CHAPTER 03 Corporate Governance
ESG CONSIDERATIONS There has been a continuing rise in the prominence of environmental, social and governance (ESG), or sustainability-related, factors in the fields of corporate governance, asset management and institutional investing, both in Canada and internationally. The markets were quick to respond to the focus on ESG – for example, a 2020 analysis conducted by the Global Sustainable Investment Alliance found that (i) global sustainable investment at the beginning of 2020 had reached US$35.3 trillion, representing a 15% increase over the previous two years; (ii) Canada experienced a 48% increase in sustainable investment between 2018 and 2020, the largest absolute increase identified in the analysis; and (iii) Canada had the largest proportion – 62% – of sustainable investment assets. Subsequently, there has been a considerable degree of anti-ESG backlash in the United States, based largely on the notion that a consideration of ESG factors is contrary to fiduciary duties. Such arguments have not been raised in Canada. The Canadian federal corporate statute, for example, explicitly acknowledges that directors and officers of a corporation may, when acting with a view to the best interest of a corporation, take into consideration a range of factors significantly broader than shareholder interests. For more information about the current matters discussed above and other issues relating to corporate governance, please refer to Davies Governance Insights reports available on the firm website at dwpv.com.
(ii) disclose Scope 1 emissions, and either disclose Scope 2 and Scope 3 emissions, or explain why no such disclosure was made. Scope 1 GHG emissions are direct emissions, resulting from sources controlled or owned by the reporting organization. Scope 2 GHG emissions are indirect emissions, relating to the electricity, steam or heat purchased by the reporting organization. Scope 3 GHG emissions are other indirect emissions that occur in the value chain (both upstream and downstream) of the reporting organization. The CSA Proposal has yet to be finalized, and in October 2022 the CSA confirmed that it was still in the process of reviewing comments it had received on the draft rules, and that it was continuing to monitor the development of both the United States Securities and Exchange Commission’s (SEC’s) draft climate disclosure rules and the International Sustainability Standards Board’s (ISSB’s) sustainability and climate disclosure standards. The ISSB published the final versions of its sustainability and climate disclosure standards in June 2023, which will supplant the TCFD recommendations and serve as the new global baseline for sustainability and climate disclosure; however, the final version of the SEC’s draft climate disclosure rules has been delayed and the rules are expected to face legal challenges. The CSA intends to proceed with further consultations to develop disclosure standards that align with the ISSB standards, with modifications considered necessary and appropriate in the Canadian context.
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