Lawyer Radha Curpen, the Vancouver-based Group Head of ESG and Sustainability, at law firm McMillan LLP, in Vancouver, on Sept. 20.Jennifer Gauthier/The Globe and Mail
Canada, meet Robby Starbuck.
The online activist takes credit for pressure campaigns that have prompted multiple U.S. companies to scale back or eliminate their diversity, equity and inclusion (DEI) policies and practices. Companies such as Deere & Co., Harley-Davidson Inc., Molson Coors Beverage Co. and Walmart Inc., have all said they’ll change hiring practices, pull out of relationships with equity groups or cut funding for pride parades.
“We’ve now changed policy at companies worth over US$2-trillion, with many millions of employees who have better workplace environments as a result,” Mr. Starbuck posted Nov. 25 on X, after he said his meeting with Walmart executives prompted a host of changes, including their decision not to extend a five-year, US$100-million philanthropic commitment to fighting systemic racism the retailer made in 2020.
“Companies can clearly see that America wants normalcy back. The era of wokeness is dying right in front of our eyes. The landscape of corporate America is quickly shifting to sanity and neutrality. We are now the trend, not the anomaly.”
The Globe and Mail revises 2024 Board Games marking criteria
Canadians might be tempted to dismiss Mr. Starbuck as an anomaly, a product of U.S. culture wars. But he’s one of the most visible faces of a full-scale war on environmental, social and governance (ESG) policies and their subset of DEI practices.
Legislators in Republican-led U.S. states have been fighting ESG investment practices through a series of attacks on their own state treasuries and pension funds. A U.S. Supreme Court ruling killing affirmative action admissions in colleges has prompted lawsuits against private-sector employers for their hiring practices. And with the election of Donald Trump as U.S. president, the federal government seems unlikely to stand in the way of any of these assaults.
Canadian companies will find no respite by simply being on the other side of the border. At a minimum, those with U.S. operations must navigate the new American climate.
To avoid losing business to anti-ESG policies, Royal Bank of Canada and Bank of Montreal, for example, have had to assure governments in Texas and West Virginia that they do not eschew lending to fossil fuel companies. In the case of BMO, it reversed a previously stated policy that restricted lending to new clients that operate significant coal mines or coal-fired power generation in favour of what it calls a “comprehensive, risk-based approach.”
The Globe and Mail’s comprehensive ranking of Canada’s corporate boards for 2024
Walmart’s DEI rollback signals a profound shift in the wake of Trump’s election victory
Can it happen here? It’s easy to say Canada is a far different society, with a far different business culture. But the signs of some tumult are already here, with the population outside Canada’s urban centres restive. Alberta’s ruling United Conservative Party is openly hostile to DEI and climate initiatives, and federal Conservative Leader Pierre Poilievre, Canada’s likely prime-minister-in-waiting, repeatedly uses the word “woke” as a pejorative while promising to undo the signature piece of climate policy produced by the current Liberal government.
In short, Canadian companies will likely find they need to obscure their ESG and DEI practices with new names, to avoid what have become damaged brands.
But so far, the results in The Globe and Mail’s Board Games corporate ranking, done in partnership with Toronto consulting firm Global Governance Advisors, do not show a pullback in these policies in 2024 disclosures.
Canadian sustainability board close to issuing first climate-disclosure rules
Board Games introduced climate disclosure questions in 2023 and expanded them in 2024.
In 2023, when climate criteria were worth four points of a total score of 100, 13 companies – or 6 per cent of 219 measured – received a full score. There were 76 companies that received zero points.
In 2024, with climate criteria worth nine points, there were 21 companies, about 10 per cent of 215 measured, that received a full score. At the other extreme, however, just 15 companies received zero points.
Board Games has also ratcheted up its diversity criteria. After long counting the proportion of women on corporate boards, Board Games added criteria for other types of diversity in 2020.
In 2023 and 2024, Board Games devoted 13 points to diversity. In 2023, 19 companies received a full score, and only one company received zero points. There were 53 companies that failed to get at least seven of the 13 points. In 2024, by comparison, 35 received the full 13 points, while none received zero and just 30 failed to get at least seven of the 13 points.
“In two years we saw probably the most significant change in years in women getting on S&P/TSX Composite Index boards,” said Tony Spizzirri, the partner at Global Governance Advisors who oversees the firm’s Board Games work. Women represent at least one-third of board seats at 79 per cent of companies in the 2024 Board Games on the TSX Index. In 2022, it was at least a third at just 53 per cent of companies. ”It seems many of these companies were also improving diversity in other ways during this time,” he said.
John Valley, a partner at Osler, Hoskin & Harcourt LLP who co-ordinates the law firm’s extensive annual report on diversity at the Canadian corporate board level, said his firm hasn’t seen a pullback in disclosures or diversity practices in proxy circulars by Canadian companies. “Whether that will change is an open question.”
In Canada, companies and their investors have so far not faced a high level of opposition to ESG, but their use of the acronym is quickly falling out of favour.
A recent survey of corporate disclosure by Montreal-based consultancy Millani charted steady growth for many years in mentions of ESG by companies in the composite index. Last year, the trend reversed, with just 29 per cent of listed companies referring to ESG, down from 40 per cent the year before. Fifty-three per cent of corporations, meanwhile, used “sustainability” instead.
This stands in stark contrast to the market mania of the early 2020s, when ESG was sold by the investment industry as an asset class unto itself.
Melanie Adams, managing director and global head of responsible investment for RBC Global Asset Management, said “it was almost unfortunate how far the pendulum swung” with attention to ESG because it obscured that the factors underlying it have always been critical for investors. “Because now it has swung back the other way with the ESG backlash.”
The picture has been muddied further by Ottawa’s newly enacted anti-greenwashing legislation, which puts companies in legal jeopardy for issuing disclosures that do not live up to scientific scrutiny, said Milla Craig, chief executive officer of Millani.
Yet most companies still consider these factors to be key fiduciary duties for their managers and directors. Torys LLP reports that 95 per cent of the companies in the composite index publish some form of ESG, climate action or transition report, and nearly four-fifths include ESG, climate, environmental or sustainability within their board skills matrix. Further, 59 per cent tie executive pay to climate-related targets or metrics.
“I don’t really think companies are changing their approach to how they prudently and responsibly manage and oversee risks,” said lawyer Rima Ramchandani, co-head of Torys’ capital markets practice. “Because of the politicization, some companies are choosing to be more cautious about what they say.”
Radha Curpen says the political left sees ESG as a vehicle for social outcomes, while the right thinks it fails to maximize shareholder value and means divesting fossil fuels.Jennifer Gauthier/The Globe and Mail
Radha Curpen, the Vancouver-based Group Head of ESG and Sustainability at law firm McMillan LLP, said the political left sees ESG as a vehicle for social outcomes, while the right thinks it fails to maximize shareholder value and means divesting fossil fuels.
“It’s none of that,” she argues. “ESG represents the risks and opportunities that we face today. That’s what it is. The key is governance. How are we going to govern with the changing world? … We need everything in our tool box to deal with it. We don’t have to call it ESG. It doesn’t matter.”
The next step will come as Canada decides what to require of public companies for disclosure. The Canadian Sustainability Standards Board (CSSB) will soon publish its first set of sustainability and climate-related reporting guidelines. The guidelines will initially be voluntary, but the standards are expected to form the foundation of required disclosure.
The Canadian Securities Administrators, the umbrella group for the country’s provincial and territorial securities commissions, has said it will study the CSSB standards before issuing rules on what companies will have to disclose. But the CSA has not committed to adopting those standards as is. When the CSA made an initial run at climate disclosure rules, prior to the CSSB’s work, its proposed standards were not as comprehensive or rigorous.
Public comment on the CSSB standards showed support from institutional investors, but significant pushback from the energy industry, which generally called for less reporting and longer deadlines. Advocates for the CSSB standards fear the CSA will listen to the latter, not the former.
“It would be unfortunate for the CSA to try to second-guess that process after so many years in the making and say, ‘Okay, now let’s try and think that through again and see if we can come up with some different compromise,’” said Kevin Thomas, chief executive officer of the Shareholder Association for Research & Education, known as SHARE. The group, which works on behalf of investors, is among the most active pushing for stronger ESG policies.
CSA spokesperson Ilana Kelemen declined to comment until the CSSB standards are issued.
As regulations and requirements evolve gradually, investors are often taking ESG matters into their own hands. Some, said Dexter John, chief executive officer of Sodali & Co.’s Canadian office, are adopting investment criteria that are more stringent than what proxy advisers such as Institutional Shareholder Services Inc. and Glass, Lewis & Co. recommend.
According to Sodali & Co., ESG was the focus of 74 Canadian shareholder proposals in the most recent proxy season, up from 50 in 2023. There were just a handful of anti-ESG proposals, largely filed by a small activist group called InvestNow, and they did poorly, with roughly 1 per cent of votes in favour.
In contrast to climate pressures, DEI initiatives are in their earliest days as a subject of shareholder proposals.
Investors have pressed companies, including some of Canada’s big banks, to conduct what are called racial equity audits – examinations of whether policies and procedures support diversity and equity. Toronto-Dominion Bank became the first to release an audit. Canadian Imperial Bank of Commerce, National Bank of Canada, RBC and BMO have all agreed to them, but the latter two banks narrowly defeated shareholder proposals in 2023 calling for them.
Future shareholder efforts, however, will occur against a backdrop of increasing hostility to DEI in the United States – and, possibly, Canada.
While Mr. Starbuck’s methods garner him attention, much of the anti-DEI work in the U.S. occurred in response to the expansion of the Black Lives Matter that was driven by the killing of George Floyd at the hands of police in Minneapolis, Minn.
Academic think tanks developed campaigns to create ESG and DEI backlash among the public, broadly, and legislators in conservative states, specifically. (One think tank has called BLM funding “a form of reparations made to self-declared enemies of the American nation and way of life.”) After a U.S. Supreme Court ruling against affirmative action at universities, lawsuits against private-sector entities followed.
When Mr. Trump was first elected in 2016, disparaging language for anything labelled liberal, progressive or “woke” became more acceptable, said Dustyn Lanz, chief executive officer of Toronto ESG proxy voting data firm OxProx. He does not think Canada will completely replicate that journey, but he sees similar signs.
Mr. Lanz noted that Mr. Poilievre has been deriding progressive ideas as woke. After a riot occurred during an anti-NATO protest in Montreal on Nov. 22, Mr. Poilievre tweeted a response to Prime Minister Justin Trudeau, saying, “This is what happens when a Prime Minister spends 9 years pushing toxic woke identity politics, dividing and subdividing people by race, gender, vaccine status, religion, region, age, wealth, etc.”
At the Alberta United Conservatives’ recent annual meeting, Mr. Lanz noted, members booed when someone tried to explain unconscious bias, a core tenet of DEI programs. That showed UCP members “feel totally comfortable deriding someone in public” for supporting DEI – and signals Canada is shifting, as well.
Against this backdrop, Canadian securities regulators are also wrestling with proposals on mandated board-diversity disclosure for public companies. The CSA has put out two competing proposals, which became known as the “Ontario” and “Western” models. The Ontario model, backed by the Ontario Securities Commission, is more prescriptive and lists the diverse groups companies must include in their disclosure. The Western model, backed by Alberta and Saskatchewan, is more narrative and allows companies more freedom to define diversity as they see fit.
The comment period for the two models ended 14 months ago, and there has been no decision since.
OSC spokesperson Debra Chan said the commission “is working with our CSA colleagues to find a harmonized path forward that meets the needs of our markets. This work is complex and remains a priority.” The CSA’s Ms. Kelemen sent essentially the same statement as the OSC did.
Wes Hall, the founder, chairman and chief executive officer of Kingsdale Advisors and the founder of the BlackNorth Initiative, a group that seeks corporate pledges to improve diversity, said if the OSC waits for a CSA decision, “It will never happen, it just will never. So, in my view, this should be something that’s led by the OSC, and everybody else follow them.”
Mr. Hall acknowledges he is concerned about corporate Canada’s commitment to BlackNorth going forward, given the influence the U.S. has on Canadian companies. But, he said, no prominent companies have backed out. “Because they’re rolling everything back in the States, we should just roll it back here in Canada, too? Why can’t we be the leaders and say no, no, no, that’s not what we stand for in this country?”
Ian Robertson, partner with the executive consulting firm Jefferson Hawthorne Group, plans to make advising his clients on the rise of the anti-woke movement in Canada a key part of his business.
Many companies put DEI policies in place reactively, not strategically, he said. Now that they’re under the opposite kind of political pressure, they cannot justify keeping the policies based on a return on investment, said Mr. Robertson, who was formerly chief executive officer of Kingsdale.
Outside of “the business-hub bubbles of Toronto, Montreal or Vancouver,” Mr. Robertson said, views on a lot of issues in the rest of Canada are very different from the pro-ESG and pro-DEI consensus.
“I would say thinking that we’re not American is not a strategy.”
Board Games, by the numbers
Women on boards
Women represent at least one-third of board seats at 79 per cent of companies in the 2024 Board Games on the TSX Index. In 2022, that was true at just 53 per cent of companies.
Board diversity
Seventy-three per cent of the Board Games companies explicitly disclose they have at least one board member from a diverse group other than women. Of that, 32 per cent have one board member from a diverse group and 41 per cent have more than one.
Climate expertise
In 2024, 52 per cent of companies disclosed that climate expertise is a “required skill” in the board skills matrix and at least one director has that climate expertise. In 2023, that percentage was just 18 per cent.
Performance pay
Performance share units (PSUs) make up at least half of the CEO’s long-term incentive grant value at 77 per cent of companies, while 12 per cent of companies do not use PSUs in compensation.
ESG in pay
One-third of the Board Games companies disclose and use quantifiable climate-related metrics in awarding or setting either short-term or long-term incentive-pay plans. Another 44 per cent use some sort of environmental, social or governance metric that isn’t climate-related. Only 23 per cent of companies do not use any at all.
Annual meetings
Only 23 per cent of Board Games companies hold a “hybrid” annual meeting that allows shareholders to attend either online or in person. The remaining 77 per cent hold a virtual meeting, or an in-person meeting, but not both.
Say on pay
Sixty-three per cent of Board Games companies received at least 90-per-cent support from shareholders on their 2023 say on pay non-binding advisory executive compensation resolutions, while 16 per cent fell below that threshold, and 21 per cent did not hold a say on pay vote.
Source: Global Governance Advisors
Editor’s note: A previous version of this article incorrectly described OxProx as a governance advisory firm. It is an ESG proxy voting data firm. This version has been updated. (Dec. 10, 2024): This article has been updated to correct the spelling of CSA spokesperson Ilana Kelemen's surname.