A school bus passes power transmission lines and wind turbines near Pincher Creek, Alta., in June, 2024. Experts argue ESG now encompasses items such as energy security that have not traditionally been included.Jeff McIntosh/The Canadian Press
A storm of new business risks and a shift in government investment priorities have converged to force a rewrite of what ESG is, and even what it should be called.
The concepts of environmental, social and governance – once a hot market trend – have long been the target of a backlash in the United States. MAGA Republicans, especially, decried them as “wokeism” that held companies and investors back from their main objective – making money.
But this year, simultaneous geopolitical and trade disruptions and crises affecting Canada have prompted experts to assert that the triptych, as it has been known, is being forced to evolve.
Climate change is still intensifying weather-related disasters, and Canadian companies are still tallying the environmental and social risks to their businesses. But now other concerns outside the traditional ESG realm have entered the discussion.
So, what will ESG become?
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As a capital-markets veteran, Milla Craig, chief executive officer of Montreal-based ESG consultancy Millani Inc., lived through the fallout from 9/11, U.S. bank mergers, the financial crisis and other disruptions. They showed that nothing remains static, Ms. Craig said.
“You can sit and hold onto your views and your opinions, or you adapt. And I think that there’s a bit of reckoning right now. There’s a phase as things grow and come to a marketplace,” she said. “Now, there’s a pragmatism.”
She argues that ESG now encompasses items that have not traditionally been included, such as energy security and economics, affordability, a focus on sovereignty among Indigenous nations and Canada’s Arctic, as well as cybersecurity and artificial intelligence.
“I don’t care if you call it ESG. These are business issues. These are topics that are being focused on by capital markets. It feels like it’s actually the mainstreaming of all the things that lay out within ESG, but they’re just becoming what a board needs to be looking at. It’s part of the materiality,” Ms. Craig said.
As an ESG and sustainable-infrastructure analyst, Baltej Sidhu has noted the expansion of what fits into ESG and has predicted that the label’s days are numbered.
Mr. Sidhu, of National Bank Financial, said sustainable investing in some cases no longer excludes the defence industry, for instance, or the materials that go into its armaments, as security concerns grip parts of the world. This took hold after Russia invaded Ukraine, he said. Some of those materials are also used for green technology.
“In the past few years, we’ve seen an evolution of what ESG is and what ESG isn’t,” he said. “At the outset, it was very green, and I think it’s widened its breadth and scope.”
The risk-management tools developed within ESG for climate and societal issues are now ingrained in business culture, even if the acronym fades away, he said.
This evolution is not happening in a vacuum. Domestically, government priorities have shifted, as Prime Minister Mark Carney pushes to get major industrial projects built to blunt the impact of U.S. President Donald Trump’s tariff war.
Mr. Carney, previously one of the foremost exponents of climate finance, has pledged to loosen or scrap a number of the previous government’s decarbonization regulations as part of a memorandum of understanding with Alberta, which wants a new oil pipeline to the West Coast. As a quid pro quo, Alberta must strengthen its industrial carbon pricing.
Yrjo Koskinen, professor of sustainable and transition finance at the University of Calgary’s Haskayne School of Business, believes carbon pricing remains the best tool for reducing carbon emissions, even if those moves overall have upset environmentalists.
Yet companies are still embracing the principles of ESG for managing risk, and collecting the metrics, if they see it improving value for their shareholders, he said.
“Even if the term ESG might be retired at some point, I think the activities are going to continue, maybe under the sustainability label. So the death of ESG is highly exaggerated,” Prof. Koskinen said.
Mr. Carney’s government has also called for some provisions in anti-greenwashing legislation to be scaled back. Several companies, especially in the fossil fuel and financial sectors, complained that the legislation prevented them from publishing anything about their environmental records and ambitions by putting them at risk of stiff financial penalties. Many removed materials from their websites.
The law firm Torys recently reported that 91 per cent of the largest 200 Canadian companies published a sustainability, ESG or climate-focused report last year, down from 95 per cent in its previous study. Meanwhile, it said “materially fewer” companies used the term ESG to describe the report.
Millani’s surveys, however, have shown that major investors are not backing off their own commitments to sustainable investing, including demanding climate-related and work-force diversity metrics as they evaluate their holdings.
Climate Engagement Canada, whose members, comprising several institutional investors, seek to push the largest industrial emitters to reduce climate-related financial risks, increased its membership in 2025. The group now collectively manages $14.5-trillion of assets.
In addition, there is still money flowing into ESG-related funds, both public and private. National Bank Financial reported net inflows of $1.5-billion into Canadian ESG-focused exchange-traded funds from January to November. In the most recent month, there was a net outflow of $161-million, though most of that was driven by redemptions among large institutional funds in the NBI Sustainable Global Equity ETF, the bank reported.
Long-term investors remain active in private markets. Investors plowed US$20-billion into the second iteration of NBI Sustainable Global Equity ETF, making it the world’s largest private fund targeting the energy transition.
Among other big deals, Caisse de dépôt et placement du Québec bought out Montreal-based Innergex Renewable Energy Inc. for $2.8-billion.