Environmental, social, and governance (ESG) is rapidly becoming a core pillar of long-term growth and sustainability for organizations globally. In Canada, the adoption of ESG practices and programs are being primarily driven by the following factors:
- The Canadian government has committed to The Paris Agreement, limiting global warming to 1.5° along with their target of net-zero by 2050.
- To help reach this target, a Climate Action Plan has been enacted to reduce emissions and build an inclusive economy.
- It is anticipated that the Government of Canada's focus on the environment and inclusivity will continue to increase over the coming years, which will result in further commitments, targets, and action for all facets of our nation.
- Now, more than ever, investors believe that companies that prioritize ESG investment and action represent better long-term returns. The result: Canadian investors are integrating ESG principles into their investment approach and decision-making processes.
- At the same time, financial institutions and asset managers are evaluating ESG practices, which are directly impacting organizational risk profiles and resulting costs of capital.
- In October 2021, like other global security regulators, the Canadian Securities Administrators (CSA) published for comment proposed climate-related disclosure requirements. In addition, they demonstrated the CSA's commitment to growing the international movement toward mandatory climate-related disclosure standards.
- While currently, public issuers are required to disclose climate-related information if it is deemed material, it is expected that mandatory climate-related disclosure standards will be required potentially as early as Fiscal 2023. This will impact entities beyond public issuers, who will have to consider their entire value chain in developing these disclosures.
- Organizations of all sizes are combating the “war on talent” and the “great resignation” era.
- Focusing on ESG has become an excellent defence to retain talent and a great offence to attract new talent.
- Organizations are focused on maturing equity, diversity and inclusion practices, enhancing employee health and wellness programs, and taking environmental action.
- Today, younger generations are considering an organization's ESG actions with similar priority to financial compensation.
As a result, senior leaders are investing in ESG programs, initiatives, and reporting today.
After factoring in these driving forces, climate change and environmental risks have moved from the bottom of senior leaders risk agendas to near the top, as they believe ESG efforts will be critical for long-term growth.
Not only are they committed to prioritizing ESG risks and opportunities, but they are holding themselves accountable by linking their direct compensation to ESG performance. To enable ESG programs, senior leaders are increasing their spending on ESG programs to set strategies, establish targets and commitments, and create meaningful impact.
Evolving sustainability practices
Benefits of enabling sustainability programs
- Builds organizational image and reputation
- Defines an innovative vision and purpose of an organization by identifying non-financial drivers
- Improves access to credit and the ability to attract investment
- Systematically reports the link between strategy and financial performance, including impacts of ESG factors
- Identifies, monitors, and manages non-financial risks correctly
- Improves data quality for more effective information management and decision making
How to get started
Part of the challenge for many organizations is understanding where to start. BDO's roadmap is not meant to be linear, and the adoption and execution of sustainability will not be the same in any two businesses. In some cases, a company may leapfrog several steps or be forced to join in at the ‘compliant' stage. It is important to keep in mind that this is a journey that will continue to grow in value and importance.
BDO has identified a five-stage maturity roadmap that helps illustrate the sustainability integration journey. It aims to help simplify the complexities of sustainability and promote the value that sustainability integration can create for a business.
BDO's sustainability integration roadmap
Activating
A business at this stage is looking to activate its sustainability agenda by assessing and prioritizing its materiality risks and opportunities through the lens of various stakeholders. The process involves education, training, and a review of the business operations and governance.
Compliant
A business at this stage has elements of a sustainability program in place, albeit on an ad hoc basis because of being reactive and narrowly focusing on responding to regulatory and stakeholder requirements.
Proactive
A business at this stage has adopted a systematic, whole-of-business approach to its sustainability program and is looking to boost value creation opportunities internally and externally.
Strategic
A business at this stage has embedded sustainability across most parts of the company. It is developing products and services, focusing on circularity and technology and ensuring they positively impact the markets where they operate.
Purpose-driven
A business at this stage has embedded sustainability across all parts of its business. It is using social, economic, and environmental criteria beyond what is required by law to positively impact those in its value chain.