Demand for Better ESG Oversight and Disclosure in Canada

Stephen Erlichman is a partner at Fasken Martineau DuMoulin LLP. This post is based on his Fasken memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here);  For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).

Two Notable ESG Developments in Canada

Many Canadian public companies have been accused of being slow to disclose environmental, social and governance (“ESG”) factors that are material for their companies’ long term sustainability. In November, two notable developments occurred which should focus Canadian boards of directors and management on how directors oversee material ESG factors at their company and how their company discloses those material ESG factors to its shareholders.

Joint Statement of Leading Canadian Pension Fund CEOs

 On November 25, the CEOs of eight leading Canadian pension plan investment managers, representing approximately $1.6 trillion of assets under management (namely AIMCo, BCI, Caisse de depot et placement du Quebec, CPP Investments, HOOPP, OMERS, Ontario Teachers’ Pension Plan, and PSP Investments), joined forces to issue a joint statement calling on companies and investors to provide “consistent and complete” ESG information in order to “strengthen investment decision-making and better assess and manage their collective ESG risk exposures”. These eight CEO’s stated that they “believe companies demonstrating ESG-astute practices and disclosure will outperform over the long-term” and that the pension plans they manage will “allocate capital to investments best placed to deliver long-term sustainable value creation”.

If companies wish to attract capital from these eight large Canadian pension fund managers, as well as from the many other Canadian and international institutional investors that also make investment decisions tied to how companies deal with their material ESG factors, then boards and management of these companies should take heed of the aforesaid joint statement about ESG risk oversight and disclosure.


On November 12, Institutional Shareholder Services (“ISS”), the world’s largest proxy advisory firm, announced its proxy voting guidelines updates for Canada for shareholder meetings taking place on or after February 1, 2021 (the “2021 ISS Guidelines”). In the 2021 ISS Guidelines, ISS has added “demonstrably poor risk oversight of environmental and social issues, including climate change” to its list of examples of failure of risk oversight. ISS generally recommends voting against or withholding votes from individual directors, committees or the entire board, under extraordinary circumstances, where there has been, among other things “material failures of governance, stewardship, risk oversight, or fiduciary responsibilities at the company”. Prior to the new 2021 ISS Guidelines, ISS’s examples of failure of risk oversight included only bribery, large or serial fines or sanctions from regulatory bodies, significant adverse legal judgments or settlement, or hedging of company stock.

Accordingly, Canadian directors are being forewarned by ISS that, for the first time, it is tying its voting recommendations on directors specifically to how individual directors, committees or the full board oversee climate change and other environmental and social (“E&S”) issues as part of their overall oversight of risk.

Background: The Canadian Perspective on ESG Disclosure Regimes

There are a myriad of voluntary ESG disclosure frameworks, standards and metrics that exist worldwide, including: CDP Global (formerly the Carbon Disclosure Project); the Climate Disclosure Standards Board (CDSB); the Global Reporting Initiative (GRI); the International Integrated Reporting Council (IIRC); the Sustainability Accounting Standards Board (SASB); the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD); and the United Nations Sustainable Development Goals (SDGs). There also are various industry specific disclosure frameworks, standards and metrics. Several of the aforesaid organizations announced this year they are going to work together to try to ease the confusion by creating an ESG disclosure regime which hopefully will result in ESG disclosure that is some combination of clear, coherent, consistent, comprehensive, complete, concise and comparable.

Because there are so many ESG disclosure frameworks, standards and metrics that exist worldwide today, an important question for management and boards of Canadian public companies that wish to start the ESG disclosure journey, or to redirect what they are currently doing in regard to ESG disclosure, is what disclosure regime do key stakeholders in Canada want Canadian public companies to follow. The following is a brief chronological description of recent statements by key Canadian stakeholders that provide some guidance.

  1. In May 2018, the Canadian Coalition for Good Governance (CCGG) published The Directors’ E&S Guidebook (the “Guidebook”) in order to assist public company directors in assessing and overseeing E&S factors and to assist companies in their disclosure of E&S matters. The Guidebook recognizes the TCFD’s disclosure framework as a good model for companies when contemplating their approach to E&S disclosures to shareholders. It further highlights that the TCFD’s approach was “developed with climate change risk in mind but has applicability across all material business risks and organizational types.”
  2. In June 2019, Canada’s Expert Panel on Sustainable Finance (the “Panel”) delivered its final report. The Panel noted that “TCFD is in many respects a private sector framework to uniformly assess risk and opportunity. While not in the Panel’s remit, consultations suggest that, over time, Canadian companies should use the framework to consider broader sustainability issues. This view aligns with the recommendations in the Guidebook.” The Panel continued on, stating that “The Panel heard that while a number of prominent issuers are already reporting or preparing to report in line with the TCFD framework, there are barriers to immediate widespread adoption. These center around: compliance timeframes; lack of data and expertise for proper risk assessment and scenario planning; cost and capacity of smaller issuers to adopt; lack of knowledge support in the professional ecosystem; and legal risk associated with reporting forward looking information, especially in mainstream financial reports.” The Panel’s three recommendations in this area were to: 1) “Endorse a phased ‘comply-or-explain’ approach to adoption of the TCFD framework in Canada”; 2) “Provide clarity to issuers on the recommended scope and pace of TCFD implementation”; and 3) “Work with federal, provincial and industry partners to clarify the materiality of climate-related financial disclosures”.
  3. In May 2020, the Government of Canada announced the Large Employer Emergency Financing Facility as part of its COVID-19 economic response In order to access this financing facility, employers must commit to publish annual climate-related financial disclosure reports consistent with the TCFD framework.
  4. In June 2020, CCGG stated that it is “recommending that both issuers and investors move toward implementing the recommendations of the TCFD” and that it is “the first time that CCGG has formally recognized a third-party framework as a best practice”.
  5. In June 2020, two representatives of staff of the Ontario Securities Commission participated in a Fasken webinar entitled “ESG Disclosure under Canadian Securities Laws”. In response to a question about a seemingly growing convergence around the TCFD disclosure framework, OSC staff commented that they have started to see some Canadian companies provide aspects of the TCFD disclosure on a voluntary basis and that “as the disclosure of climate change-related risks and financial impacts matures and becomes more prevalent, staff believe a gradual convergence in disclosure practices is likely”.
  6. In July 2020, the Canada Pension Plan Investment Board (“CPPIB”), which manages Canada’s largest pension fund with over $450 billion of assets, announced the June publication of its updated policy on sustainable investing, “reflecting [CPPIB’s] increased conviction in the importance of considering environmental, social and governance (ESG) risks and opportunities amid an increasingly competitive corporate operating environment”. CPPIB stated that its updated policy “reflects the growing body of evidence showing that companies that integrate consideration of ESG-related business risks and opportunities are more likely to preserve and create long-term value” and then stated that the policy “specifically outlines [CPPIB’s] support for companies aligning their reporting with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD).”
  7. In July 2020, Ontario’s Capital Markets Modernization Taskforce (the “Taskforce”) published its initial consultation report setting out 47 proposals. The Taskforce noted that “both issuers and investors have expressed concerns about the lack of a standardized framework” for ESG disclosure and stated that “Currently, two widely prevalent frameworks exist that have global support and meet investor needs for concise, standardized metrics on material issues”, being the SASB framework and the TCFD recommendations. The Taskforce proposed mandated disclosure of “material ESG information compliant with either the TCFD or SASB recommendations for issuers through regulatory filing requirements of the [Ontario Securities Commission]” and, “[w]here feasible, the proposed enhanced disclosure will align with the global reporting standards of both TCFD and SASB”.
  8. As mentioned above, in November 2020 the CEOs of eight leading Canadian pension plan investment managers issued a joint statement calling on companies and investors to help drive sustainable and inclusive economic growth, and in their joint statement made the following request: “We ask that companies measure and disclose their performance on material, industry-relevant ESG factors by leveraging the Sustainability Accounting Standards Board (SASB) standards and the Task Force on Climate-related Financial Disclosures (TCFD) framework to further standardize ESG-related reporting. While the SASB standards focus broadly on industry-relevant sustainability reporting, the TCFD framework calls for climate-specific disclosures across several reporting pillars (governance, strategy, risk, and metrics and targets). Both are useful to investors and informative to companies working to frame their ESG reporting.”


In light of these developments, as the 2021 proxy season approaches and companies are preparing their proxy circulars, annual reports and other disclosure documents, it is time for management and directors of Canadian public companies to consider if and how they wish to start, or to redirect, their ESG disclosure and ESG risk oversight journeys. Because of the myriad of ESG disclosure frameworks, standards and metrics that exist today, a key decision for boards and management will be whether to follow what is becoming an emerging consensus around the TCFD framework and SASB standards. By focusing more attention on the oversight and disclosure of ESG factors that are material to the long term sustainability of their companies, directors can avoid negative voting recommendations from ISS and also can make it easier for their companies to attract capital from Canadian as well as international institutional investors that are integrating ESG factors into their investment decisions.

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