Major pension funds are demanding more environmental data about the businesses they've invested in, but most companies are still not giving them key information about things such as energy and water consumption, according to a new review of corporate social responsibility in Canada.
Loblaw Cos. Ltd. , Canada's largest grocery chain operator, tops
The review found only 10 of 60 corporations in the index (17 per cent) disclosed detailed data on four environmental factors assessed in the ranking. Only 25 per cent of those companies provided data on their water use and waste production.
Fewer than half (47 per cent) reported their energy use, while 58 per cent disclosed their carbon-dioxide emissions.
"These four things - energy, carbon, water and waste - are the four things that are the most core and universally applicable indicators," said Toby Heaps, editor-in-chief of Corporate Knights.
Among companies reporting all four criteria, Bombardier Inc. had the best environmental performance, the review concluded. (Read:
The factors used in the assessment - a total of 12 criteria, including governance and social factors - were selected based on their broad acceptance as key ESG ratios, and because they are relevant among all companies regardless of what industry they're in, Mr. Heaps said.
Unlike many other corporate responsibility rankings, the marking system is fully transparent; details of all factors considered are available
Some of Canada's largest pension funds have been urging companies to improve their weak reporting in the environmental realm to make it easier for investors to analyze risks - and some are even using BP PLC's Gulf of Mexico disaster to buttress their argument.
The Canada Pension Plan Investment Board has a five-person team that manages the fund's ESG issues, including its participating in various global reporting initiatives such as the Carbon Disclosure Project, said executive vice-president Mark Wiseman.
Mr. Wiseman said ESG issues are potential investing risks, and CPPIB urges more disclosure from companies to help weigh factors like carbon emissions or social risks.
"We believe these issues are important and go to long-term value," he said. "But the only way we as an investor can assess that impact is if companies provide us with appropriate disclosure around exposures they have."
Doug Pearce, chief executive officer of the British Columbia Investment Management Corp., said as a long-term holder of shares, BCIMC cannot easily sell holdings because of environmental concerns. Instead, it has decided it is better to urge companies to adopt better ESG practices.
"It is a substantive risk component for long-term holdings like ours," he said. "You just need to look at BP - that company is in deep trouble."
Canadian companies are not specifically required to disclose any environmental data about their operations, but regulators do require companies to report on issues "material" to their operations. A new report commissioned by the Ontario Securities Commission concluded that the "materiality" requirement is good enough.
Mr. Heaps, however, said there are some factors that are widely reviewed by investors, including carbon emissions, energy use and lost-time injury rates, so regulators should start by requiring basic disclosure on those fronts where there is little controversy about their relevance.
A number of leading companies in the ESG realm say their voluntary disclosure is still evolving as they set internal standards and targets.
Iamgold Corp. , which finished third in the ranking, is developing a new process to report water usage data, said Ross Gallinger, senior vice-president of health, safety and sustainability at the gold mining company.
As a young company with only four years of history in sustainability reporting, Iamgold can tackle only so many initiatives each year, he said. The company has put particular emphasis on disclosing details of its environmental stewardship, community engagement and community development.
The mining and energy sectors are among the most advanced industry groups for reporting on environmental data, but Iamgold interim chief executive officer Peter Jones said the impetus has come more from community groups than from investors. Many investors are only interested in sustainability issues if a company has a significant problem, he said.
The bigger impetus for mining firms comes from their work in remote or underdeveloped areas where they need a "social licence" to operate from local residents who are most affected by social issues and environmental risks. Iamgold helps finance schools, hospitals, infrastructure and economic development programs such as agricultural assistance in regions where it operates in Africa and South America.
"We want to be welcome there, rather than being a thorn in their side," Mr. Jones said.
Financial services companies are also often ESG leaders, in part because of specific rules requiring banks and insurers to report annually on sustainability factors.
Sun Life Financial Inc. , which finished fifth in the Corporate Knights ranking, emphasizes its philanthropic giving programs in its sustainability report. But the company also places significant emphasis on issues relating to employees and its own environmental footprint, said Michel Leduc, who manages the insurer's ESG issues.
Financial companies in particular face sustainability questions about their investment portfolios, he said. Sun Life has large holdings of real-estate assets, such as office buildings, and has implemented programs to monitor and reduce energy use among its holdings.
Mr. Leduc said the insurer also plans to bolster its scant public reporting of environmental data, but wants to be sure it can confidently measure each criteria before disclosing numbers.
"Having observed the evolution of expectations over the last 10 years, you naturally see that's where it will go - people will expect not only more transparency, but I could see where you would ultimately have to be audited," he said.
While environmental reporting is spotty among TSX 60 companies, Mr. Heaps said it is impressive that a majority of large companies are disclosing their CO2 emissions, a high-profile concern for many investors. And he said scores are impressive on some of the social and governance factors included in the ranking.
For example, 43 per cent of companies in the index now tie a portion of compensation of a top executive to sustainability, and 58 per cent have designated a committee of the board of directors to oversee environmental issues. As well, 62 per cent of companies offer a traditional defined-benefit pension plan to workers - a level far higher than in many other countries.
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