“Going green”has become a major Canadian business story in the past year. The media carries daily reports on the growing - and vocal - demand from the public for companies to be more accountable for their actions as they affect the environment.
Governments are listening to the public. Federal, provincial and municipal politicians are finding it necessary to respond to the public's demand for action on climate change and energy efficiency.
At the federal level, Canada's Environment Minister announced the government will enact greenhouse gas emission limits to take effect in 2010 that will "put a price on carbon" based on the "polluter pays" principle and implement a cap-and-trade regime. The initial focus will be on some key industrial sectors, including electricity generation, oil and gas, forest products, smelting and refining, iron and steel, iron ore pelletizing, potash, cement, lime and chemical production.
Recent provincial initiatives include the following:
- Quebec already implemented a 1¢/litre gasoline tax.
- British Columbia announced a carbon tax to be phased in starting July 1, 2008.
- Alberta set specific targets for greenhouse gas reductions for specified facilities and credits that can be traded and used as offsets.
Ontario, Canada's most populated province, published a broad blueprint for reducing greenhouse gas emissions which, while stopping short of caps or taxes, encouraged the federal government to introduce a national carbon trading system using 1990 emissions levels as the baseline, as in the Kyoto Protocol.
Carbon Trading and Voluntary Offsets
The Montreal Exchange announced that on May 30, 2008, it will start trading in carbon credits in partnership with the Chicago Climate Exchange.
In addition, some senior executives are looking at voluntary carbon "offsets" as a way to become "carbon neutral." In addition to contributing to green initiatives and technologies, this generates public relations benefits and demonstrates leadership on this important issue in the corporate community.
As well as anticipating the regulatory impact of greenhouse gas emissions, businesses are under pressure from their customers to "green" their product line, which involves "greening" the supply chain. For example, last summer,Wal-Mart Canada unveiled its Supply Chain Sustainability Scorecard to assess their network of suppliers on the basis of environmental impact, effort and improvement. Other Canadian companies have, or are in the process of establishing similar "green procurement" strategies.
Disclosure Obligations for Public Companies
This steady stream of new initiatives affects all companies, regardless of size, corporate structure, or industry sector. All need a compliance strategy. For public companies, the public's demand for "greener" business and "greener" products is also translating into calls for better environmental risk disclosure.
Currently, Canadian public companies are required to:
- Make timely disclosure of material changes: They are subject to statutory civil liability for disclosure, which contains a misrepresentation. It's important to note a misrepresentation includes the omission of a necessary material fact.
- Discuss environmental policies and risks: In their quarterly and annual Management Discussion & Analysis, Canadian public companies must discuss known trends and uncertainties. In the Annual Information Form, they must include a discussion as to environmental policies that have been implemented and general risks inherent in the business, including environmental and health risks.
Many large issuers, such as banks and insurers, already expanded the discussion of environmental risks in their public disclosure to deal with greenhouse gas emissions and several are setting dates by which they intend to become "carbon neutral."
In February 2008, the Ontario Securities Commission (OSC) published a report of its review of 35 issuers' compliance with existing environmental reporting obligations. The review found most provide only a qualitative, but not a quantitative discussion, of the impact of new environmental standards.
This is an early warning from the OSC better disclosure is required. As greenhouse gas emission limits establish over the next year or two, environmental compliance costs will become significantly more certain, and likely need to be disclosed to the market.
Time to Take Strategic Action
The pressure on Canadian companies from the public, stakeholders and governments to go green will increase. Public companies will need to respond to heightened scrutiny and tougher requirements for disclosure of their environmental compliance, costs and risks.
In periods of change and transition to new technologies, demonstrated leadership presents greater risks and rewards. Given the heightened public concern over climate change and energy sustainability, this is no time to be timid.
Companies that elect to be proactive and show leadership have an opportunity to demonstrate how social good and economic success converge.