Last week, we at Millani had the pleasure to partner with the Canadian Coalition for Good Governance (CCGG) to discuss its publication "The Director’s E & S Guidebook". Our Founder and President, Milla Craig, had the pleasure of moderating the panel.
Milla discussed with Nancy Lockhart, Chair of the Environmental Health and Safety Committee at Loblaw's Companies Limited and former Board Member of Barrick Gold, and Barbara Zvan, Chief Risk & Strategy Officer at Ontario Teachers’ Pension Plan and one of the four members of the Canadian Expert Panel on Sustainable Finance, their perspectives about the importance of material Environmental, Social and Governance (ESG) issues for boards in an evolving financial market environment.
The following are some of the key take-aways from the conversation:
ESG engagement must be part of the organization’s overall culture. The implication of the CEO is principal and the involvement of board members on ESG issues forms an integral part of their fiduciary duties. Ironically, we hear the same points raised on the investor side of the equation when it comes to integrating ESG issues. It all starts from the top.
Within the organization, increased employee engagement has been demonstrated when environmental and social issues are addressed and managed. This issue may be difficult to measure and put into numbers, yet, we hear this over and over again when working with our issuer clients. An organization cannot underestimate the value of its human capital to overall business performance.
Looking at the business model through an ESG lens not only allows the identification of potential risks that could have a material impact on the company activities and financial results, but it also highlights opportunities. These opportunities tend to translate into a more resilient and sustainable long-term roadmap for the organization.
An executive’s compensation plan that considers the ESG performance of the organization is becoming more and more of a best practice, notably following engagement with shareholders. Increasingly, investors understand that if these issues are truly embedded into the culture of the organization, then there should not be much resistance to this request.
The recent European taxonomy on Green finance (released on June 18) is a reference for sustainable finance in Canada and related to what was recommended by Canada’s Expert Panel. However, it was noted that. it needs to be adapted to reflect specificities of the various industrial sectors within Canada, notably the energy sector.
Finally, although Canada’s Expert Panel on Sustainable Finance supports the current federal government’s decision to adopt a national carbon price, and encourages a clear pricing outlook out to 2023 and beyond, the 15 recommendations laid out in the report were created with a long-term view and hopefully can be adopted by any political party that comes into power in our upcoming elections in October 2019.