-As the fourth global oil and gas producer, Canada will be scrutinized and potentially loose investment unless it becomes more ESG compliant

-While Canada continues to be one of the climate laggards, recent government and capital market actions signal a change of posture towards sustainability and ESG

Regulators around the world, particularly in the European Union and in the United States, are taking action to ensure that Environmental, Social and Governance (ESG) are streamlined in business and investment processes. They are enforcing new regulation that will require corporations to disclose their sustainability and social impact indicators and footprint, to ensure that all are playing their part in transitioning towards a more equitable, inclusive and less carbon intensity society. The United States has been playing catch up since President Biden won the elections in 2020 but has played an important role to reinvigorate the climate dialogue nationally and internationally. The Security Exchange Commission (SEC), the US capital market watchdog, is playing the leading role to ensure that environmental risk is properly priced into assets, and investors are fully aware of each company environmental score. On March 21, the SEC issued a proposed climate disclosure rule that would require public companies to disclose their greenhouse gas (GHG) emissions and other climate change risks.

Canada regulators, policy makers and legislators, are playing catch up as well, and national investors are increasingly seeking ESG benchmarks and disclosure metrics, to balance their opportunity and risk. Furthermore, Canadian pension funds are starting to prioritize sustainability in their future investment criteria as these are believed to significantly contribute to value creation. Some promising efforts are also visible in the Canadian banking sectors, where the Canadian Imperial Bank of Commerce has embraced sustainability by investing in renewable energy to boost its competitiveness.

As of recently, the Canadian government leadership has showed that it is determined to move towards mandatory climate financial disclosures. This is a key step to also accomplish Canada’s decarbonization objectives outlined at the UN climate summit COP26 that took place in Glasgow in November 2021. More concretely, Canada aims to reach net-zero by 2050, and 40 to 45% by 2030.

The new regulations will require federally regulated institutions to report on their ESG indicators to ensure a steady transition towards a more equitable, greener, and inclusive economy.  This will require financial institutions, pension funds, and the broader private sector, to issue climate-related disclosures and net zero action plans to ensure that all steps towards the sustainability and net-zero emission are trackable and achievable.

Furthermore, new measures are being prioritized to ensure a progressive decarbonization of the overall economy:

• Accelerate investments towards achieving a net zero electricity system by 2035
• Ensure that 50% of light duty vehicle sales be zero emission vehicles by 2030
• Start phasing out fossil subsidies from 2025 to 2030
• Introduce investment tax credits for capital invested in Carbon Capture and Storage
• Create incentives for energy producers to move away from coal altogether by 2040

The opportunity ahead

More than ever, consumers, workers, and investors are making their decisions based on sustainability, trust, and positive societal externalities. They want to buy from, work for, and invest in businesses that demonstrate positive impact on people and the planet.

As one of the world’s largest oil and gas producers, Canada is expected to ramp-up its ESG and sustainability efforts to maintain its competitiveness and prevent significant divestment from its oil and gas operations. ESG offers Canada’s regulators the ability to help corporation define their core environmental and sustainability metrics, track their progress towards those goals, and foster trust with key stakeholders through enhanced transparency.