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ESG Market in Canada Faces Greenwashing Risks Due to Poor Data

The poor quality of sustainability-related data is making it harder for market experts in Canada to establish the real effect of investments labeled as green, according to a survey by the Institute for Sustainable Finance.

Just 6% of respondents, including asset managers, researchers and lenders were “very satisfied” with the availability of sustainability-related data that can be accessed via public and commercial sources. The survey of 84 professionals from public and private sector institutions including the nation’s largest banks went on to show 45% reported being “somewhat satisfied,” 44% “not very satisfied” and 5% “totally dissatisfied.”

“Missing values and incomplete information are indicated to be the top issues,” ISF researchers Ryan Riordan and Will Hamilton wrote in the report. “Investors seeking to make retirement investment decisions are unable to evaluate the financial impact a changing climate could have on their portfolio.”

The lack of consistent data collection for greenhouse-gas emission metrics presents obstacles to properly assess companies’ progress, some of which have already pledged to reach carbon neutrality. Access to information is, however, set to improve as regulators in North America ramp up efforts to address environmental risks and climate change.

Stepping Up

In Canada, the Office of the Superintendent of Financial Institutions last week issued a draft version of guidelines on climate risk management, which includes financial disclosures aligned with the Task Force on Climate-Related Financial Disclosures. TCFD is chaired by Michael Bloomberg, founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.

Also the Canadian Securities Administrators, a group made up of provincial and territorial regulators, is working on a set of climate-related disclosures for issuers. Early this year they released a guidance for investment funds.

In the US, Securities and Exchange Commission last week released a plan to stamp out greenwashing in the financial industry, including requiring funds focused on environmental factors to report the carbon footprint and intensity of the companies they invest in. Alternatively, funds could avoid the obligation if they say emissions don’t play a role in their approaches to environmental, social and governance investing.

“A major reallocation of capital will be required to transition Canada to its goal of net zero carbon emissions,” the report said. “To make the decisions that will get us there, financial institutions, regulators, investors and other stakeholders will need quality information and data about corporate GHG emissions and climate risks.”

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