PwC's 2024 Canadian ESG Reporting Insights finds that very few organizations are ready for CSRD and other disclosure requirements
- More than 4 in 5 companies (81%) do not financially quantify their climate-related risks
- 73% of companies don't fully disclose how they have analyzed and incorporated ESG issues into their long-term strategy
- 62% of companies don't obtain assurance over any of their ESG metrics
TORONTO, Nov. 22, 2023 /CNW/ - Sustainability reporting pressures on Canadian companies are becoming even more demanding and complex, with the new Corporate Sustainability Reporting Directive (CSRD) mandate for companies both inside and outside the European Union (EU), to report on sustainability and environmental, social and governance (ESG) issues.
Many Canadian companies are unaware that CSRD applies to them and of their obligations under it. Companies that are not prepared to meet the new regulatory requirements will find themselves at risk for not just financial penalties but also reputational damage.
To better understand the readiness of Canadian companies, PwC Canada undertook an extensive analysis of the public disclosures of more than 250 of Canada's largest businesses, based on market capitalization and revenue. This extensive study, now in its third year, explored how companies incorporate strategy, materiality, metrics, targets, and other factors into their ESG reporting.
The gaps identified go beyond compliance risks: Businesses that can't answer questions from customers and investors about how they manage their material ESG risks and opportunities in a satisfactory manner—and are unable to produce trusted data to support their narrative—may lose market share and access to financing.
For example, 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). While it's encouraging to see that more than three-quarters (78%) of companies disclose their scope one and scope two emissions, less than half (47%) disclose their scope three emissions—which is an International Sustainability Standards Board (ISSB) requirement.
"Companies are going to have to take a more strategic approach to sustainability disclosures—from developing a comprehensive ESG reporting strategy to making sure that they have clear and robust processes and controls, to monitor their activities. This will help create trusted, investor-grade reporting that helps generate sustained long-term value," said Meghan Harris-Ngae, National ESG Strategy and Advisory Leader, PwC Canada.
New standards and reporting requirements are coming: Many Canadian companies will soon need to file ESG disclosures under multiple ESG standards. These include the CSRD in Europe, which requires businesses to publish their first report in their 2025 fiscal year, and California's Climate Disclosure Rules, which mandate reporting beginning in 2026 on 2025 information.
Additionally, the Canadian Sustainability Standards Board (CSSB) is reviewing the ISSB global baseline for use in Canada, while the Canadian Securities Administrators (CSA) is considering whether—and over what period—these standards should be mandated.
Our study has found several gaps that Canadian companies must address to help meet the new ESG reporting standards. This includes an ISSB requirement for companies to disclose quantitative information on how sustainability-related risks and opportunities affect their current and future financial position and performance. Yet it was found that more than 4 in 5 companies (81%) don't financially quantify climate-related risks in their reporting.
Taskforce on Nature-related Financial Disclosures (TNFD) recommendations: With the release of the Taskforce on Nature-related Financial Disclosures (TNFD), new reporting standards have emerged regarding nature-related risk management and disclosures.
But this remains a nascent area of ESG reporting for many Canadian organizations. Only 6% of the companies in our study mentioned TNFD in their disclosures. And only 7% 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," added Scott Morrison, Partner, ESG Reporting and Assurance, PwC Canada
The TNFD recommendations are grouped under four pillars of the Task Force on Climate-related Financial Disclosures (TCFD) which include governance, strategy, risk management, and metrics and targets. The study found that 38% of the companies do not mention TCFD or only include a limited narrative around its four pillars. There is a lot that needs to be done in this area so that companies can credibly and comprehensively report on their climate-related risks and exposure.
The future of ESG reporting: ESG reporting is an output of a company's integrated corporate and sustainability strategy. Companies that effectively engage their stakeholders can better zero in on their most significant sustainability risks and opportunities. Without it, companies can dilute the value of their ESG initiatives and reporting through unnecessarily long and unfocused disclosures.
When companies get it right, it can help inform better decisions and give companies a strategic advantage by improving their operational performance and increasing their long-term enterprise value.
PwC Canada's ESG Reporting Insights study is a deep dive into the maturity of ESG reporting in Canada. The study includes an extensive analysis that explores the quality of ESG reporting of more than 250 of Canada's top largest businesses, based on a combination of revenues and market capitalization. Relying exclusively on publicly available information, the research team applied the PwC Building Public Trust Insights framework, which gives consideration to leading sustainability frameworks. The framework uses more than 50 questions to assess elements such as strategy, materiality, metrics, assurance and other key components of ESG reporting.
At PwC, our purpose is to build trust in society and solve important problems. More than 9,000 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting, and deals services. PwC refers to the Canadian member firm and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. Find out more by visiting us at: http://www.pwc.com/ca
SOURCE PwC Management Services LP
Anuja Kale-Agarwal, National Director and Head of Communications, PwC Canada, [email protected]
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