CHAPTER 08 ESG and Climate Change in the Shadow of COVID-19: “E,” “S” & G Are Here to Stay
15 recommendations for achieving this, grouped into three pillars: (1) opportunity (put forward a renewed long-term vision for transition, with focused policies to help businesses and investors of all sizes effectively respond to the economic opportunity); (2) foundations for market scale (public and private sectors should invest in the essential building blocks needed to scale the Canadian market for sustainable finance to mainstream status); and (3) financial products and markets for sustainable growth (develop and scale up market structures and financial products that would have particular impact in facilitating Canada’s transition and adaptation). Mr. Macklem’s subsequent appointment in 2020 as Governor of the Bank of Canada has raised expectations of an increased focus by Canada’s federal government on ESG matters and Climate Disclosure, consistent with developments witnessed globally. 172 – The updated Equator Principles (EP4, to be implemented by October 1, 2020) support the application of TCFD in worldwide project finance. As anticipated, EP4 underscored climate change as a crucial element of project due diligence by affirming support for the objectives of the Paris Agreement and requiring climate change risk assessments (including physical risks) for most projects. 173 In June 2020, the Equator Principles Association released guidance aimed at assisting both Equator Principle Financial Institutions (EPFIs) and borrowers implement EP4 in the midst of the COVID-19 pandemic. 174 The above non-exhaustive list of recent developments highlights the sustained importance ESG and climate change have had, and will continue to have, in the public and private markets and business practices of many issuers. The importance of integrating ESG into issuers’ models and disclosure practices is not expected to abate, even in the wake of unanticipated crises such as COVID-19. In fact, in 2020, in the midst of the COVID-19 pandemic, we witnessed an increase in calls for issuers
to embrace and provide more transparent disclosure concerning a variety of ESG issues, particularly social issues involving issuers’ human capital and human resources-related policies and practices. ESG Trends and Market Implications ESG disclosure is effective in addressing risk only if investors make decisions on the basis of the information disclosed (or on the basis of an issuer’s failure to disclose). Several recent developments signal that ESG disclosure will increasingly be required of issuers by their key stakeholders. And those demands are not likely to be limited to climate change, which has attained prominence within the ESG debate in recent years. Rather, increasingly we see stakeholders looking to issuers to do the following: – Create equities. Put in place effective policies and practices to promote social and financial equities (including diversity, pay equity and the protection of human rights) within their organizations. – Implement ESG policies. Implement enterprise- wide ESG policies and practices with respect to their key stakeholders, including employees, customers, suppliers and other partners core to their businesses. The importance of integrating ESG into issuers’ models and disclosure practices is not expected to abate, even in the wake of unanticipated crises such as COVID-19.
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