A wide array of developments in the sustainability sphere this year has changed the investing landscape.Julio Cortez/The Associated Press
Investors have developed trust issues over corporate sustainability claims as companies cut back on environmental, social and governance disclosure, a new survey reveals.
Information about climate-related risks and energy-transition planning has become far more opaque after companies in various sectors scrubbed data from public disclosures in response to new federal regulations aimed at stamping out greenwashing, according to a poll of investor sentiment conducted by Montreal-based environmental, social and governance consultancy Millani.
The reduced transparency has shaken market confidence and prompted institutional investors to be more insistent in requesting sustainability-related information in meetings with boards of directors, said Milla Craig, Millani’s founder and chief executive officer.
This is the first time disclosure concerns have figured prominently among the top issues in the firm’s regularly conducted research, Ms. Craig said.
“Beyond climate, this is the number one thing that’s on the minds of Canadian investors right now,” she said in an interview.
“We’ve also seen governance and board practices come onto the list for investors – what they’re focusing on as topics. And again, I haven’t seen governance and board practices on this list.”
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Some asset managers told Millani that friction over climate disclosure could influence institutional investors to consider voting against director nominations during next year’s annual meeting season, she said.
Other priorities mentioned frequently by investors include biodiversity and nature; diversity, equity, inclusion and human rights; and Indigenous reconciliation. There has been no retreat from ESG factors among the investors surveyed.
Millani polled 36 large and small Canadian institutional investors, including such names as RBC Global Asset Management, Manulife Investment Management, Caisse de dépôt et placement du Québec, Rally Assets and AlphaFixe Capital. The results were published on Monday.
A wide array of developments in the sustainability sphere this year has changed the investing landscape. Companies have backed away from net-zero-emission goals, and removed disclosures – some going back years. Canada’s provincial securities commissions, meanwhile, postponed indefinitely plans to require reporting of climate and other ESG data.
Under the amendments to the federal Competition Act that went into force last year, companies are at legal risk for making environmental assertions that do not stand up to scrutiny. Corporate communications must be backed up by international standards. Individuals and companies could face sizable fines if found liable.
Thirty-nine per cent of those surveyed said those changes, under Bill C-59, had the biggest impact on the market, followed by the U.S. Securities and Exchange Commission’s and Canadian Securities Administrators’ moves to step back from required disclosure of climate and social issues.
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Some business groups as well as the Alberta government criticize the anti-greenwashing legislation as overreach, though supporters say corporate decisions to expunge materials show it is working.
Its implementation has created a legal chill among corporations and investors alike, prompting some to expunge sustainability information from their public websites, as well as their investor materials.
This has raised questions about whether the regulations are working counter to their intent.
Earlier this year, the Canada Pension Plan Investment Board abandoned its net-zero carbon-emission target, citing “recent legal developments in Canada” that have changed how such commitments are interpreted, including requiring adoption of standardized metrics and interim emission-reduction targets.
Its announcement came after Royal Bank of Canada dropped sustainable finance targets from its public communications, citing Bill C-59 provisions as one reason for the move.
According to the Millani report, 55 per cent of those surveyed said they expect more companies will walk back net-zero targets over legal concerns as well as political pressure.
“Even if the reports are coming out and that sort of thing, it’s about the quality and it’s about investors going under the waterline, and these conversations are happening,” Ms. Craig said.
It shows a need for corporate boards to focus on this issue and “take ownership” as investors try to glean information that could be material immediately or in the future, she said.
“I don’t think there are very many directors who are aware of the shifts and changes that are happening right now in the marketplace. I don’t think there are very many management teams either.”
Editor’s note: This article has been updated to correct the name of RBC Global Asset Management.