By Joánri Duursema, Manager of Special Projects, Enserva
In recent years, there has been a growing movement towards mandatory corporate reporting on environmental, social, and governance (ESG) factors. This movement is being driven by several factors, including increasing investor focus on ESG factors and growing public concern about climate change and other sustainability issues, which is translating to governmental pressure to improve corporate social responsibility.
This can be seen in the recent reporting requirement changes in the Corporate Sustainability Reporting Directive (CSRD) in the European Union that will expand the pool of companies required to report by more than 400% and will include North American companies that operate in the EU and meet certain criteria. In Canada, the Canadian Securities Commission is similarly exploring expanded mandatory reporting, with the Alberta Securities Commission (ASC) and British Columbia Securities Commission (BCSC) both announcing plans to implement mandatory ESG disclosure requirements for listed companies. The ASC’s requirements will come into effect in 2023, while the BCSC’s requirements will come into effect in 2024.
As many have already experienced, mandatory reporting in Western Canada is a complex issue with both challenges and opportunities. While these challenges are significant, many companies have also taken up the challenge in creative ways, showing the innovation and resiliency that exists within the people, communities, and companies in the Canadian Energy sector.
Opportunities
Mandatory reporting presents several opportunities spanning all areas of business. According to a study by the Harvard Business School, companies that embrace ESG principles outperform their peers on financial metrics such as return on assets, return on equity, and return on invested capital. Another study by the University of Oxford, found that companies with good ESG performance are less likely to experience bankruptcy and have lower costs of capital. In Canada, a study by the Canadian Chamber of Commerce also found that mandatory ESG reporting could create up to 100,000 new jobs and boost the economy by $100 billion over the next decade. On a day-to-day basis, companies may also see reduced insurance costs, access to capital to support new ‘green’ projects, and better staff retention and engagement.
Challenges
Despite these opportunities, generalized mandatory emissions reporting also presents significant challenges, especially where the criteria will be implemented in a very short timeframe.
One of the biggest challenges is the lack of standardized reporting requirements and industry-informed reporting requirements. There are a number of different ESG reporting frameworks, each with its own set of requirements. Many, if not most, of these were developed without comprehensive consultation with not only large production companies but also the unlisted companies supplying and supporting them. As a result, businesses may likely be put in a position of complying with one standard and arbitrarily not complying with many others.
The cost of that arbitrary non-compliance may include the loss of financing options, insurance for new or current projects, as well as secondary negative impacts on share prices. All of these are materially high costs for arguably very little proven movement towards the UN SDG emissions targets.
Another significant challenge is the cost of compliance. Mandatory reporting requires businesses to collect and report data on their environmental, social, and governance (ESG) performance. This can
be a time-consuming and expensive process, especially for smaller businesses.
The Importance of First Nations Engagement and Development
First Nations peoples in Canada have a long history as stewards of the land and water, and traditional knowledge and practices from those communities are inspiring new ways to engage sustainably not
only with the land and waterways but also with the communities who make their homes. This critical opportunity to recognize and support the continuing work with First Nations communities by, among others, resource industries is not recognized in the current form of mandated reporting.
One of the key lessons that we can learn from First Nations peoples is the importance of taking a long-term view of sustainability. This has been recognized by many First Nations communities in Canada
and some, like the National Coalition of Chiefs, have even gone so far as to translate these principles, and others, into suggested engagement criteria that can be used to expand the currently limited view of sustainability. Mandated reporting, if intended to function as a tool to measure the impact of emitting industries, must account for overall impact beyond base emissions.
Case Studies
Despite these challenges, many companies have already started innovating to decrease their impact and improve the environments in which they operate. Examples of this can be seen in Secure Energy’s large abandonment, remediation, and proclamation projects for pipelines and wells in Western Canada as part of the Alberta Site Rehabilitation Program.
Another such project is one with Pimee Well Services, owned by six First Nations, including Frog Lake in northeastern Alberta, to reclaim wells in and around First Nations and Métis Settlements while making use of allocated federal funding.
A Calgary start-up, Carbonova, is building a facility to make carbon nanofibers from captured CO2 and methane. The resulting material is slated to be lighter, stronger, and more flexible than steel and has potential uses in batteries, electric vehicles, concrete, tires, reinforced plastics, and semiconductors, among others.
Conclusion
Mandatory reporting for ENSERVA members in Western Canada is a complex issue with both challenges and opportunities. The conversation around a more sustainable future is one that everyone should be active participants in to create a future in which we can all work and thrive. It also needs to be a broader conversation, not just about emissions – but more broadly about the total impact. By engaging actively with traditionally high-emitting industries to create and enforce properly consultative and informed standards, the opportunity for incredible innovation within those industries to create solutions few others can will be enabled.
Scovan is committed to its ESG strategy and making a positive impact on our environment and our community
Originally published in Scovan’s IGNITE Vol. 7
