Fireside chat: Why ESG matters
Fireside chat: Why ESG matters
Why does ESG matter? MNP’s Mary Larson and Edward Olson recently sat down for a fireside chat at the Women Get on Board Inc. Summit to discuss this subject and share their insights on five key factors emerging in the ESG landscape, including:
- Bill S-211
- Sustainability and data
- Carbon pricing and carbon credit integrity
- Impact of U.S. opposition to ESG and EDI
- Indigenous communities as key rights holders
Why does environmental, social, and governance (ESG) matter — and what are the latest developments in the ESG landscape? MNP’s Mary Larson and Edward Olson recently sat down to discuss this subject during a fireside chat at the Women Get on Board Inc. annual Summit in Toronto.
Women Get on Board is a social-purpose company committed to elevating the next generation of women corporate directors, with a mission to connect, promote, and empower women to serve on corporate boards. This fireside chat was an exciting opportunity to discuss why ESG matters and share insights into five factors emerging in the ESG landscape, including the impact of Bill S-211 and the importance of data in sustainability initiatives.
ESG really does matter
ESG has become table stakes — no matter what industry or sector your business operates in. While Canada has not yet implemented a mandatory ESG disclosure requirement, international guidance exists through the International Sustainability Standards Board (ISSB). Additionally, Canada established its own sustainability standards board to review and make recommendations for sustainability disclosures. While they do not have the authority to set disclosure standards in Canada, their recommendations will inform and guide regulatory bodies. This makes it crucial for Canadian businesses to prioritize ESG in their corporate strategies.
More urgently, suppliers, vendors, customers, investors, and other stakeholders are evaluating the ESG efforts of the companies they work with and may go so far as to refrain from doing business with those that fail to meet their standards. This is already happening. Our advisors described a situation where an organization was given six months to align with the ESG requirements of a customer that accounted for 90 percent of their revenue. Canadian exporters to large foreign customers must align their operations to meet the expectations of foreign markets. This is crucial to prevent economic losses and ensure continued access to capital.
In many conversations, the term sustainability has come to be a more tangible way to think about ESG. Our advisors explained that a focus on the factors of ESG will yield healthy and sustainable businesses and economies. These factors include paying attention to environmental responsibilities, attending to the welfare of employees and communities, and ensuring sound governance and decision making.
What are the latest factors in the ESG landscape?
Bill S-211
Bill S-211, or the Fighting Against Forced Labour and Child Labour in Supply Chains Act, went into effect on January 1, 2024. This bill imposed strict new reporting requirements on Canadian businesses to reduce the risk of child or forced labour in supply chains. In recent months, MNP worked with hundreds of businesses to help them navigate the reporting requirements before the first formal report became due on May 31, 2024.
The International Labour Organization (ILO) estimates there are 28 million people in forced labour globally. Businesses must see this issue as more than just another compliance exercise when considering the negative impact of child or forced labour and its existence in Canadian supply chains. It is a growing issue — and Bill S-211 is an important opportunity for Canada to take the lead in fighting against this injustice by removing child or forced labour from its economy.
Sustainability and data
Sustainability continues to be a key priority as Canada works toward achieving net-zero by 2050 and living up to societal and governmental expectations. As one example, companies in the real estate sector are prioritizing energy-efficient buildings and improving metering to accurately track energy consumption. Additionally, banks are trying to prioritize lending and investing in businesses that are committed to reducing their carbon footprint as part of the sustainable finance initiative.
However, it is challenging to understand and calculate the true carbon footprint of a business — and high-quality data is necessary to calculate emissions. It is also important to note that many businesses are seeking sound data to track the diversity and safety of workers and to determine whether diverse hiring practices lead to more inclusive workplaces over time. Data is vital not only to support informed decision making but to also help businesses comply with future standards.
Carbon pricing and carbon credit integrity
The carbon tax is increasing — and will reach $170 per ton by 2030. Economic feasibility studies and forecasting can help businesses understand the financial impact of carbon pricing and make insight-driven decisions. These decisions may include investing in low-carbon technologies to help reduce future costs.
Additionally, many businesses are using carbon credits to offset emissions. However, due diligence is crucial to ensure that the funds are not being used for other purposes to achieve a genuine reduction in emissions.
The Voluntary Carbon Markets Integrity Initiative and the Integrity Council for the Voluntary Carbon Market are both working to set standards around carbon credits — and have discovered that up to 95 percent of voluntary carbon credit issuers do not meet any of these standards. Board members whose organizations rely on carbon credits as part of their greenhouse gas (GHG) reduction strategy must perform proper due diligence to ensure the credits make a This helps mitigate risks such as potential fines from regulators or litigation from investors if the carbon credits do not prove valid.
Impact of U.S. opposition to ESG and EDI initiatives
ESG and EDI initiatives are facing opposition in the U.S. More than one-third of U.S. states have passed anti-ESG laws, and the governors from 19 states have joined anti-ESG coalitions. Additionally, ESG-related shareholder proposals have failed to gain majority support and new lawsuits have been filed to challenge ESG-related activities and decisions.
However, this reaction against ESG initiatives has not extended into the Canadian business landscape. More organizations are seeking support in creating an ESG or EDI strategy — and in integrating that strategy with their organizational or business strategy. Additionally, more Canadian companies are tracking ESG- and EDI-related data to monitor their progress on achieving their goals.
Canada is not following the approach of the U.S. towards ESG — and should strive to emerge as a leader in ESG practices. A proactive approach toward sustainable and responsible business practices can help strengthen Canada’s position on the global stage.
Indigenous communities as rights holders
Businesses are now recognizing and engaging with Indigenous communities as key rights holders. This means that companies engaged in any type of development are asking themselves how to economically participate with Indigenous communities in a way that generates more value while still respecting the rights of Indigenous peoples.
Consulting Indigenous communities is now a standard practice for businesses engaged in any type of development. Taking the steps to genuinely collaborate with Indigenous communities helps mitigate project delays as well as capital, social, and reputational risks. It also contributes to social and environmental sustainability, upholds good governance practices, and helps achieve positive outcomes for everyone involved.
Take the next steps
If your business needs help creating or refining its ESG strategy, contact a member of MNP’s ESG team. Our advisors have the experience to help you map your ESG journey in line with best practices, ensuring that you meet your strategic and sustainability goals concurrently.
Mary Larson MBA, ICD.D, GCD.D
Edward Olson
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