ESG & Talent Acquisition
Navigating the Canadian Senior Leadership Landscape
Years ago, we had “CSR”, or Corporate Social Responsibility, that spoke to the need for corporations to be responsible citizens. The outward-facing task of CSR was to ensure that a company could meet environmental and related governance needs, while the inward-facing task often dealt with company culture and diversity. This phrasing has fallen out of fashion, replaced by “ESG,” or Environmental, Social, and Governance matters and “DEIB,” Diversity, Equity, Inclusion, and Belonging.
ESG concerns comprise the outward-facing relationship of the company to the Earth, to the society in which the company operates, and to the government that oversees that society. In that third arena of governmental and regulatory concern, companies that operate across borders have particular needs vis-à-vis regulatory frameworks.
Canadian companies are starting to take ESG reporting more seriously, although reporting measures are still immature. According to a PWC report, “In Canada, only 8% of companies in our analysis subject their sustainability reporting to the same level of reasonable assurance as their financial statements.” By treating ESG reporting like their financial reporting, Canadian organizations will increase their integrity and value.
At the end of 2015, the Canadian Financial Stability Board (FSB) created the Task Force on Climate-related Financial Disclosure (TCFD). This task force looks specifically at climate-related financial risk reporting to provide stakeholders with accurate, up-to-date information. The TCFD came up with four overarching recommendations. Across governance, strategy, risk management, and metrics & targets, companies should be focused on communicating their efforts and plans of action to deal with organization-specific issues. The main recommendation at this point is transparent conveyance of leaders’ thinking.
However, these recommendations start to diverge depending on the industry. Our following research led us to a more robust series of suggestions that address sector-dependent nuances.
Industry Impacts
Mining/Industrial: The Canadian mining and industrial sectors, vital for the nation's economic prosperity, grapple with formidable challenges in embracing ESG practices. These challenges are rooted in their inherent environmental impacts, stringent regulatory pressures, and the evolving expectations of stakeholders. Mining companies, characterized by energy-intensive operations, resource extraction, and waste generation, have historically left a substantial environmental footprint. As a result, regulatory pressures have surged in response to these concerns, mandating the integration of ESG practices. Amid these challenges, opportunities abound for companies eager to leverage sustainability as a strategic asset.
The challenges facing these sectors are multifaceted. Notably, regulatory pressures coupled with high costs add a strong layer of complexity. Regulators are increasingly scrutinizing ESG claims, meaning that the margins for error are razor thin and getting thinner. Additionally, the cost of water treatment in the mining sector can be up to 10% of operating costs for some companies, and water treatment represents just one dimension of ESG practices.
Water treatment can be 10% of mining companies' operating costs.
However, opportunities abound in the Canadian mining and industrial sectors. ESG frameworks, supported by government initiatives like the Towards Sustainable Mining Initiative and the Canadian Minerals and Mining Plan, offer a path to responsible practices. Innovation, such as investments in new technologies, holds promise. Engaging globally and with local communities is also a key avenue, exemplified by companies like Barrick Gold investing in renewable energy, Rio Tinto improving water management, Teck Resources developing waste-reduction technologies, and Canadian Natural Resources Limited enhancing community relations.
In navigating this landscape, Canadian mining and industrial sectors have the potential to transform adversity into innovation, emerging as leaders in sustainable practices while addressing the pressing challenges of our time.
Tech: Canadian tech companies operate in a distinctive ESG landscape, marked by unique challenges and opportunities, given their broad societal, economic, and environmental impact. There is a growing emphasis on tech firms to align with global sustainability goals, which requires adapting to new compliance, regulatory, and sustainability requirements. For tech companies to be successful into the future, they must develop efficient strategies and targets that decarbonize the industry and place a heavy emphasis on sustainable practices.
In a 2021 survey of sustainability reporting at technology companies, KPMG revealed that 83% of tech firms report on sustainability, compared to 96% of the world’s leading 250 companies. Moreover, about half of tech companies recognize climate change risks in their financial reporting, albeit below the benchmark set by global giants. Only 24% follow TCFD recommendations, and just 44% link carbon reduction targets to global climate objectives. Furthermore, PWC’s 2023 Canadian ESG Reporting Insights article found that 77% of companies don’t disclose a Task Force on Climate-related Financial Disclosures (TCFD) report, 38% of businesses don’t integrate their reporting by combining financial reporting with ESG disclosures and risk management, and 73% of Canadian companies are not obtaining reasonable or limited external assurance of their ESG reports—a powerful step that adds credibility to disclosures.
38% of businesses do not integrate ESG disclosures with financial and risk reporting
Canadian tech companies have a multitude of ways to measure and improve ESG performance through several different frameworks/standards, innovation, and assurance. Canadian tech companies are obligated to adhere to specific mandates related to ESG and climate reporting, encompassing critical areas such as natural capital risk assessment, climate-related disclosures, integrated reporting, and stakeholder engagement. By combining financial reporting with ESG disclosures and risk management, tech companies can reduce ESG risks, improve sustainability performance, and enhance their reputation with stakeholders. Tech companies must educate and align themselves on where they stand within climate reporting, and use industry expertise to gain advantages. On top of that, tech companies need to leverage technology to collect, analyze, and report data. For instance, they can use blockchain technology to create a secure and transparent system for tracking carbon emissions. They can also use machine learning algorithms to analyze data and identify areas where they can reduce their environmental footprint. By adopting these innovative technologies, Canadian technology companies can improve their ESG reporting and sustainability practices while contributing to global sustainability goals.
Consumer: Consumer companies in Canada are grappling with a shifting landscape characterized by both challenges and opportunities in their pursuit of ESG initiatives and sustainability practices. Firms are increasingly attempting to align their business operations with evolving ESG standards and expectations, and effective governance structures can help integrate ESG into corporate decision-making, presenting an opportunity for consumer companies to differentiate themselves by crafting authentic and impactful ESG strategies that resonate with consumers who increasingly seek ethically-driven brands.
Decarbonizing operations poses a significant challenge for consumer companies, particularly as they seek to reduce their carbon footprint across the supply chain, from production to distribution. This necessitates substantial investments in sustainable practices and technologies. Embracing decarbonization is an opportunity for these companies to innovate and adopt cleaner energy sources, ultimately reducing costs and enhancing long-term sustainability. Further, accurate and transparent ESG reporting can be challenging due to the diversity of metrics, frameworks, and regulations. Striking a balance between reporting requirements and the need to communicate meaningful ESG impacts to stakeholders is an ongoing challenge. Consumer companies can, however, leverage this process to showcase their commitment to transparency and build trust with consumers and investors
Identifying and mitigating ESG-related risks, such as supply chain disruptions, reputational damage, or regulatory non-compliance, is an ongoing challenge. However, adept risk management in these areas can protect brand equity and financial stability while also providing opportunities to proactively address issues, demonstrating responsible corporate behavior. In summary, while consumer companies in Canada face numerous challenges in embracing ESG initiatives and sustainability practices, they also have opportunities to position themselves as responsible, forward-thinking organizations that can attract increasingly ESG-conscious consumers and investors.
Talent Challenges in Canada
As Canada's business climate continues to evolve, finding the right senior leaders to guide a business into better ESG practices and reporting increases in importance. ESG leaders won't necessarily be the drivers of increased shareholder return; rather, they are the company's leaders in sustainability and responsibility.
Canada continues to lead North America in broadening the concerns of corporate citizens. Traditional "bottom-line" focus on profitability and growth continues to expand and encompass a broader set of socially positive values. Companies have the opportunity to truly demonstrate commitment to improving the world. While laudable on its own, such an outlook also allows companies to capitalize on employment branding and attract socially-minded talent who will want to stay and build.
