled out over the course of a year.
Stanyer, the program co-ordinator for the Plug In BC initiative that seeks to inform West Coast residents about the EV market, would drive for about 150 kilometres on this trip in the e-Golf before stopping to charge for about 20 minutes on his way to Prince George.
“It’s especially useful to people in my position where I have no shortage of things to do for 20 minutes in responding to emails and such. So doing it in a vehicle like that adds to a person’s trip, but again, if you’re leaning towards an electric vehicle that you’re going to take on road trips rarely, it shouldn’t necessarily deter you. You’re going to add some time to your trip for sure, but you know there’s the benefit of saving quite a lot of money,” he says.
“Some of the anxieties that people have around range are really to do with the number of fast-charging stations that they know are available. And so I think that that rings true. What doing those trips myself illustrated to me is that with the fast-charging station network, those trips are very doable.”
It’s a network more British Columbians will need to rely on in the coming years after the province passed its Zero-Emissions Vehicle (ZEV) Act in 2019, which has set the target of requiring all new light-duty cars and trucks sold in the province to be emissions free by 2040.
The act also calls for 10% of new vehicle sales to be ZEV by 2025 and 30% by 2030.
While Stanyer says it will be a long road getting there, he does not see any red flags indicating B.C. can’t achieve that goal and create the charging infrastructure necessary to support the thousands of new ZEVs taking to the roads.
“The whole world is going that way,” he says.
“There’s a lot of innovation out there that is being used in other parts of the world that we haven’t really had to rely on so far. We’re running into situations where it’s difficult to get power into some remote areas. I think we’ve only just begun to get creative with how to do that, having things like battery backups made from reused EV batteries, once they’re taken out of vehicles, to store power for [rural] charging stations.”
Meanwhile, infrastructure investments have already been ramping up in 2021.
In early March, Ottawa and Bosa Properties committed $275,000 to install 34 chargers at six sites across Metro Vancouver.
Days later, the federal government said it was earmarking $2.75 billion over five years to help the nation’s public transit systems to further electrify.
Part of that money will go towards electric buses manufactured by Vancouver-based GreenPower Motor Co., as well as the infrastructure necessary to support the new vehicles.
Meanwhile, a 2019 report prepared for Transport Canada reveals that of the 31,054 battery-electric vehicles
An EV charging station outside
the Burrowing Owl Estate
Winery in Oliver, B.C. • PLUG IN BC
registered in the country that year, 10,881 were registered in B.C.
The only other province to exceed B.C. was Quebec – which has its own ZEV mandate – with 13,378 registrations.
And while Ontario has three times the population of B.C., it recorded 5,502 registrations.
Unlike B.C. or Quebec, Ontario does not have a ZEV mandate or rebates comparable to those provinces.
California, with a population comparable to Canada, and a dozen other American states also have ZEV mandates. The European Union is seeking to have at least 30 million ZEVs on the road by 2030, meaning the growing number of jurisdictions adopting such mandates is putting further pressure on manufacturers to meet growing demand.
“Demand is relative to the cost so the issue is not supply but supply of affordable ZEVs. Also, most OEMs [original equipment manufacturers] are global and will continue to prioritize supply to the markets that have the biggest demand. As cost comes down for ZEVs sold within [North America], market demand will rise and supply will adjust to meet the demand,” says Mark Cann, CEO and co-chief technology officer of Cryo Energy Tech.
And Stanyer is quick to point out that B.C.’s auto market won’t dictate what unfolds in the rest of the world in terms of manufacturers meeting increasing demand for supply.
As it stands now, the West Coast is not facing any supply issues, according to Blair Qualey, president of the New Car Dealers Association of BC.
“You’ll find some dealership lots have EVs just sitting there, not selling at the moment. So supply doesn’t seem to be as big a challenge as some people might try and make it out to be,” he says.
“Individual manufacturers may have challenges, especially those that haven’t introduced battery-electric vehicles yet. But I think over time, as I said, we’ve got 120 new models by 2023. That’s pretty good selection I think for Canadians and British Columbians.”
He added B.C. has been ahead of the curve for a long time now in terms of adoption, and that dealers are on board with the province’s ZEV mandate.
“Dealers have recognized here in this province for some time that it was a good market for electric vehicles and car dealers want to sell something that people want to buy,” Qualey says.
He hopes there will be an ongoing commitment from the B.C. government in the next budget to provide further financial stimulus – such as rebates – to help drivers make the leap to electric vehicles.
“Nearly every market that has ZEV mandates also has some form of generous incentives or other subsidies,” Cann says.
“Infrastructure is the trillion-dollar question that’s being asked right now. Adoption of ZEVs will require massive upgrades and build-outs in infrastructure and everyone is trying to determine who will get stuck paying the bill.” INFRASTRUCTURE IS THE TRILLION-DOLLAR QUESTION THAT’S BEING ASKED RIGHT NOW. ADOPTION OF ZEVS WILL REQUIRE MASSIVE UPGRADES AND BUILD-OUTS IN INFRASTRUCTURE AND EVERYONE IS TRYING TO DETERMINE WHO WILL GET STUCK PAYING THE BILL Mark Cann CEO, co-chief technology officer Cryo Energy Tech
B.C. NEEDS A ‘BUY CLEAN’ POLICY
Approach could close carbon loophole and support B.C. businesses
MERRAN SMITH AND MICHAEL MCSWEENEY
A Biden administration will undoubtedly mean wide-sweeping economic changes for the U.S. in the years ahead, but it also has big implications for how B.C. does business. While America’s new climate-centric agenda has dominated headlines, it’s just the latest in a series of international climate commitments that are reshaping the global economy and driving demand for products and technologies that will help countries cut carbon. Fortunately, thanks to its nearly fossil-fuel-free electricity grid, B.C. already produces many of the products the world needs to transition to a low-carbon economy. An analysis developed by the Business Council of British Columbia and the B.C. government shows that locally sourced aluminium, cement, copper, lumber and steelmaking coal are all among the cleanest on the global market. The story for Canada is similar: in addition to the above, Canadian iron ore, steel, cement and pulp and paper are among the world’s cleanest.
Despite this, Canada spends more than $7 billion annually on imported steel and aluminum, materials that are typically higher-carbon than domestic options. Here in B.C., the construction of the new Pattullo Bridge replacement, which will cross the Fraser River between New Westminster and Surrey, will not use low-carbon Canadian steel, but imported steel from Asia.
B.C. finds itself in a situation where it imports higher-carbon products at the expense of B.C. and Canadian producers. What can be done about it?
California has shown us a path forward with its “buy clean” law that requires contractors bidding on state construction projects to disclose the carbon emissions in materials like glass and steel.
B.C. needs its own “buy clean” policy that sets standards for the amount of pollution that building materials can produce. Such a policy is key to supporting and growing both old and new industries, the jobs they create and the communities that rely on them.
Not only does buying clean help the province fight climate change, it also gives B.C. businesses – which are often lower-carbon compared to global competitors – a competitive advantage in their own backyard.
Lastly, this approach closes the “carbon loophole” – that is, emissions from producing and transporting goods and materials in jurisdictions with fewer or no regulations to curb pollution (and which bypass B.C.’s carbon price that applies to local manufacturers). Without closing this loophole, which globally accounts for up to a quarter of the world’s greenhouse gas emissions, B.C. and the rest of the world will struggle to combat climate change.
B.C. has already started down the “buy clean” path with efforts to promote the use of low-carbon wood and portland limestone cement in government building and infrastructure projects.
Expanding these first steps into a comprehensive “buy clean” policy would help prevent B.C.’s world-class clean construction products from being undercut, while encouraging the growth of new, cleaner businesses and strengthening our long-term competitiveness.
Faced with a global market that is placing increasing value on clean materials, B.C. must do the same if it wants to catch the eye of our American neighbours while also cutting pollution. In short, it’s time for B.C. to buy clean.
Merran Smith is executive director of Clean Energy Canada. Michael McSweeney is president of the Cement Association of Canada.
NOTHING LEFT BEHIND
EXCEPT A MORE SUSTAINABLE LOCAL FOOD SUPPLY.
At West Coast Reduction, nothing is important to us. Because when there’s nothing left – that’s when we’ve done our job. We collect food waste and by-products from food producers, like farms, restaurants and even supermarkets, transforming them into ingredients used in animal feed, renewable energy, and thousands of to a sustainable local food supply, and help us all live in cleaner and healthier communities.
