Canadian businesses need to create and provide reports about the performance of their businesses every year. Some reports are used for accounting or planning purposes, while others are required by Canada’s tax and regulatory authorities. While most executives and advisors are familiar with balance sheets and income taxes, fewer understand the emerging importance of environmental, social, and governance reporting.
Environmental, Social, and Governance: What It Really Means
ESG is an outgrowth of the corporate social responsibility movement of the 1990s and early 2000s. While it was initially considered a niche market that satisfied ultra-progressive investors, evidence from the 21st century shows that certain types of sustainability improvements really do make companies more profitable.
ESG Reporting Is Rapidly Evolving
Governments and their regulatory agencies are rapidly catching up with the ESG movement. From a compliance and cost perspective, this can be a bit of a pain for business professionals, especially those who do business across multiple legal jurisdictions. Ultimately, reporting ESG information comes down to your company’s ability to implement new accounting processes (which is critical for any business) and its ability to source good advice about best practices and legal requirements.
Tip: Use the CPA Canada Reporting Overview
In 2014, the Toronto Stock Exchange and the Chartered Professional Accountants of Canada issued an ESG overview for business owners and advisors. You may find this guide useful for several reasons, especially as it pertains to regulatory and reporting requirements. The overview includes:
- Key ESG business principles from, among other sources, the UN Global Compact and ISO Guidance Standard on Social Responsibility
- Highlights from each Canadian jurisdiction and other countries (including the United States, if you happen to do business there)
- Review of the Global Reporting Initiative and Carbon Disclosure Project
CPA Canada also outlines potential benefits from better ESG practices, such as better risk management for your business, improved reputation, and even cost savings. Some of these tips may be intuitive already you may already know that some investors and consumers are more friendly to socially responsible business marketing but the real value is learning how to leverage your business reporting most effectively.
How Your Business Can Implement ESG Reporting Best Practices
The most traditional method for ESG reporting is to create a standalone sustainability report that highlights meaningful metrics and improvements. Moving forward, however, more integrated reporting may prove to be more useful. ESG metrics can materially impact valuations, access to capital, and other important business fundamentals. If your business has investors or major creditors, you might use ESG metrics to stress your long-term sustainability. Businesses that adhere to ESG best practices may appeal to an increasingly large socially conscious consumer base, and they are also more likely to stay on the good side of regulatory agencies. For example, a manufacturer might emphasize that its updated supply chain harvests materials and utilizes processes considered ESG-friendly. Such long-term investments highlight the fact that the manufacturer appreciates and safeguards against the kind of reputational and legal risks of unsustainable practices. Your business should, at the very least, consider incorporating ESG considerations into its corporate strategy. Consider long-term targets, and report your performance against ESG milestones. The idea is to stay on top of regulatory requirements and actually drive more value to your company.