It is this information that Corporate Knights’ annual Best 50 ranking counts on.

But many companies falling under that $2-billion threshold, as captured by our Future 40 Responsible Corporate Leaders in Canada ranking, are arguably taking sustainability disclosure just as seriously. More importantly, they’re showing a willingness to catch up to their larger peers.

For example, year-over-year disclosure across a number of metrics – specifically, energy use, GHG emissions, water consumption, and waste generated/recycled – has improved considerably for the 83 companies that formed this year’s Future 40 short listed.

Of this short list, 84 per cent disclosed energy consumption, versus 71 per cent a year earlier. An impressive 85 per cent reported GHG emissions, compared to 73 per cent in 2014. (If we zero in on just the Top 40 corporations, only two companies were found not to disclose GHG emissions this year, compared to seven last year.)

Waste and water indicators showed relatively lower disclosure rates, but still big year-over-year improvements. Nearly half – 48 per cent – disclosed water consumption, compared to 39 per cent the year before; and 51 per cent reported how much waste they generated, versus 44 per cent the year earlier. Within the waste category, reporting on waste recycling also improved – to 45 per cent from 34 per cent.

“One can only speculate on such impressive year-over-year improvements, but it’s likely that smaller companies are beginning to take their cues from Canada’s corporate giants,” said Michael Yow, director of research at Corporate Knights Capital. “The message is getting out that, at some point in time, this information will have to be disclosed. The leaders in this group are being proactive, and for some, it’s just the right thing to do.”

As the trend works its way down to smaller companies, it opens up more opportunities for socially responsible investors and their portfolios, Yow added.

Signi Schneider, vice-president of corporate social responsibility at Export Development Canada (EDC), which topped this year’s Top 40 ranking, said one of the best investments her organization made was assigning and training one person who thoroughly understood the disclosure requirements of the Global Reporting Initiative, which promotes global standards for sustainability reporting.

“It’s really pushed our level of disclosure,” said Schneider, suggesting that companies that don’t currently have a dedicated person give it some consideration. “It might not be as expensive as they think.”

For companies on the larger side, it’s not that significant of an investment to try to benchmark internal reporting to the GRI, she added. “It has been an excellent annual exercise for us. It forces you to have a conversation about who’s accountable for this information.”

The information that makes up the Future 40 is collected from publicly traded companies that disclose their environmental, social and governance data either through CSR/sustainability reports or some other publicly accessible medium. That data is aggregated by organizations such as Bloomberg. For non-publicly traded companies, we rely on reports identified by the GRI.

Corporate Knights considers the Future 40 as a kind of farm team that feeds future sustainability leaders into the big leagues of our Best 50 ranking. In this respect, the Future 40 offers us insights into how performance on the Best 50 might change over time.

Ultimately, our aim is to get small and medium-sized companies in Canada to start asking questions that will become increasingly important to their businesses as they grow: How do we use resources? How do we assure good governance? Are we treating employees and the communities in which we operate fairly and respectfully?

Answering these questions transparently, and reporting the data that supports those answers, isn’t just the future of sustainable business – it’s the future of business.

Big companies = Bigger CEO pay day?

The difference between Corporate Knights’ Future 40 ranking and its Best 50 ranking has to do with the size of the companies represented. To be on the Best 50, companies need to have at least $2 billion in revenues. Under that, companies fall into the Future 40.

We decided this year to zero in on CEO pay relative to average worker pay. Is the gap, on average, larger in the Best 50 universe compared to the Future 40? Some industry groups simply don’t disclose this information. However, we were able to draw comparisons between six industry groups that met our disclosure threshold: energy, financials, industrials, materials, telecom services and utilities.

As you’ll see below, CEOs of big companies on average make substantially more than their smaller peers, when measured against average worker pay. Shocking? No surprise? Visit Facebook.com/corporateknights and tell us what you think.

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The Equator Principles, established in 2003 and now into their third iteration, are voluntary and self-regulatory standards for responsible project finance. As a risk management framework for lenders that is very much a work in progress, the standards impose certain environmental and social obligations on borrowers.

So far, 79 financial institutions from around the world have signed up, including seven from Canada. EDC, a federal export credit agency, is the only Canadian bank that sits on the organization’s steering committee, an indication of how seriously it takes the principles.

But Signi Schneider, vice-president of corporate social responsibility at EDC, said international project financing has become a murkier business since the Equator Principles were created.

The path to the financial crisis of 2008 is littered with intricate financing mechanisms, such as asset-backed securities, which are risky precisely because of their lack of transparency. Similar instruments are being used for international project financing, she says, and they’re becoming increasingly complex.

“A decade ago, building a port might have always been financed through a particular kind of financing structure that allowed for getting to the heart of that port’s environmental impacts,” Schneider said. “That’s changed massively. It’s not as obvious, compared to 10 or 20 years ago, what the long-term ethical and sustainability questions are.”

It’s not that EDC doesn’t ask the questions; it’s that it doesn’t always get the answers – let alone the right answers. For this reason, Schneider is supportive of efforts that encourage organizations to embrace the disclosure of sustainability performance. Corporate Knights’ Future 40 ranking and the data it collects is a valuable example, she said, of how transparency is rewarded and recognition is given to those who do it well.

“We see the utility of being more transparent ourselves, and we appreciate going to the source and getting good information and not having to ask additional questions, especially on environmental matters,” she added, pointing to EDC’s dealings in Russia, where getting information about the environmental practices of a company or project is like pulling teeth.

Not that all projects are black holes of information. A massive refinery project in Turkey, where EDC led a $3.3 billion (U.S.) financing in December, was found to exceed standards based on the Equator Principles. Not a “clean” project per se, but not as “dirty” as it could be.

Asked whether there are certain projects EDC simply won’t invest in, Schneider said the bank doesn’t have a do-not-invest list, but issues such as carbon risks are increasingly being considered during project evaluation. “There’s been movement. People are talking about things differently,” she said. “Just because you don’t see a large pronouncement doesn’t mean there’s not a thriving debate going on.”

The story is different where EDC has more direct control. Embracing sustainability disclosure is part of that. The bank has been putting out a comprehensive corporate social responsibility report for nine years. In 2009, it declared transparency, climate change, and human rights as strategic priorities.

It has proven an important source of financial support for Canadian clean technology companies looking to export products and services deemed too risky for traditional banks. With 1,150 full-time employees, EDC has also nurtured a culture of sustainability within its own ranks – starting with leadership from the top.

“Being a responsibly run company is at the core of sustainability, I really believe that,” said Benoit Daignault, president and chief executive officer of EDC since February 2014. “I’m fortunate in that EDC already has strong governance and CSR policies, so my impact is really about making sure that we live those policies day to day.”

Schneider credits the employees at EDC for really embracing a sustainability mindset. She said multiple departments in the bank are responsible for different sustainability performance targets, “a testament to the fact that everybody is committed.”

Where weaknesses are identified, people in the company have shown a willingness to step up. Gender diversity is one example. “We’ve been working on this for a number of years,” said Schneider. “There was a feeling we needed to work more on diversity issues, so women leaders at EDC took it upon themselves to ask: What can we do to start supporting this particular issue?”

As for its primary purpose as an export credit agency, the bank broke ground last winter by issuing its first green bond, raising $300 million (U.S.) to support Canadian firms (and their products and services) tackling climate and environmental issues in other countries.

Schneider said the green bond is an example of how the company is willing to experiment where others won’t – even if it proves challenging. “We just kept plugging away to see if we could make it work,” she said. “There is a supportive atmosphere here for people doing things a little bit unconventional, and that’s moving the stick forward for our organization.”

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“I will always remember her saying, ‘How am I going to do this? Why is it so expensive?” Brochu recalls.

That incident made it clear to Brochu, vice-president of business development at the time, that the company had to do something to help out struggling customers.

In 2001, Gaz Métro became the first natural gas distributor in Canada and the first energy distributor in Québec to implement an energy-efficiency program that encouraged its customers to use less of a product it profited from.

Brochu eventually became the company’s chief executive officer in 2007. Since joining Gaz Métro 10 years earlier – and after 25 years working in the energy industry – her passion for serving people and finding solutions to Canada’s energy problems has not waned.

No wonder Brochu, 51, is asked often to enter politics – a request she dismisses as out of her character. “I spend quite a lot of time with MPs, ministers and deputies. I see all the compromises they have to make and everything that’s involved,” she told the Montreal Gazette last fall. “It’s not for me.”

Instead, Brochu believes she can achieve more as head of Quebec’s largest gas utility. And she’s doing this by speaking out on touchy subjects. She’s openly adamant, for example, that Canada needs a national energy policy, even though the last round of talks failed miserably more than 30 years ago.

She was also the first industry leader to speak publicly against TransCanada’s proposed Energy East project, which aims to transport over one million barrels of crude oil from Alberta and Saskatchewan to refineries in Eastern Canada.

It’s not that she doesn’t support western provinces in their bid to get Canada’s oil to foreign markets. What she’s critical of is TransCanada’s proposal to convert parts of its gas pipeline network to oil. Brochu argues the plan will lead to gas shortages and higher prices for Quebecers, which would threaten economic development.

It is unusual for the CEO of a natural gas utility to publicly challenge another energy company, let alone one of its key suppliers. But putting the customer first runs in the blood of the company, says Brochu.

Knowing the passion that she brings to her job, it is no surprise that Gaz Métro ranked in the top 10 of Corporate Knights’ Future 40 ranking for the second year in a row. We sat down with Brochu to talk about the company’s approach to sustainability, the future of energy in Canada, and the role women can play in transitioning to this future.

The following conversation was edited for length and clarity.

CK: How does Gaz Métro make decisions about sustainability?

BROCHU: We look at environmental goals as if society were immortal. We ask, “If we were immortal, would we still consume energy?” Yes we would. Would we consume it at the rate that we are? We don’t believe so. Would we invest in new technologies now instead of waiting until we lack petroleum? Of course.

I’ll give you another example. Ten years ago we said, “One day people will produce energy out of domestic waste.” We had seen the start of the science. So we started to look at what others were doing. There were not that many examples, but we stuck to our guns. And last Friday, the Quebec energy board authorized Gaz Métro to buy bio-methane produced in municipalities close to Montréal. The municipalities will take waste, put it in a digester, produce biogas, treat it and inject it into our network to heat homes. If we hadn’t started to think about that 10 years ago, we wouldn’t be here today.

CK: You must get a lot of pushback from other companies and the public. How do you deal with that? How do you “stick to your guns”?

BROCHU: Yeah, we stick to our guns. When new things are launched, they cost a little bit more. So, first we work within the size that we are. And then we choose what is most important to our customers. We start from the customers’ needs because if you do it from the top down, it gets very difficult.

For example, in Vermont we produce electricity with cow manure. And we give our customers the choice. Obviously if you take cow power, it’s a bit more expensive than the grid. But you know what? We don’t have enough. Many people are perfectly fine paying a higher price in order to be able to light their houses with the cow of their neighbour. But this wouldn’t work if we imposed it.

CK: When it comes to energy efficiency, it seems counter intuitive to encourage customers to use less gas.

BROCHU: To be completely transparent, we didn’t do it for environmental reasons. You know, 15 years ago, politicians were not talking about climate change. Nobody was talking about that. But for us it was very obvious that our goal in life was to have as many customers as we could, and once they’re hooked to have them consume as less energy as possible.
So it’s a weird business when you think about it. We’re putting solar panels on the walls of our customers so they can preheat the air before it enters the building and it helps them reduce their consumption of natural gas. And we still do it today even though gas prices are very low; we have not slacked at all in our efficiency programs. We actually have deployed efficiency programs to half of our customer base.

CK: You are a strong advocate for a national energy policy. Why?

BROCHU: I would say a national energy approach. There was a proposed national energy policy that was ill conceived in 1984. The idea was for oil to be cheaper, and Alberta went berserk – rightfully so. Since then, every time we have started to talk about a national energy policy, it’s like asking people that have been burned to dance around fireworks. They don’t want to do that.

The result was that we started to develop independently. Every province started to do things north-south; started selling their energy to the United States. We had very little talk and need for one another. But now, the United States doesn’t need us as much. All of a sudden we’re looking at one another and saying “Oh, you need to move your oil across the country to reach the coast?” We need to start talking amongst ourselves. But we cannot do in three months what we have not done in 30 years.

CK: Would you say it’s a good idea to work from the consumer up on a national energy policy as well?

BROCHU: You’re touching a fundamental point. When we have big discussions on energy in Canada, we rightfully think and talk about energy production, which is very important. But there are customers using energy and we don’t talk about them. Ninety per cent of the energy efficiency achieved in our country last year was by the customer. And at the end of the day, the customer pays the energy bill. And they care. So we need to start from the reality of the people in this country and work our way up, not the other way around.

CK: Let’s talk about the initiative you’re working on with other female leaders. Why did you start this project?

BROCHU: Yes, we just launched L’Effet A. We’re five businesswomen and we give ourselves five challenges that we need to complete in 100 days. The goal is to stimulate other women to pursue their ambition. We believe women have as much ambition as men, but for one reason or another, women see ambition as almost pretentious. Ambition can be a positive fuel or a negative fuel, which is true for men as well as for women. I have this deep conviction that as women start leading, we are allowing many men to be closer to who they are. We’re giving everybody permission to be who they are. But business has been so mainstream, so black and white.

CK: What role do you see women playing in the energy industry?

BROCHU: I started my speech about Energy East by saying “I am for this project,” and I finished my speech saying, “This project is very important to Canada.” But in between I say, “There is something that doesn’t work.”

I’m sad to see that there are some stakeholders, especially out west, who feel that I am viciously opposed to this project. They say, “You’re either for us or against us.” And I say, that’s bad, bad, bad, bad. If we cannot have a nuanced approach to these big projects, we’re going to have a problem. And I think that the discussion nationally is about nuance. And I think nuance is something that women tend to be more comfortable with.

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To establish the Future 40 shortlist, the research team identified all Canadian companies with revenues under $2 billion or maintaining fewer than 2,000 employees in 2013.

The methodology for the 2015 Future 40 Responsible Corporate Leaders in Canada ranking is based on 12 key performance indicators (KPIs) covering resource, employee and financial management. All information is derived from publicly-disclosed data. All eligible entities are contacted for data verification prior to project completion.

Click here to download a comprehensive powerpoint presentation outlining the complete methodology.

KPIs:

1. Energy productivity: Revenue per gigajoule of energy consumption.

2. Carbon productivity: Revenue per metric tonne of direct/indirect GHG emissions.

3. Water productivity: Revenue per cubic metre of water withdrawal.

4. Waste productivity: Revenue per metric tonne of non-recycled waste produced.

5. Percentage tax paid: Taxes paid in cash, as a percentage of EBITDA, trailing over the past 5 years.

6. Leadership diversity: Percentage of women on board of directors and in executive management.

7. Clean capitalism pay link: At least one senior executive’s compensation tied to clean capitalism-themed performance targets.

8. CEO-to-average worker pay link: How much more CEO gets paid (expressed as a multiple) compared to average worker.

9. Safety performance: Lost time injury rate and number of fatalities/number of employees.

10. Innovation capacity: R&D expenditure as a percentage of revenue, trailing over the past three years.

11. Employee turnover: Number of departures/average employee compensation.

12. Pension fund status: Unfunded liabilities at year end 2013 by market capitalization are divided by market capitalization at year end 2012, or expenses towards defined contribution plans.

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