Environmental, Social, and Governance (ESG) compliance is fast becoming a situation that more and more Canadian companies need to be prepared for. The Canadian Sustainability Standards Board (CSSB) published its proposed climate-related disclosure standards (CSDS 2) on March 13 and global regulations are also lurking that may or may not come into effect in Canada, depending on whether the country accepts certain regulations.
In short, companies across all sectors may soon need to comply with ESG requirements. Compliance is expected to consist of voluntary reporting at first. It’s expected that smaller companies would be spared from reporting initially – the focus would be on larger companies, some of whom already voluntarily report. The environmental side of an ESG report can include limits on carbon emissions, water usage, waste generation, and energy efficiency.
ESG compliance poses a significant challenge, particularly for construction companies who will have to adapt to new building standards. Some of these standards could include a mandatory use of recycled materials within the building process, for example. When it comes to commercial buildings, the type of industry that the space will essentially be used for could also dictate what requirements are going to be in place for specific projects. These will, of course, come on top of building regulations that are already in place.
Currently, some industries are required to provide reports. Examples of this include cement, aluminum, iron, and steel. It’s understood that banks and insurance companies are also going to be required to present ESG reports by the end of 2024. Those reports, however, will likely focus more on the social and governance side than on their environmental impact.
Melanie Cole, a partner with Aird Berlis LLP that provides strategic legal advice to businesses, recently told local news outlets what companies, particularly in the construction sector, should be looking out for in the coming years. “My simple advice to companies in all sectors, including construction, is to ensure that any statements are factual, balanced, non-promotional, and substantiated.”
ESG regulations are not yet mandatory in most cases, but companies should prepare for what’s potentially coming. As Cole mentions, the worst thing that companies can do at this point is present false data to try to meet regulations that are not yet mandatory.
Instead, the ideal path would be to explore what ESG requirements are actually going to look like within their sector. This can allow them to adapt their business to comply with new requirements in the future.
