In today's nonstop news cycle, headlines about Environmental, Social, and Governance (ESG) factors have become ubiquitous. The same is becoming true within global enterprise. Once a niche topic, ESG has now surged to the forefront, becoming integral to strategic decision-making and responsible investment. However, this rise hasn't been without controversy, as critics across the political spectrum dismiss ESG as "woke capitalism" or superficial "greenwashing."

To equip Canadian leaders with the knowledge and strategies necessary to navigate this dynamic terrain, Ivey hosted its first Impact Live event: "The ESG Agenda: Where to from Here?" The first in Ivey’s ESG series, the webinar featured experts Roopa Davé (KPMG), Patricia Fletcher (Responsible Investment Association), Pyarali Jamal (Ivey Business School's Centre for Building Sustainable Value Advisory Council), and Diane-Laure Arjaliès (Ivey Business School). Moderated by Matthew Lynch (Ivey Business School), the panel discussed significant developments in ESG and its impact on business and finance. These are the key insights from their engaging conversation.

ESG is more than sustainability

When exploring ESG factors, it's easy to zero in on sustainability and climate – terms that have almost become synonymous with ESG. While panelists acknowledged that climate tops the ESG agenda, they stressed the importance of not neglecting the other aspects of ESG.

"I would encourage firms to not put on blinders," said Davé.

To effectively integrate ESG priorities into your business, panelists advised leaders to assess their firm and industry's urgent needs and unique characteristics. This understanding is crucial for aligning ESG strategies with an organization’s mission and maximizing the opportunity for robust financial reporting and overall performance.

Education and advocacy are crucial for success

As ESG has become more mainstream, panelists noted a growing misrepresentation of facts and increased misinformation about ESG and responsible investing (RI). Because of this, and the copious amount of conflicting information in this area, investors and stakeholders are consistently seeking greater clarity on sustainable initiatives, their investments, and enhanced policies. Despite new reporting standards being introduced in Canada, significant education and advocacy from invested groups will be necessary to ensure widespread and lasting buy-in.

“…advocacy for standards that inspire trust and confidence in RI, as well as industry education, are huge priorities,” said Fletcher.

New regulations are on the horizon

Critics often dismiss ESG as a passing fad, but panelists assert it's here to stay. Faced with strong investor demand, Canadian asset owners are quickly adopting formal RI policies; establishing reporting frameworks; and increasing disclosures. This has led to a growing level of confidence in RI investing, though concerns remain.

As a result, a global movement for standardized ESG investor information has begun. Guided by insights from the International Sustainability Standards Board (ISSB), the Canadian Sustainability Standards Board (CSSB) will soon implement a structured framework for ESG disclosures in Canada, ensuring consistent financial statements across the country. This global alignment is crucial for advancing ESG reporting, validity, and priorities.

“This is here to stay. It’s being written into law and quickly moving into a compliance space,” said Davé.

Don’t wait to get comfortable with regulated reporting

While the CSSB standards are yet to be fully implemented, panelists urged firms to start familiarizing themselves with comprehensive ESG reporting now.

“Your lenders, investors, customers, employees, and other stakeholders are looking for and assessing ESG metrics – particularly around outcomes,” said Jamal.

Panelists acknowledged that ESG reporting can feel overwhelming for Canadian businesses, especially small to medium-sized firms that make up the majority of Canadian enterprises. However, they encouraged viewing this challenge as an opportunity to enhance practices and even boost profitability. For those new to ESG reporting, they proposed the following steps:

  • Research, analyze, and understand what ESG factors align with your business and industry.
  • Consider your motivation for this reporting: Is it just a business accountability requirement, or does it serve a larger purpose?
  • Review current industry recommendations for reporting from established sources, such as the Sustainability Accountability Standards Board (SASB).
  • Don't do it alone. Leverage insights from finance, legal, internal audit, and even external insurance providers to learn more.
  • Approach ESG reporting differently from standard reporting. Beyond metrics, like jobs created, labor practices, and board composition, focus on the "so what?" to understand the broader impact.

To provide an example of advanced reporting, Jamal said: “If you have an ESG sustainable-focused fund and you’re investing in renewable energy companies, then the fund manager should report the greenhouse gas emissions that their investees have removed or prevented from going into the atmosphere.”

Woke capitalism, or not, ESG is advancing the agenda

While ESG efforts are increasingly gaining acceptance and praise from investors, critics – particularly south of Canada’s border – often label them as "woke capitalism" or “greenwashing.” Panelists, undeterred by this political stance, view this criticism as an opportunity – with a net positive effect.

Arjaliès noted that transitional periods, like the current shift in ESG reporting, often raise questions about legitimacy and goals. She affirmed that this scrutiny can be beneficial and encouraged investors to make a practice of critically evaluating and challenging companies' ESG claims. "Pay attention to these concerns as you make investment decisions," she advised.

In full agreement, Jamal added: “Backlash, whether it’s warranted or not, often helps to focus attention on questionable business processes. Also, how to improve regulations and standards to make them more fit for purpose.”

The Canadian investing community plays a crucial role in driving impact

ESG factors can seem lofty and abstract, leaving investors unsure about the impact of their contributions in this area. However, the panel affirmed that Canadians can drive significant change in sustainability, and social initiatives, through their investments.

Fletcher maintains that “investors have a number of strong tools to help impact the real economy,” particularly through engagement and advocacy. She urged investors to be proactive and unafraid to challenge companies on their ESG transparency and accountability.

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