With universal reporting standards on the horizon, more companies need to improve ESG disclosures
Amid increasing biodiversity loss, Canadian companies need to step up their disclosures on how their operations impact the health of the planet, finds a new KPMG in Canada report.
While the vast majority (91 per cent) of Canada’s top 200 companies by revenue currently report on their environmental, social, and governance (ESG) performance, only a third (35 per cent) disclose information related to biodiversity loss – both their potential contribution to its acceleration and the risks they face as a result. This is a stark contrast to the nearly three quarters (72 per cent) that report against their carbon reduction targets.
“With nearly two-thirds of Canadian companies not yet disclosing how their operations impact nature, biodiversity and natural capital preservation is the rapidly emerging next frontier for climate disclosures,” says Katie Dunphy, partner in the ESG practice at KPMG in Canada. “Most organizations report their progress against specific targets, but companies must now expand their lens to incorporate their full impact on nature and society to effectively manage growing physical, financial, and reputational risks.”
Companies also face increasingly complex questions on human rights risks and social impacts, yet only half (50 per cent) of Canada’s top 200 currently disclose their approach to managing human rights issues and even fewer (39 per cent) report on their Indigenous reconciliation efforts, she says.
“Our analysis shows companies that are further along in their ESG reporting journey are more likely to disclose on these metrics, but all Canadian businesses have a responsibility to protect against biodiversity loss, advance Indigenous reconciliation and respect human rights,” says Ms. Dunphy. “While reporting is voluntary, that won’t last long. It’s essential organizations quickly take stock of rights holder, stakeholder and regulatory expectations and transparently report against these metrics – or risk falling behind.”
Key report findings:
- 91 per cent of Canadian companies report on their Sustainability or ESG performance
- 72 per cent report carbon reduction targets
- 56 per cent report climate risks in line with the Task Force on Climate-related Financial Disclosures (TCFD)
- 35 per cent disclose their management approach or performance regarding biodiversity and natural capital
- 39 per cent disclose their management approach or performance regarding Indigenous reconciliation
- 50 per cent disclose their management approach or performance regarding respect for human rights
- 30 per cent have adopted or intend to adopt science-based targets for carbon reduction (as defined by the Science Based Targets initiative (SBTi))
- 36 per cent include a formal assurance statement in their Sustainability or ESG reporting
Transparency key to stakeholder confidence
Despite increased calls for ESG transparency and heightened scrutiny on supplier ESG compliance, only a third (36 per cent) of Canadian companies take the next step by obtaining third-party assurance to ensure their disclosures are accurate and in line with best practices.
“How companies report ESG information externally is critical to understanding their overall performance,” says Farah Bundeali, a partner in Audit and Assurance at KPMG in Canada. “Assurance over non-financial ESG information helps organizations build trust in the accuracy and reliability of their disclosures, adding another layer of credibility as stakeholder scrutiny of reporting practices continues to climb.”
In KPMG’s recent CEO Outlook, the majority (63 per cent) of Canadian CEOs said they expect to rely on external assurance of ESG data, a trend that is expected to increase alongside potential future assurance requirements.
Getting ahead of regulatory standards
With the establishment of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards (IFRS) Foundation, a common reporting language on ESG is on the horizon. The upcoming ISSB sustainability and climate-related disclosures build on the TCFD recommendations, and similar reporting frameworks are in development to address an expanding universe of ESG metrics.
“While it’s a complex process to arrive at universal ESG standards, companies shouldn’t wait to get started,” says Ms. Dunphy. “Organizations that choose to report across a broader spectrum of ESG topics will be in a better position to attract capital and remain competitive in the long run.”
For more trends on corporate sustainability reporting, see the full 2022 KPMG sustainability report – Canadian Addendum.
About KPMG in Canada
KPMG LLP, a limited liability partnership, is a full-service Audit, Tax and Advisory firm owned and operated by Canadians. For over 150 years, our professionals have provided consulting, accounting, auditing, and tax services to Canadians, inspiring confidence, empowering change, and driving innovation. Guided by our core values of Integrity, Excellence, Courage, Together, For Better, KPMG employs more than 10,000 people in over 40 locations across Canada, serving private- and public-sector clients. KPMG is consistently ranked one of Canada’s top employers and one of the best places to work in the country.
The firm is established under the laws of Ontario and is a member of KPMG’s global organization of independent member firms affiliated with KPMG International, a private English company limited by guarantee. Each KPMG firm is a legally distinct and separate entity and describes itself as such. For more information, see home.kpmg/ca
SOURCE KPMG LLP