Op-Ed By: Bailey Church: Partner, Accounting Advisory Services at KPMG Canada

The public sector needs to lead by example in Canada’s adoption of sustainability reporting.

The extreme weather events in Canada in recent years, from unprecedented heatwaves to devastating floods, are ringing alarm bells for urgent climate action across both the public and private sectors. With 56 per cent of companies suffering a hit to their profitability last year, the immediate need for comprehensive resiliency measures and robust ESG reporting is more prominent than ever. Organizations need to prioritize identifying, assessing and reporting on climate risk, especially with the new regulatory pressure related to Canada’s anti-greenwashing legislation.

At recent meetings of the United Nations Trade and Development’s International Standards of Accounting and Reporting working group this past week in Geneva, Switzerland, it was clear that Canada is not alone in this sense of urgency. Several countries around the world have already aligned with the International Sustainability Standards Board standards and have announced a requirement for sustainability reporting that is subject to assurance for public interest entities.  There was also wide recognition that public sector entities also have a vital role to play in this reporting journey, and the time to start is now.  Considering that an estimated 89% of all land in Canada is owned by the Crown, it is clear that our sustainability objectives will be challenged without a proactive public sector reporting strategy.

From policy to practice: Public sector’s role in sustainable reporting

Standards are now here to make this ambition a reality. At the end of October, the International Public Sector Accounting Standards Board announced the release of an exposure draft of the very first climate disclosures standard specific to the public sector. Building off the climate standard previously issued by the International Sustainability Standards Board, IPSASB considered modifications to reflect the unique public sector environment, such as its role as policy setter and regulator. IPSASB’s release addresses something that was cited by many public sector entities as the primary obstacle to advancing their reporting – the lack of standards specific to their environment  

 The public sector is in a unique position to influence both policy and public perception. With control over vast resources and infrastructure, from transportation networks and energy grids to public buildings and natural reserves, the sector’s commitment to sustainability is essential for driving meaningful change. For instance, municipalities can spearhead sustainable urban planning by integrating green spaces, promoting public transit, and implementing energy-efficient building codes. Crown corporations managing utilities can lead by investing in renewable energy sources and enhancing water conservation measures. Without public sector leadership, sustainability reporting will almost certainly miss the mark. A proactive reporting strategy enables the public sector to tell its sustainability story in a transparent and trusted manner. The public sector can also encourage private companies to follow suit by highlighting the imperative of accountability and transparency across industries.

Canada has proudly made significant commitments on the global stage to achieve net zero emissions by 2050, and to halt biodiversity loss. Many provinces and municipalities have followed suit with their own commitments. Yet without comprehensive sustainability reporting standards for the public sector that are widely adopted nationally, how will we ever know that we fulfilled our commitments? How can we be transparent with our stakeholders, and truly demonstrate accountability when most public sector entities don’t even have a plan for adoption of reporting standards? The Canadian Sustainability Standards Board has already issued proposals on how the ISSB standards will be adopted in Canada. These proposals are expected to become a formal standard in December 2024. Together with the IPSASB climate release, there is finally a standards framework enabling public sector leadership. While governments worldwide have collaborated on vital policy and regulatory solutions, they have yet to provide sustainability reporting for their own government reporting entities. This presents a significant obstacle to global sustainability goals. Olivier Boutellis-Taft, CEO of Accountancy Europe expressed this urgency succinctly, in noting that “There will be no sustainability transition without the public sector taking the lead.”

Making sustainability reporting sustainable

At the moment in Canada, many entities who do some form of sustainability reporting do not have any level of assurance attesting to the reasonability of their reports. This is not surprising, as central government agencies and regulators have yet to mandate assurance on sustainability reporting.  International experience suggests that reporting mandates and assurance mandates typically go hand in hand, to support public trust in the reporting process. With a sustainability assurance standard anticipated for release in 2025, this is likely to emerge as a requirement for any entity mandated to report. Currently, this comprises federal Crown corporations and federally regulated industries. Mandated reporting aligned with the ISSB standards is anticipated for publicly listed entities by the Canadian Securities Administrators. Certain Canadian companies with operations in the European Union are also being required to report in accordance with the EU’s Corporate Sustainability Reporting Directive. Sustainability reporting by all other entities in the public and private sector remains voluntary. The Government of Canada did, however, announce its intention to introduce mandatory climate-related financial disclosures for large, federally incorporated private companies through an amendment to the Canada Business Corporations Act. At the same time, the Government communicated its readiness to work with provincial and territorial partners to expand sustainability reporting across the Canadian economy, including efforts to engage small and medium enterprises.  

The enactment of Bill C-59 on June 20, 2024—a vital step for enhancing trust in sustainability reporting—sends a clear message that greenwashing in any form will not be tolerated in Canada and imposes steep penalties for non-compliance. Bill C-59 broadly applies to environmental and social claims in the public domain. This creates a challenging environment for many public and private sector entities who are being mandated to report, and who are doing so without any form of assurance, creating exposure to penalties under Bill C-59. To encourage entities to step forward in their sustainability reporting journeys, it will be important for Canada to balance this exposure and enable entities to build capacity to report in a verifiable manner.

Opportunity for Canadian leadership

With KPMG’s 2024 CEO Outlook revealing that ESG is the top operational priority for Canadian CEOs, it’s reasonable to anticipate an enhanced scrutiny of the sustainability reporting environment, and sustainability claims. Inadequate reporting can severely impact an organization’s reputation. In this enhanced environment of scrutiny and transparency, the public sector has the opportunity to lead by example in advancing sustainability reporting and building a community of practice. Canada has a proud history of leadership in environmental stewardship and sustainability. Our natural resources, vast landscapes, and commitment to preserving the environment are integral to our national identity. Adopting and mandating robust sustainability standards is not just about compliance; it is about demonstrating our collective commitment to a sustainable future. The public sector must lead in Canada’s sustainability journey through both the proactive adoption of sustainability reporting and assurance standards, as well as regulations mandating reporting across the Canadian economy.  The public sector’s willingness to step up and lead the sustainability reporting journey through its own example will ultimately determine whether Canada realizes the full potential of its ESG ambitions.

By: Bailey Church, Partner, Accounting Advisory Services – KPMG Canada

Follow ESG News on LinkedIn