Professional services firm PwC Canada released the results from its inaugural ‘Canadian ESG reporting insights study,’ exploring the state of ESG reporting among Canadian companies and analyzing the challenges organizations face with their sustainability disclosure practices. The study indicated that many companies are lagging in the development of their ESG reporting and strategies, even as pressure to disclose on sustainability builds from stakeholders ranging from investors and regulators.
For the study, PwC analyzed the quality of ESG reporting across 150 of Canada’s largest public companies based on a combination of revenues and market capitalization, utilizing publicly available information, and applying the firm’s Building Public Trust Insights framework to assess elements such as strategy, materiality, metrics, assurance and other key components of ESG reporting.
While the report found that while most companies have established sustainability strategies and are working to increase awareness of ESG risks on their businesses, quantification, target setting and reporting are generally lagging. 75% of the companies studied were found to have a sustainability plan, and nearly two-thirds identify material issues in their organizations, only around half (51%) provide short-, medium- or long-term timelines for their ESG targets, and only 41% of companies include sustainability-related information in their annual report beyond a dedicated corporate social responsibility section.
Sarah Marsh, Partner and National ESG Report and Assurance Leader, PwC Canada, said:
“Leaders of Canadian organizations need to understand that transparency and accountability are critical for stakeholders in today’s evolved business environment. Organizations must address the true value of ESG as soon as possible. As stakeholders look for leadership on climate change, social justice and other pressing challenges, Canadian companies that demonstrate how they’re creating value for everyone will gain an edge on several fronts.”
The lack of ESG reporting maturity uncovered in the report comes as companies face growing pressure to provide comprehensive and relevant disclosures on their businesses sustainability risk, impact and progress. A recent PwC investor survey found that 79% of investors said that a company’s management of ESG risks is an important factor in their investment decision making, and 83% want ESG reporting that provides detailed information about companies’ progress toward ESG goals. Regulatory requirements are also likely to push companies to report on ESG as well, following the release of mandate letters sent by Canadian Prime Minister Justin Trudeau in December directing cabinet ministers to move towards establishing mandatory climate related financial disclosures.
Among the key areas of concern for the state of the companies’ ESG reporting practices were materiality and assurance. PwC noted that while stakeholders are looking to companies to identify and disclose ESG risks and opportunities that are material to companies core strategies, only 37% of the companies provide a detailed explanation of the process used to identify material sustainability issues. Additionally, while 73% of investors surveyed said they would want independent assurance of ESG metrics, only one in five of the companies were found to have some type of assurance over their ESG information.
The reporting shortfall appeared particularly acute in the area of climate risk, one of the most heavily scrutinized by investors and regulators. While more than 60% of companies’ reports mention Task Force on Climate-related Financial Disclosures (TCFD), only around one in four companies actually disclose details over each of the 11 TCFD recommendations. Additionally, only 8% of companies disclose quantitative details assessing potential climate-related risks, and 18% report on how climate risk is fully integrated into their overall risk management process.
Mike Harris, Partner and ESG Practice and Net Zero Leader, PwC Canada, said:
“Individuals and organizations are dealing with a growing trust deficit, due to fundamental economic, environmental and societal changes in the world. Organizations that take a more holistic view of incorporating ESG in their business strategies will be able to build brand value and long-term trust, as they look to deliver sustained outcomes.”
Click here to view the PwC Canada report.