Canada’s energy investors are embracing ESG. It’s time for industry to respond accordingly

By Adam Crutchfield, National Energy and Alberta Consulting Leader, PwC Canada and Khurram Asghar, Assurance Partner and Alberta Energy Services Leader, PwC Canada

With contributions from Dan O’Brien, Partner, Sustainable Business Solutions, PwC Canada and Janice Noronha, Partner, Sustainable Business Solutions, PwC Canada

This year’s World Economic Forum put a spotlight on some of the key issues that governments and industries are grappling with. Bringing together leaders from across the world, Davos 2020 focused on themes like ecology, society and industry, topics that are both timely and important to today’s organizations. It’s therefore fitting that it was chosen as the place to launch PwC’s 23rd Annual Global CEO Survey, which shows record levels of uncertainty among today’s leaders regarding environmental, social and governance (ESG) factors.

Unsurprisingly, ESG metrics have now become leading guideposts for investment. They provide investors with a framework for assessing risks and generating sustainable risk-adjusted returns, and Canada’s energy sector should be taking notice—and taking action. We have the means to rebuild trust and provide markets and investors with confidence that Canadian companies are delivering on ESG commitments. Now we need to implement systems to prove it.

According to our Global CEO Survey, there’s growing awareness around the benefits of climate action, not only in terms of investment and reputation, but in the development of new products and services. In 2010, only 2% of CEOs in China saw this potential; now 47% do. And while most markets are likewise increasing in awareness and preparedness, a select few have trended in the opposite direction—including Canada, which fell from 21% to 18% over the last decade. We need to course-correct: it’s time for Canadian CEOs to seize on ESG as an opportunity to embed longevity and resilience into rapidly changing industries and business models.

We need better alignment between government and industry

In the Daily Oil Bulletin’s 2019 Oil & Gas Outlook Report, energy professionals across Alberta said the government’s chief priority should be improving market access and implementing favourable regulatory regimes. Meanwhile, only 4% said it should focus on diversification, 1% said it should develop pan-Canadian greenhouse gas and carbon trading policies, and none supported a national climate policy or stronger ties with Indigenous communities. Incidentally, those are the government’s top four priorities.

In a changing world where ESG is seen as a critical differentiator, this lack of alignment feels out of date. Canada’s energy sector has long been proactive in pricing carbon, diversifying operations and developing technologies to reduce emissions—so why not welcome a more collaborative model? We should all feel like we can be proud of Canada’s energy sector and Canada’s energy policies alike. With our strict thresholds and strong ethics, we should be serving as a magnet for international investment and a model of responsible regulation, reporting and compliance for the rest of the world.

We need to come together as a sector—and work with policymakers—to show that Canadian energy is a smart investment, and that even as we transition to a low-carbon economy and price relevant risks into valuations, our companies continue to leverage emerging opportunities to provide an optimal ROI. We should also craft a new narrative: the fact remains that Canada’s frameworks for transparency, accountability and corporate social responsibility outclass those of other oil and gas producing countries. Sharing our story and holding our global peers to our standards is not only part of the solution but it’s a competitive differentiator, and it’s going to require a collaborative effort from all stakeholders.

In Canada we’re closer to effective ESG reporting than you think

Even though many Canadian energy companies are struggling with standardized ESG reporting, the truth is that many already have most of the tools they need. With a few minor adjustments, they could easily launch fully formed, impactful frameworks for measuring both successes and threats:

  • Most energy and resource companies already have robust environmental health and environmental management systems (EHS and EMS) to mitigate risks in these areas. All the mechanisms for disclosure, compliance and reporting are designed into systems that are widely trusted by executives and regulators.
  • Similarly, companies rely on their enterprise risk management (ERM) systems to determine material and business risks, along with the controls necessary to manage them. These can be adapted to measure indicators related to social governance.
  • Asset management systems maintain granular records of a company’s owned assets, so they’re a great tool for assessing risks and valuing impact to assets. They can be used to better understand how climate change might impact a company and measure the financial and material implications.

We should place ESG at the core of our business strategies

Capitalizing on these reporting functionalities will be key to building and aligning on standards. In parallel, ESG practices like understanding risk, reducing waste, using resources effectively and ensuring compliance will help companies uncover cost efficiencies. In this sense, embracing sustainability is twofold: supporting the resilience of the business, while enabling positive social and environmental impacts.

Canada’s energy companies are already making a positive impact in the world. Not only are they leaders in employee health and safety, they also empower and invest in the communities they touch. The missing pieces include strengthening environmental protection mechanisms; developing metrics, measurements and KPIs; aligning ESG to the purpose of the business; and addressing the issues that are top-of-mind for investors and the public today.

These initiatives can’t be delegated to a department or committee—they have to begin with the CEO. Our 2020 CEO Survey suggests that Canadian company leaders haven’t been sufficiently engaged on ESG, so it’s time for them to show investors, customers and global competitors that, as a new decade dawns, Canadian Energy is ready to lead the way.

The pressure to implement sustainable initiatives is rising. That means your business has to establish best practices around ESG risk management and communications, building credibility with investors. Get in touch to explore how we’ve helped clients address the impacts of ESG on their organization.

Alberta Energy Audit and Consulting team

Adam Crutchfield

Partner, National Energy and Alberta Consulting Leader, PwC CanadaTel: +1 403 509 7397

Khurram AsgharPartner, Assurance, Alberta Energy Services Leader, PwC CanadaTel: +1 403 509 7501

Sustainability Leaders

Daniel O'BrienPartner, Sustainable Business Solutions, PwC CanadaTel: +1 604 484 3478

Janice NoronhaPartner, Sustainable Business Solutions, Montréal, PwC Canada+1 514 205 5693