A new law setting out due diligence and disclosure rules for forced labour and child labour in supply chains will receive its final reading in the House of Commons.
With the ESG landscape evolving at a rapid pace, MLT Aikins is pleased to offer a curated list of timely and relevant ESG articles to help you stay current. Learn more about our ESG services.
Modern slavery diligence law set for final reading in February 2023
In February, a new law setting out due diligence and disclosure rules for forced labour and child labour in supply chains will receive its third and final reading in the Canadian House of Commons. Mirroring modern slavery laws in the U.K. and Australia, this new law will require certain companies and government entities to make annual reports which outline their “policies, due diligence processes, and measures taken to remediate forced labour or child labour.” Read more from SHARE.
Deforestation in Paraguay leads to supply chain risk for BMW and Jaguar Land Rover
Survival International, an NGO, filed an official complaint with the OECD against Pasubio, an Italian leather manufacturer linked to many of the world’s automobile manufacturers such as BMW and Jaguar Land Rover. According to the complaint, Pasubio has been purchasing leather through tanneries in Paraguay. In turn, this leather comes from cattle ranches that have been deforesting and occupying the land of the Ayoreo tribe, South America’s only remaining uncontacted Indigenous people outside of the Amazon rainforest.
This complaint outlines the importance of supply-chain due diligence. In this case, BMW and Jaguar Land Rover are not accused of directly affecting the Ayoreo or their lands, but, because one of their key suppliers sources its inputs from Ayoreo territory, both BMW and Jaguar Land Rover are now linked to this formal complaint. Read more from Survival International.
Credits for CCUS and a new carbon price – 2023 updates to TIER
On January 1, 2023, Alberta’s Technology Innovation and Emissions Reduction (TIER) carbon-pricing system implemented various updates designed to promote carbon capture utilization and sequestration (CCUS) as well as price stability. Under the new TIER updates, CCUS projects can earn sequestration credits and receive capture recognition tonnes. These sequestration credits can be recognized under the federal government’s Clean Fuel Regulations – unlike general offset credits. Accordingly, some expect that these credits will trade at a premium over general offset credits. Read more about Alberta’s new TIER system regulations from Daily Oil Bulletin.
Puerto Rican communities use racketeering laws to sue major contributors to climate change
Sixteen Puerto Rican communities have sued seven oil firms, three coal firms and hundreds of other organizations and operators using the U.S.’s Racketeer Influenced and Corrupt Organizations Act (RICO). RICO was originally used in the 1970s to target criminal enterprises like the mafia or motorcycle gangs. This marks the first time that RICO has been employed to target climate change.
The plaintiffs in this case are 16 of the Puerto Rican communities that Hurricane Maria hit hardest in September 2017 when it left thousands dead and led to widespread food shortages and the longest blackout in U.S. history. These communities have sued the defendants, which include ExxonMobil, Shell, BP and Rio Tinto, in consumer fraud, antitrust, fraudulent misrepresentation, conspiracy to defraud and racketeering, among others. Read more from The Guardian.
EU’s proposed “crisis contribution” from oil and gas companies becomes the subject of a lawsuit filed by ExxonMobil
The EU has announced plans to implement a “crisis contribution” or windfall tax on major oil and gas firms. The tax targets the major profits that these firms captured in 2022, such as ExxonMobil, which claimed nearly $20 billion in Q3 of 2022 alone. This is being called a “windfall” tax after supply uncertainty from the Russian invasion of Ukraine led to surging energy prices in the EU. While the oil companies were not responsible for the crisis, they profited significantly from the outcome.
In response, ExxonMobil has filed a lawsuit against the EU. In its lawsuit, ExxonMobil claims that in implementing the proposed tax, the EU is exceeding its legal authority and is counter-productive because it undermines investor confidence and discourages companies from investing in the EU. Read more from the BBC.
COP15 closes with a “landmark agreement” for the global protection of earth’s biodiversity
On December 19, approximately 190 countries came to a collective agreement to protect earth’s biodiversity at “a scale of conservation that we haven’t seen ever attempted before” at COP15 in Montreal. The signing countries agreed to 23 environmental targets – the primary target being to protect 30% of earth’s lands and oceans by 2030. Currently, only around 17% of lands and 8% of oceans are protected from activities like fishing, farming and mining. The parties also agreed on management terms for the remaining 70% of the earth’s lands and oceans with a focus on managing high-importance areas for biodiversity and requiring big businesses to disclose their effects on biodiversity as well as other monitoring mechanisms.
ISSB announces three changes in December: new definitions, new advisers and new rules
ISSB announces plans to clarify its definition of sustainability and incorporate new research; announces two new Special Advisers
On December 14, the International Sustainability Standards Board (ISSB) shared details of its progress on refining its definition of sustainability to “the ability for a company to maintain resources and relationships with its dependencies and impacts within its whole business ecosystem over the short, medium and long term.” According to the ISSB, this articulation of sustainability better links ESG concepts and will allow companies to better explain how sustainability promotes financial value to investors.
The ISSB also confirmed that it was researching ways to complement the Climate-related Disclosures Standard with additional disclosures on biodiversity and the human capital aspects of the energy transition.
Finally, the ISSB also announced that it has appointed two new Special Advisers: Karin Kemper and Geordie Hungerford. Karin Kemper is the World Bank’s former Global Director for Environment, Natural Resources and Blue Economy, while Geordie Hungerford is the CEO of the First Nations Financial Management Board in Canada and is an experienced lawyer in the areas of finance, securities, corporate law and Indigenous law. Read more from the IFRS Foundation.
ISSB implements new rules for Scope 3 GHG emissions disclosures
On December 15, the ISSB announced it will implement guidance and reliefs for companies abiding by the requirement to “disclose Scope 3 GHG Emissions when material” under ISSB standards. This announcement confirms the ISSB’s earlier position that Scope 3 emissions disclosure is required for investors to fully understand a company’s transition risk when transitioning to a net-zero or green economy. Read the press release from the ISSB.
IFRS announces new advisory group to help develop global sustainability disclosure
The International Financial Reporting Standards Foundation announced on December 21 that it has created a new advisory group, the Sustainability Standards Advisory Forum. The Sustainability Standards Advisory Forum is made up of 13 representatives with reporting technical expertise from various countries and regions around the world including Canada. Until the Canadian Sustainability Standards Board is established later this year, CPA Canada will provide national and regional input on major technical issues. The goal of the Sustainability Standards Advisory Forum is to work with the ISSB to develop a “global baseline of sustainability-related disclosure for capital markets.” Read the press release.
European Union set to become first market requiring a carbon border adjustment on imports
On December 13, the EU reached an agreement to implement a tariff on imports based on the greenhouse gases that were emitted to make those imports. The so-called “carbon border adjustment mechanism” marks the first time that climate change regulations form part of global trade rules. The tariff is designed to protect Europe’s domestic producers who must comply with the EU emissions-trading system from foreign competitors who do not have to comply with similar costs from carbon pricing mechanisms in their jurisdictions. The U.K., U.S. and Canada are considering implementing similar rules. Read more from the Wall Street Journal.
Are you “green” enough? Details of Sustainable Finance Action Council’s recommendations for Finance Canada’s “green taxonomy” have been released
The Sustainable Finance Action Council (SFAC) – a government-appointed body consisting of representatives from financial institutions, insurers and pension funds – submitted recommendations on a new “green taxonomy” to Finance Canada in fall 2022. SFAC’s recommendations contained a framework designed to help define which investments in Canada may qualify as “sustainable” or “green” with consideration of project emissions and other ESG factors such as Indigenous reconciliation.
This proposed taxonomy is still only a recommendation to Finance Canada, which will ultimately set out a final framework. It is not clear when Finance Canada will release its final framework. Read more from the Globe and Mail.
HSBC builds on its energy policy aimed at phasing out fossil fuel financing
On December 14, HSBC announced it would no longer provide financing for new oil and gas projects or for new metallurgical coal mines. In its statement, HSBC said this policy was designed to help drive down greenhouse gas emissions, facilitate an orderly transition for long-term resilience and “support a just and affordable transition.” The new policy will also require HSBC’s current clients operating in the energy sector to provide transition plans that are consistent with HSBC’s climate targets in order to receive continued financing. Read more from ESG Today.
This announcement builds on HSBC’s previous energy policy announcements which, driven by shareholder activism, include its decision to phase out financing for both thermal coal mining and coal-fired power generation. Read more on these earlier policy announcements.
Anonymous whistleblower claims Enviva is misleading the public about its environmental policies
An anonymous whistleblower claiming to have been an Enviva employee says that the world’s largest wood chip producer for biomass (burning wood to generate power, often marketed as a replacement for coal) is not telling the truth in its PR materials. Enviva has claimed that, to produce wood chips for biomass, it uses scrap wood left behind from other processes, such as tree tops and limbs leftover from sawmills or traditional timber harvests. According to the whistleblower, however, Enviva is harvesting whole trees to create its biomass chips and failing to sustainably manage the forests it profits from. Enviva has positioned itself as a “green” alternative to coal and as a producer that encourages more tree growth and fights climate change.
In response, Enviva said the whistleblower's claims were not credible. Read more from Gizmodo and Mongabay.
Who can call themselves “ESG Experts”?
Kim Schumacher argues that “competence greenwashing” – where people claim ESG expertise they do not really have – could become a major risk in the ESG industry. Schumacher's warnings, originally published in 2020, have recently received renewed focus on LinkedIn, amid a global spike in ESG job postings. According to Schumacher, investors now view ESG risks as major and material financial risks. Due to this, companies have rushed to begin ESG integration. Many businesses have been left scrambling for ESG experts.
Why building trust with stakeholders should be a guiding principle for all business decisions
When corporate stakeholders have conflicting demands or goals, a board may be unable to actually resolve the conflict. That does not mean they should absolve themselves from trying to benefit all of their stakeholders and foster trust. Instead, boards should ensure that their decisions are not being made in a vacuum, and that they actually address or at least consider the needs of all stakeholders. The writers of this article suggest that the key to doing this is ensuring that trust fostering is more than just an “agenda item,” and is instead treated as a principle or goal that guides all governance decisions. This should help ensure that boards build and maintain trust with their stakeholders.
Collaboration with Indigenous communities should be the “new paradigm” for mining companies
Indigenous communities are not interested in being stakeholders in traditional transactional relationships with mining companies, argues Jason Rasevych, partner at Deloitte Canada. This “new paradigm” involves a shift away from “standard impact benefit agreements” between Indigenous communities and mining companies and a move toward partnerships emphasizing communication, mutual trust and respect. Not only can Indigenous communities help offer ESG opportunities, they can also help mining companies become better stewards of the land generally.
Mining companies should consider a number of collaborative actions around their ESG data, reporting and stakeholder engagement related to Indigenous communities. Read Rasevych’s article in CIM Magazine.
Energy industry investing group predicts 15 ESG trends for investors to watch in 2023
On December 31, Pickering Energy Partners, an energy-focused investment advisory group, published its list of “The Top 15 Anticipated ESG-Related Considerations That Will Influence Strategy in 2023.” Read all 15 here.The views expressed in the article do not necessarily reflect the views of MLT Aikins LLP or the writers of this newsletter.
Companies that value ESG principles have higher profits and attract more workers, capital and revenue
According to the Moore Group, recent findings challenge the common belief that a more sustainable future must come at the expense of business growth or profit. Research showed that companies that express commitment to ESG disclosure and principles saw their profits increase by an average of 9.1% over the past three years. In particular, over the 2019-2022 timeframe, companies that made public statements indicating a commitment to ESG principles found it easier to attract new workers and raise new capital and experienced greater revenue growth. Moore Global found that companies which valued ESG principles, over half of which were companies who released ESG documents or reports, accounted for $3.1 trillion in revenue growth in 2019-2022. Companies which openly disregarded the importance of ESG principles were, on average, unable to grow their revenue at the same rate. Read more from Capital Monitor.
68% of Canada’s largest companies link some portion of executive pay to meeting ESG targets
According to a new study, most of Canada’s largest public companies have started basing executive pay on the company’s ability to meet ESG targets. In fact, 68% of companies on the S&P/TSX60 Index of large corporations base some portion of the pay they give to chief executives on their ability to meet ESG targets. Read more from the Globe and Mail.
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