Environmental, Social and Governance (ESG) has become a dominant factor for both companies and investors as they try to achieve sustainable growth in their business and investment portfolios. Increasingly, investors are seeking to learn more about the financial impact of climate risk and favoring investments with lower climate risk. For example, last year, there were over $3.2 trillion worth of responsible investment assets under management in Canada, over 48% growth over a two-year period. [1]
Globally, this momentum in ESG investing has surged during and in the post-COVID era. According to Morgan Stanley, ESG indices resiliency in these turbulent times will lead to a surge in sustainable finance in the months and years to come. Major indices such as the S&P500, Dow Jones and EU benchmark experienced a significant and sudden decrease in value while ESG indices proved to be more resilient. For example, the average ESG fund fell by approximately 12% in the first quarter of 2020, half the decrease seen by the S&P500 Index over the same period. [2]
In order to allow them to price risk appropriately and direct investment, investors want to see complete, consistent and comparable data from companies on ESG and climate risk. In November 2020, eight large Canadian pensions, managing $1.6-trillion in assets, called for better and more precise information from Canadian companies on ESG matters. [3]
Other global investors have made recent divestment calls from companies in Canada that are considered laggards on ESG performance. The federal government struck Expert Panel on Sustainable Finance, the Chartered Professional Accountants of Canada, the Government of Ontario Capital Markets Modernization Taskforce, and others have made recommendations to improve ESG disclosure based on the Financial Stability Board Task Force on Climate-Related Disclosure recommendations.
ESG risk will be a determinant for investment, cost of capital, and procurement. As a result, companies have to do a better job at incorporating ESG risk in their corporate strategies and ensure that the appropriate data is being disclosed according to appropriate frameworks and standards.
The Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) standards are considered to be best practice guidelines for reporting on economic, environmental and social indicators. The Task Force on Climate-related Financial Disclosures (TCFD) is a framework that provides a set of principles-based guidance for “HOW” information is structured and prepared, and for what broad topics are covered (e.g. strategy, governance etc.)
At VL Energy, we have deep expertise in ESG matters and offer companies a breadth of services to ensure that their ESG considerations are being strategized and disclosed properly to capital markets. We work closely with companies to understand their corporate situation, conduct data analysis and disclose based on global frameworks and standards.
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