There has been less fanfare around finance at the UN Climate Change Conference this time around, but it is very important to keep the global momentum from Glasgow. Are we making progress in Canada? While there is a lot of goodwill in the financial industry, and a significant amount of capital flowing to address the climate crisis, we are being held back for a variety of reasons.  

For a start, we need to do a much better job of assessing and disclosing the risks Canadian companies face due to climate change – both the costly devastation brought on by climate-related events, such as floods and fires, and the economic challenges of transitioning to a net-zero world.  

This is essential for Canadian competitiveness and the proper functioning of Canadian markets. It is also necessary for companies to develop their own plans to reduce emissions and adapt to a changing climate. Canadian and global bodies are currently drafting regulations for this kind of reporting, and this issue will eventually affect every Canadian company.  

Financial institutions, including Canada’s largest pension funds, have indeed taken a leadership role, issuing rare joint statements in 2020 and 2021 that advocated for companies to provide climate-related disclosures to the highest global standards.  

We need to do a much better job of assessing and disclosing the risks Canadian companies face due to climate change.

Organizations such as Chartered Professional Accountants of Canada have been vocal supporters of international standards for disclosures and helped lay the groundwork for the Montreal location of an office of the International Sustainability Standards Board (ISSB) earlier this year. Also, we are seeing that more Canadian companies are recognizing the importance of climate-related disclosures, and doing some really heavy lifting on preparing reports. 

However, as a new analysis by the Institute for Sustainable Finance (ISF) shows, we have a long way to go in terms of providing the reliable, consistent, comparable and accessible climate-related data that is essential to make real progress. 

The ISF report found that less than half of the largest TSX-listed corporations provided meaningful climate-related risk reports during 2020, and beyond the largest public corporations, such reporting barely exists at all. There is also a need to improve the quality of climate-related reporting, which is mediocre on average among the companies that do provide such information and varies significantly.  

More broadly, as previous ISF research has demonstrated, a majority of Canada’s publicly listed companies are reporting on their greenhouse gas emissions, but progress seems to have stalled. And while more companies are setting targets for reducing their carbon footprints, we are lagging behind other jurisdictions.  

What can be done when it comes to climate-related disclosures?

There is a key role for regulators to play, and climate-related reporting should be made mandatory, as we currently do with financial disclosures. The Canadian Securities Administrators issued proposed regulations for climate-related disclosures around this time last year, but there were some noticeable gaps, as the ISF identified at the time.  

And we have since seen more stringent standards proposed globally by the ISSB, as well as the Securities and Exchange Commission in the U.S. We need to ensure that reporting in Canada is in line with global standards, so as not to disadvantage both our capital providers and the companies themselves that require capital at attractive market prices to prosper and remain competitive. 

Mandating high-quality reports will mean more and better climate-related data, as well as improved access to data that already exists. We know that there is a hunger in the market among practitioners and sustainability experts for better data. Both public and private providers of corporate sustainability data should take note. 

There is also a significant need to improve both education and leadership that illustrates the importance of such disclosures to both users and preparers of this information, with an increased emphasis on best practices.  

We can mitigate climate change and adapt to the effects of a warming world. And business and finance in Canada have a major role to play in getting there. But we are still too often flying blind on the risks and opportunities of a changing climate and a transformed economy. That needs to change. 

Sean Cleary is chair of the Institute for Sustainable Finance (ISF) and professor of finance at the Smith School of Business at Queen’s University.  

Pamela Steer is president and CEO of Chartered Professional Accountants of Canada (CPA Canada) and a member of the ISF Advisory Board. 

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