Canadian organizations are nowhere near ready for the new environmental, social and governance standards and reporting regulations, a study finds.
With the new Corporate Sustainability Reporting Directive (CSRD) mandate, sustainability reporting pressures on Canadian companies are becoming demanding and complex. The mandate requires that, by 2025, companies both inside and outside the European Union have to disclose information on risks and opportunities related to sustainability and ESG issues.
However, many Canadian companies are unaware that CSRD applies to them. Companies that are not prepared to meet the new requirements could be at risk of financial penalties, while also damaging their reputations.
To better understand the readiness of Canadian companies, PwC Canada conducted an analysis of the public disclosures of over 250 of Canada’s largest businesses, based on market capitalization and revenue.
Key findings revealed that more than 81 per cent of organizations do not financially quantify their climate-related risks.
Over 70 per cent of companies don’t fully disclose how they have analyzed and incorporated ESG issues into their long-term strategy, and 62 per cent of companies don’t obtain assurance over any of their ESG metrics.
The report found that investors are interested in knowing more about companies’ exposure to climate risks, and expect them to reduce emissions from their own operations (scope one and scope two emissions) and their supply chain (scope three emissions).
The study has found that while 78 per cent of companies disclose their scope one and scope two emissions, less than half of them disclose their scope three emissions — which, according to PwC’s study, is an International Sustainability Standards Board (ISSB) requirement.
Another standard, Taskforce on Nature-related Financial Disclosures (TNFD), requires companies to report nature-related risk management and disclosures.
TFND says this guidance “will enable business and finance to integrate nature into decision making, and ultimately support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.”
However, when it comes to ESG reporting in Canadian companies, only six per cent of the organizations in PwC’s study even mentioned TNFD in their disclosures. And just seven per cent disclosed the business impact of their nature-related dependencies, risks, opportunities, and impacts.
“The need to act on nature and biodiversity is moving up the business agenda. Stakeholders recognize that most companies depend on nature and want information on how they protect the water, land, and biodiversity of the regions in which they operate,” said Scott Morrison, partner, ESG reporting and assurance at PwC Canada.
When it comes to the future of ESG reporting, the study notes that companies that effectively engage their stakeholders can better zero in on their most significant sustainability risks and opportunities. And without effective ESG reporting, organizations risk lessening the importance of their ESG initiatives through long and unfocused disclosures.
Overall, the study said, ESG reporting can help create better decisions and allows for more organized planning when it comes to long-term goals for the company.