Canadian Pensions Urge CSSB to Reconsider Sustainability Reporting Exemptions

ESG News reports group of Canadian pension fund giants urge CSSB to reconsider sustainability reporting exemptions:

• Canadian pension funds challenge CSSB’s proposed exemptions, advocating for global standards.
• Investors emphasize the importance of uniform sustainability reporting.
• Pension funds warn that exemptions could undermine global alignment and investor confidence.

A coalition of leading Canadian pension funds has submitted a letter to the Canadian Sustainability Standards Board (CSSB), urging it to reconsider proposed exemptions for sustainability reporting. This initiative underscores the critical need for consistency and global alignment in sustainability disclosures.

The letter is signed by representatives from the following major pension funds:

• Alberta Investment Management Corporation (AIMCo)
• BCI (British Columbia Investment Management Corporation)
• Caisse de dépôt et placement du Québec (CDPQ)
• Canada Pension Plan Investment Board (CPP Investments)
• Healthcare of Ontario Pension Plan (HOOPP)
• Ontario Municipal Employees Retirement System (OMERS)
• Ontario Teachers’ Pension Plan (OTPP)
• Public Sector Pension Investment Board (PSP Investments)
• University Pension Plan (UPP)

The letter emphasizes the necessity of adhering to the global baseline set by the International Sustainability Standards Board (ISSB). Deviating from these standards, the group argues, could undermine investor confidence and global market integrity.

“The adoption of global standards is vital for ensuring transparency and comparability in sustainability reporting,” stated the group. “Exemptions may create disparities and hinder our collective progress towards sustainable investment practices.“

The pension funds highlighted several key points in their letter:

1. Consistency in Reporting: The group insists that the CSSB’s proposed exemptions could lead to inconsistencies in sustainability reporting. They argue that this could result in fragmented data, making it difficult for investors to compare information across different jurisdictions.
2. Investor Confidence: The pension funds warn that allowing exemptions could erode investor confidence. Uniform standards are crucial for providing reliable data that investors depend on for making informed decisions.

“Investors rely on consistent and comparable data to make sound investment choices,” the letter noted. “By adhering to the ISSB guidelines, we can ensure that our markets remain robust and trustworthy.“

3. Global Alignment: The coalition stresses the importance of aligning Canadian sustainability standards with international norms. They believe that exemptions could isolate Canada from the global market, potentially affecting the country’s competitiveness and attractiveness to foreign investors.
4. Long-term Impact: The letter points out that while exemptions might offer short-term flexibility, they could have detrimental long-term effects on market stability and investor trust.

“Maintaining alignment with global standards is not just about immediate benefits; it’s about securing the long-term health and sustainability of our markets,” the group emphasized.

Related Article: Tim Mohin: ISSB ‘Harmonizes’ Global Sustainability Standards

In summary, the coalition calls on the CSSB to align with the ISSB’s global baseline, emphasizing that doing so will support the credibility and effectiveness of sustainability reporting in Canada and beyond. They argue that adherence to these standards is essential for ensuring the transparency, comparability, and reliability of sustainability data, which are critical for informed investment decision-making.

For more details, you can read the full letter here.

I think it's worth reading the letter to CSSB Chair Charles-Antoine St-Jean here.

It's posted on UPP's website and others but it's important to note that UPP's CEO Barbara Zvan has been pushing for these changes for quite a while now.

In fact, in late April, The energy Mix was urging Ottawa to finish sustainable finance rules with or without fossil fuels:

Two separate open letters released over the last week are calling on the federal government to pick up the pace on a sustainable finance taxonomy to align investments with a 1.5°C climate target, with one of them urging Ottawa to keep fossil fuel investments out of the rulebook.

The taxonomy has been under development since 2019, and delays in getting it done are “already holding Canadian companies back from taking urgently needed climate action,” 230 members of Canada’s Clean50 told Finance Minister Chrystia Freeland, Environment Minister Steven Guilbeault, and Natural Resources Minister Jonathan Wilkinson in an open letter released Monday. The slow pace is “putting our emerging cleantech and transitioning carbon-intensive sectors at increasing competitive disadvantage.”

“We encourage the government to quickly deliver a taxonomy to define sustainable investments,” wrote 55 climate groups, in an eight-page submission to the same three ministers coordinated by Environmental Defence Canada. “But not if it includes fossil fuel-related investments as eligible for the sustainability label.”

[Energy Mix Publisher Mitchell Beer is a member of Canada’s Clean50 and signed on to the Clean50 letter on behalf of Energy Mix Productions.]

Recommendations for a Canadian taxonomy were published in 2022 by the federally-appointed Sustainable Finance Action Council, which disbanded in disappointment last month after its three-year term ended with implementation still stalled. The 25-member council “developed a framework for a made-in-Canada taxonomy of climate-focused investments, which would categorize them as either ‘green’ or ‘transitionary’ depending upon the levels of greenhouse gas emissions they produce and whether they are likely to continue to be used well into the future,” the Globe and Mail wrote in early April.

“The group also recommended a speedy move to mandatory climate-related financial disclosure for private companies.”

The Clean50 letter picks up on that approach. “We are concerned that Canada has become an outlier amongst its G-7 peers and most of our other trading partners, and is falling further behind with every passing day,” it states. “A Canadian taxonomy can make Canada a more attractive global investment destination, accelerating much needed transition finance and facilitating the deployment of new climate innovations,” while helping companies to “finance their transition plans and decarbonize operations at a faster pace.”

While the Clean50 said the taxonomy will also “help combat greenwashing and support our collective desire for enhanced transparency in corporate disclosures,” that’s one dimension of the concerns raised in the Environmental Defence Canada submission.

“There are key criteria which are necessary for [the taxonomy] to be credible, and for it to receive support from environmental and climate experts,” the climate groups write. “A Canadian taxonomy must: be consistent with keeping warming below 1.5°C; exclude fossil fuel-related projects; respect a just transition and Indigenous rights; and formally include balanced expertise in the next stages of governance and decision-making, including independent climate representatives.”

The two submissions agree that Canada is lagging dozens of other countries that have already introduced their own taxonomies. “This stuff isn’t new,” said Barbara Zvan, president and CEO of Ontario’s University Pension Plan (UPP), who instigated the Clean50 letter. “Having disclosure and a taxonomy is now the recognized infrastructure that you need to have sustainable finance. This is not experimental anymore.”

“In the absence of clear rules, financial flows are not yet moving in the right direction,” the 55+ climate groups write. “The majority of people in Canada support new regulations to clear up greenwashing in the financial sector. Yet Canadian financial institutions face regulatory complaints for making untrue sustainability and net zero claims.”

A taxonomy would hold the financial sector accountable for its climate claims by defining “which projects and investments are ‘sustainable’ and which are ‘not’,” the climate groups’ letter adds, “but only if it is credibly aligned with ambitious climate action.”

The groups’ criteria for a credible taxonomy included exclusion of expanded oil, gas, or coal production, and of carbon capture technology attached to fossil fuel projects, alignment with the 1.5°C temperature threshold in the Paris climate agreement, and assessing company-wide alignment, not just individual projects.

Zvan said the taxonomy doesn’t include natural gas extraction, but it does have room for carbon capture and storage (CCS) attached to existing gas production. “It’s not exploration and production,” she said. “It’s how do I decarbonize and reduce methane.” Given the outsized share of emissions that come from the fossil fuel sector, “you can look at the challenges in Canada. If we’re going to meet our 2030 targets, we have to deal with the sector.”

Independent analysts have long questioned whether CCS systems can consistently capture as much carbon as their proponents claim, consistently and affordably enough to help countries decarbonize. Last fall, the industry itself admitted the technology won’t be ready for prime time by 2035, much less a 2030 deadline. Zvan said that level of technology assessment is an important part of the taxonomy.

“For CCS, it’s absolutely pertinent,” she told The Energy Mix. “There’s risk associated with it,” and “that’s where the taxonomy comes in,” providing thresholds that then trigger a risk assessment.

“Then it’s up to investors to decide their risk appetite. Today, the investor is making those choices without the right information,” despite the large volume of emissions the sector produces.

The climate groups’ letter still calls for a more expansive standard.

“Excluding an activity or project from the taxonomy would not deprive it of funding—but the definition of ‘sustainable’ investments must truly align with the name,” the groups say. “There should not be a Canadian taxonomy unless it credibly aligns with the overarching goals of the Paris agreement.”

So what is this all about? Basically, in order for pension funds and other funds to properly align with the goals of the Paris agreement, they need to know there's a common, standardized taxonomy on ESG that all investors strictly adhere to.

As stated above, recommendations for a Canadian taxonomy were published in 2022 by the federally-appointed Sustainable Finance Action Council which Barb was part of but their made-in-Canada taxonomy of climate-focused investments, which would categorize them as either ‘green’ or ‘transitionary’ depending upon the levels of greenhouse gas emissions they produce, was never adopted by the CSSB.

Moreover, the group recommended a speedy move to mandatory climate-related financial disclosure for private companies.

What's the big deal? The big deal is without a universal, legally binding taxonomy, ESG data will be all over the map and rendered ineffective or useless.

Canada's large pension funds are leaders in sustainable finance.

It was announced last week that CDPQ and BCI shared the top spot global pension funds included in the fifth edition of the Global SWF’s GSR Scoreboard published on July 1, with sovereign wealth funds Temasek (Singapore), ISIF (Ireland) and NZ Super Fund (New Zealand).

In order to remain leaders in sustainable finance, the Maple Eight, Nine, Ten, Eleven as I like to call them need to advocate for meaningful changes in the way ESG data is disseminated and adopted in throughout the industry.

This is why they are emphasizing the importance of uniform sustainability reporting and warning that exemptions could undermine global alignment and investor confidence.

Alright, let me wrap it up there, please take the time to read the letter to CSSB Chair Charles-Antoine St-Jean here.

Below, M.P. Adam Chambers questions President & CEO of University Pension Plan, Ontario, Barbara Zvan on ESG at Finance Committee on June 13, 2023.