As the spotlight on climate change intensifies, Canadian companies are facing additional scrutiny from regulators, investors and other stakeholders to meet environmental, social and governance (ESG) criteria. Some companies are taking a leading role in lowering carbon emissions and are at the forefront of the energy transition. Others are responding to incentives and pressure from government and stakeholders to reduce emissions. Despite how companies end up on the greener path, ESG demands are of increasing importance.
Below are key trends Canadian companies should be aware of as they respond to mounting pressures related to carbon emissions.
- In several provinces, large, distinct markets are developing for various forms of carbon-offset trading as an incentive for lowering emissions. Companies that reduce emissions or lower carbon intensity of fuels can generate credits and monetize part of their assets or help finance development projects. Larger emitters can purchase these credits to help meet their compliance obligations. Other companies can purchase them to meet reduced or net-zero, carbon-emission goals.
- Federally, Canada is implementing a clean fuel standard under the Canadian Environmental and Protection Act regulatory regime, coming in Q4 2022, requiring fuel suppliers to reduce the lifecycle carbon intensity of fossil fuels they supply and create another offset credit trading regime. An emissions offset regime for large emitters will also be introduced under the Greenhouse Gas Pollution Pricing Act, expected in Q4 2021, that will create a different set of federally tradeable emission offsets.
- Another challenge for oil and gas, mining, and infrastructure companies under the current regulatory regime is getting new major projects approved, particularly under the new federal Impact Assessment Act, introduced in 2019, which looks at the impact of projects on Canada’s ability to meet emission-reduction targets.
- Carbon capture, utilization and storage (CCUS) is an evolving industry that will play an important role in reducing carbon emissions and could generate substantial carbon offset credits. Alberta and Saskatchewan have seen significant public and private investment in CCUS, and Alberta is implementing a new competitive process to obtain carbon sequestration rights. Federally, Canada is investing C$319-million over seven years to promote CCUS projects.
- Canadian companies are also facing ESG pressures from investors and other stakeholders, pushing them to pledge net-zero emission targets. In addition, companies in certain industries that do not meet ESG quotas are finding it more difficult to obtain financing and insurance. However, a market is developing for “green bonds” to incentivize ESG initiatives that tie quantum of interest payments to certain ESG metrics.