2022 and beyond: What is ahead for ESG

State of the Canadian Electricity Industry 2022 Accelerate Net Zero

Theme 2 An Industry Ahead of the Curve: Looking Beyond the ESG Hype

After decades of taking voluntary action to address pressing societal issues, companies will be expected by governments, regulators, investors, and civil society to be more transparent on their annual performance related to material business issues, including direct and indirect greenhouse gas emissions (Scope 1, 2, and 3), and progress on equity, diversity and inclusion at the C-Suite and Board levels.

The pressure to demonstrate meaningful and tangible action by organizations will likely rise rapidly in the years ahead and it will be relentless. With global mega-trends creating a sense of urgency and concern in the public domain, there is now a greater understanding and willingness to introduce new government regulations, link non-financial performance to access to capital, and introduce mandatory disclosure requirements by governments and securities administrators.

The most pressing forces that will drive ESG in 2022 will be the investor community and governments. The rise of impact investing, which considers both financial and non-financial performance, over the last few years has shone a new light on the importance of ESG for many companies, as capital is increasingly tied to non-financial performance. The stock exchanges and securities administrators are also using their powers to address ESG issues through targeted reporting guidance and disclosure requirements. There is also heightened scrutiny from the federal government on disclosure and governance-related issues, especially related to climate change and to equity, diversity and inclusion at the management and board levels of federally regulated companies.

In fact, in the most recent mandate letters issued by Prime Minister Justin Trudeau, he has directed both the Minister of Finance and the Minister of Environment and Climate Change to “move toward mandatory climate-related financial disclosures based on the Task Force on Climate-related Financial Disclosures and require federally regulated institutions, which include financial institutions, pension funds and government agencies, to issue climate-related disclosures and Net Zero plans”.11 As these pressures rise, companies will have to take stock: they will have to review whether they measure and report on relevant and material issues to stakeholders, and whether they have systems in place for good governance and integrated management decision-making.