Nura Taef
Partner & Co-Leader for Climate & Sustainability Reporting, Deloitte Canada
Chris Wood
Partner & Co-Leader for Climate & Sustainability Reporting, Deloitte Canada
With ESG disclosure expected to soon become mandatory, it’s prudent for companies to start getting their data house in order now.
Reporting on non-financial information like environmental, social, and governance (ESG) metrics is nothing new. Organizations globally have been voluntarily disclosing on sustainability performance for over two decades. What’s new is a pending shift from voluntary to mandatory disclosure, as regulators and standard setters like the Canadian Securities Administrators, the U.S. Securities and Exchange Commission, and the European Union work to finalize ESG reporting requirements. “It’s an important shift because it aims to increase consistency, comparability and accountability in the reporting,” says Nura Taef, Partner and Co-Leader for Climate & Sustainability Reporting with Deloitte Canada.
While most public companies in Canada report on ESG in some way today, doing so largely remains voluntary. Even if it isn’t mandatory for your business or sector, there are compelling reasons to report on it now and to do it right. “The way we make decisions — how we want to buy, who we want to buy from, and who we want to sell to — has changed, so the standards aren’t changing to lead the way, they’re changing to catch up,” says Chris Wood, Partner and Co-Leader for Climate & Sustainability Reporting with Deloitte Canada. It’s worth keeping in mind as well that reporting requirements could be far-reaching once finalized. Some, like the European Sustainability Reporting Standards could apply even to private companies with operations in Europe.
The way we make decisions — how we want to buy, who we want to buy from, who we want to sell to — has changed, so the standards aren’t changing to lead the way, they’re changing to catch up.
In addition to the new reporting requirements under development, regulators are also increasingly focused on the financial impacts of these non-financial measures. “We need to change the way that we do business if we’re going to meet emission reduction targets. That’s likely to impact profitability and valuations, which affects reporting for things like goodwill today,” says Taef. With more stakeholders relying on ESG reporting to make decisions, there’s also increased risk associated with it. “If we’re ultimately going to evaluate ESG impacts in the same way that we do financial ones, then you’d expect we’re going to want the same level of confidence around the reporting. I think that’s one of the reasons we’re seeing finance organizations play an increasing role in ESG reporting,” says Wood.
Where to go from here
Managing a change of this magnitude isn’t without its challenges and in some cases, companies are reluctant to make changes given that many of the requirements haven’t yet been finalized. “What I usually suggest to clients is that we have a good enough sense of where things are going to land in the near-term, and that in the long-term it’s going to continue to evolve, so waiting won’t really help,” says Taef. While even those companies that are farthest ahead will need to adapt, many are still figuring out where to start, how to get organized and where relevant and reliable data is likely to come from. As a large scale transformation, the most important thing is to figure out who’s in the driver’s seat, what the aspiration is (for instance, strategy vs. compliance), and who needs to be involved to bring it to life. “I think the clients we see as being farthest ahead are those for which pretty much every function in the organization — from day-to-day operations to finance to investor relations to technology, are already at the table,” says Wood.
Want to hear more? Join Chris & Nura at 360 by Deloitte on April 20.
