Less than half of Canada’s major carbon emitters have adopted net-zero targets, and none have committed to aligning their capital spending with plans to reduce greenhouse gases, according to a report from Climate Engagement Canada (CEC).
CEC, which comprises 41 of the largest asset managers in Canada, with $5.2 trillion under management, assessed 41 of the top emitters that trade on the Toronto Stock Exchange on their climate-related commitments, disclosure and governance. The benchmark, released in December, found that 44% percent of these companies have established a qualitative net-zero target that covers all or nearly all of their direct operations – meaning more than half have not. And most have no short-term emission-reduction targets.
“However, the lack of 1.5C-aligned short-term targets suggests that additional work is required to demonstrate credible net zero transition strategies,” CEC said in the report.
The CEC investors – who typically have their own climate-related targets – will use these results to inform their engagement with the companies in order to help drive the transition to a net-zero economy.
“By providing a comprehensive and comparable view of a company’s progress against the net-zero transition, the CEC Net Zero Benchmark enables constructive, action-oriented, and ultimately measurable, dialogue between investors and key Canadian corporate emitters,” said Barb Zvan, chief executive of University Pension Plan Ontario (UPP) and chair of the CEC steering committee, in a statement when the benchmark was released.
Among the laggards are Hamilton-based Stelco, whose parent company U.S. Steel is being acquired by Nippon Steel. Stelco has made virtually no climate-related commitments, CEC says. Alimentation Couche-Tard, based in Laval, Quebec, fares little better with only partial marks for disclosure of climate-related financial risks and governance but no emission-reduction targets.
Canadian National Railway gets top marks for adopting a net-zero target with long- and medium-term commitments. However, the company has not aligned its capital plan with those targets and only gets partial marks on disclosure.
The benchmark report does not assess corporate performance but rather tracks whether they have made certain commitments. CEC intends to add performance measurements in its upcoming work, says Delaney Greig, vice-chair of the group’s technical committee and director of investor stewardship at UPP. “This is a disclosure benchmark, so we’re able to assess what they have disclosed,” she says. “They are disclosing things in documents that are considered by the securities regulators to be corporate disclosure, so there is a duty to represent things accurately.”
However, there is plenty of room for interpretation in disclosure documents. On January 9, Investors for Paris Compliance – a watchdog group – filed a complaint with the Ontario Securities Commission and Quebec’s Autorité des marchés financiers alleging misleading disclosure by Canada’s “big five” banks regarding their sustainable finance activities.
“There is utility in the company-level assessments” of the CEC benchmark, says Matt Price, executive director of Investors for Paris Compliance, in an email. Although it is only a snapshot, it helps groups like his and other analysts hold the firms accountable for their stated commitments.
The lack of 1.5C-aligned short-term targets suggests that additional work is required to demonstrate credible net zero transition strategies.
- Climate Engagement Canada
The CEC’s focus companies represent a cross section of the Canadian publicly traded corporate world, including oil companies, public utilities, transportation companies and manufacturers. Some of the country’s largest oil and gas emitters – Suncor Energy, Teck Resources and Canadian Natural Resources – are not covered because they are assessed by a parallel international effort, the global Climate Action 100+. Cenovus Energy is the largest oil company in the benchmark; it gets partial marks for net-zero ambitions, long-and medium-term targets, and disclosure.
Banks are not included because they are not big emitters themselves, even though they are major financiers of emissions.
Perhaps the biggest gap revealed by the benchmark is the failure of companies to align their capital expenditures with their emission targets. None of the 41 companies have explicitly set capital budgets that support their climate targets.
“It’s important to know whether CAPEX [capital expenditure] is aligned. That tells you where they are headed,” notes Ralph Torrie, director of research at Corporate Knights.
For its Global 100 list of sustainable corporations released in January, Corporate Knights tracked sustainable capital investment and sustainable revenues at thousands of publicly traded companies with at least US$1 billion in revenue. Greig says that CEC is working on similar metrics but is hobbled by the lack of a Canadian taxonomy that provides guidance as to what constitutes a green or sustainable activity.
The goal of the CEC benchmark is to support the work of CEC participants in their engagement with companies, Greig says. “I would say most of the companies have been quite receptive to conversation; the next step is getting some outcomes,” she says. “The benchmark is key in helping to sharpen the engagement dialogue.”
Price says that engagement has a place, and Investors for Paris Compliance has had productive talks with a number of financial companies.
“But if the company is dug in, or if its business model depends on not changing, then engagement won’t do much,” he says. At that point, regulation is required.
