Fossil fuel companies are pressuring a financial standards agency to weaken proposed rules to report on greenhouse gas emissions. If the board caves, it could threaten Canada’s economic position through the energy transition, experts say.
The Canadian Sustainability Standards Board (CSSB) is currently studying whether Canada should adopt an internationally recognized set of standards for emissions disclosure. The CSSB is not a federal body, but is an influential agency Canadian financial regulators are looking to in order to inform the rules they will set. The goal is to create a benchmark for emissions reporting to give investors a sense of how risky an investment is as the energy transition unfolds.
Simply put, the higher a company's emissions, the more vulnerable it is in a world increasingly focused on reaching net-zero emissions by mid-century. That’s why investors want to know how exposed companies are to the energy transition.
In March, the CSSB launched a consultation process to gather feedback on implementing the international standards, including whether fully adopting the standards, or constructing rules unique to Canadian companies would be useful. More than 20 countries representing over half of global GDP have already adopted the international rules.
This month, the CSSB published the submissions it received, revealing significant pushback from fossil fuel companies and industry associations.
Companies like Enbridge and TC Energy, alongside fossil fuel lobby groups including the Canadian Gas Association, the Canadian Fuels Association, the Mining Association of Canada, and the Canadian Association of Petroleum Producers, submitted recommendations to the CSSB calling for less stringent emissions reporting rules, according to an analysis of the submissions from U.K.-based think tank InfluenceMap.
Common to many of those submissions was an argument that Canada should align with the United States Securities and Exchange Commision (SEC) rules, which do not require companies to report their Scope 3 emissions. In the fossil fuel industry, Scope 3 refers to emissions when the product is ultimately burned, like what comes from a vehicle’s tailpipe. (Scope 1 and 2 emissions, which include a company’s other, more directly controlled, emissions, are already part of the reporting structure.)
“This would mean companies would not have to disclose the full picture of their contribution to climate change to investors or policymakers, and would mean Canadian regulation would fall out of step with the ‘global baseline’ of climate disclosures promulgated by the ISSB, said Cleo Rank, a senior policy analyst with InfluenceMap, in a statement.
Rank says following the SEC’s lead would mean making the same mistakes as the U.S. made in response to pressure from its own industries.
“The SEC’s rules were weakened following significant political and corporate pushback — Canada does not have to follow suit,” she said.
For fossil fuel companies, Scope 3 emissions represent the overwhelming majority of emissions related to their business (about 80 per cent). It is a compelling metric that helps investors understand, “more than almost any other piece of information, how exposed that investment is to transition risk,” said Adam Scott, executive director of Shift: Action for Pension Wealth and Planet Health, in an interview with Canada’s National Observer.
He says that is precisely why Canadian fossil fuel companies are fending off efforts to disclose this information.
“If you're Enbridge, and you're shipping oil, and your Scope 3 emissions are high, we [know we] have to transition away from the product,” he said. “What it signals to the investor is… this company is really likely to be disrupted as we transition.
“So of course, Enbridge is doing everything in its power to not have to disclose that to investors because investors will run away screaming from the company, because they don't want to be exposed to that climate risk.”
In its five-page submission to the CSSB, Enbridge said proposed new rules should address “Canadian-specific reporting needs.”
“Enbridge recommends that the requirement to report Scope 3 GHG emissions and scenario analysis be removed… which would align more closely with the SEC,” the gas giant said in its submission. If Scope 3 emissions are included, the company said it would need three to five years to begin reporting it, pushing full emissions disclosure off until close to 2030, or beyond depending on the pace of implementation.
Matt Price, executive director with Investors for Paris Compliance, told Canada’s National Observer the fossil fuel industry is going to fight any progress on emissions disclosures, and that he finds it concerning that there is such fierce pushback to “basic metrics,” let alone requiring companies actually act on the metrics by cutting emissions.
Enbridge has “two different things they say to two different audiences,” Price said.
“What they're telling investors is they made a commitment to improve their own Scope 3 emissions disclosure… Then they turn around and use the excuse that the Americans are dragging their feet to say we should drag our feet too.”
Price said the SEC rules are “a floor, not a ceiling,” and so Canadian companies could align with both international and American rules by adopting the stronger standard.
Emissions disclosures are just one part of emerging rules to help align global finance with efforts to limit global heating to 1.5C – the goal of the Paris Agreement. The U.K. has launched a transition plan task force to develop guidelines for credible transition plans, and it is expected other rules to standardize things like nature and biodiversity protection could materialize too.
As these rules develop, it’s crucial Canada stay in lockstep rather than going it alone, Scott said.
“A made-in-Canada approach is completely the wrong thing to do here,” he said. “These are about basic international standards and so going your own way is a signal to the market to avoid Canada.”
For global investors “it’s a big red flag” if Canadian companies are not transparently disclosing the risks they face in a less fossil fuel-reliant future.
“If the global oil market is going to go into decline, which experts on several fronts have told us is going to happen within the next couple of years, we're going to see a decline in global oil demand [and] that's going to have very material financial impacts on any company in that supply chain,” Scott said.
Fossil fuel companies like Enbridge “see the writing on the wall. They know they're exposed to those risks, [and] they know that big investors are going to treat them differently if they disclose those risks as they should.”
In a statement, Enbridge reiterated its position that it believes Canada should align with the United States because differing standards is “problematic.” The company did not explain why it would not support the more ambitious international standards that would also satisfy American disclosure rules.
“The tracking, measuring and reporting of scope 3 emissions from sources not owned or controlled by the company is extremely difficult – particularly after the product is refined and developed into thousands of products,” said Enbridge spokesperson Gina Sutherland. “This complexity is widely acknowledged by environmental and accounting organizations.”
“Despite the challenges around disclosing Scope 3 emissions, we have been continually improving our Scope 3 disclosures,” she added. “We continue to work with others to develop guidance for reporting scope 3 emissions in our sector and to work with regulators on the climate-related disclosure requirements in Canada and the U.S.”
This story has been updated with comment from Enbridge.
Comments
A few observations.
1. I've never heard of the Canadian Sustainability Standards Board. A quick look at the associated website suggests it is a recent(ish?) broad industry (as opposed to governmental) invention. Everyone is free to create whatever organization they wish to, and it appears in this article to be given standing which is perhaps undue.
1.5 "More than 20 countries representing over half of global GDP have already adopted the international rules."
From where is this statement sourced?
From the following site https://www.ifrs.org/groups/international-sustainability-standards-boar… comes this info regarding the ISSB:
"The Trustees announced the formation of the ISSB on 3 November 2021 at COP26 in Glasgow."
Is this young (non-governmemtal) organization, publishing non-binding recommendations what Mr. Woodside is referring to?
2. "That’s why investors want to know how exposed companies are to the energy transition."
Investors in fossil fuels aren't naive; nor are they children needing their hands held; nor are they angels. They know what they are investing in and that the product will be burned, somewhere, and continue to add to the problem which afflicts and endangers the entire biosphere as we know it. It's pretty easy to figure out how exposed fossil fuel companies, and investments therein, are to the energy transition: 100%. The only question is when that exposure transitions to become a liability.
3. "“If you're Enbridge, and you're shipping oil, and your Scope 3 emissions are high, we [know we] have to transition away from the product,” he said. “What it signals to the investor is… this company is really likely to be disrupted as we transition."
Sorry, but this statement is beyond silly, and the levels of embedded naivety are stunning.
4. If you're fixated on Scope 3, as some clearly are. and envision it as some miracle data point, you can divine a ballpark figure by simply multiplying the units of export (barrels; cubic metres; tons; whatever) by emissions per unit. Pretty damned simple.
5. If you're looking to establish standards, why not try to add a new domain to a recognized standards body, such as ANSI, rather than invent one out of whole cloth and try to drum up support and build reputation? Surely there are established international standards, referenced by legislation of national and sub-national governments (specifically OECD), that can be expanded?
On the continuum of climate reportage, I have an idea of where this article sits between "aids the transition" and "you can't be serious".
Hey Ken -- the CSSB was set up in 2022 to implement the ISSB rules, which are in effect or coming into effect all over the world. The process is wonky and the piece couldn't go into all the weeds here, but the CSSB is linked to the Chartered Professional Accountants Canada (CPA), and the Canadian Securities Administrators expects to adopt the rules once the CSSB rules are adopted by the CPA. If you're not familiar with the CPA I can see why this might not seem important, but the CPA sets accounting and auditing standards (pretty important to business) and now they're setting sustainability reporting standards (which should be understood as part of the auditing process in an era of climate change). This is a big deal.
On your second point, sure it's easy to say we know fossil fuels cause climate change so we know to stop investing. But investors (pension funds in particular) are trying to figure out how exposed their portfolio actually is. You need credible information to understand risk. So you're absolutely right the question is when does the exposure becomes a liability. That's what this is about. That's why I don't understand your third point. Point 4 is the same as Point 2, we're talking about understanding risk in a detailed way not a ballpark general way.
On 5 adding standards to a existing body is what this is about? Also not sure I'm following you when you suggest the Canadian standards should be established by the American National Standards Institute. The established international standards are the ISSB, which the CSSB was established to implement in Canada.
1/4
Hey, John. I appreciate you taking time from your morning to respond.
I’m aware of CPA, CGA, PENG and other professional designations for self-regulated professions. At the individual level, such proof of competence is useful and vital.
Unfortunately, some professional designations, in my opinion, fall short of being indicative of ethical professional practice. You may have recollections of historical references such as:
- “Anderson Consulting/ Arthur Anderson” (which no longer exists following scandals at the time of the tech stock bubble in the early 2000s),
- “Tax consulting” to facilitate tax avoidance/ evasion **
- including in Canada***
- and elsewhere****
There are even thought cycles being assigned to consider whether such avoidance is moral^:
I also did graduate studies, a while back, during which I researched a paper on the language of “sustainable development” and how that language is used and misused for reasons of (generally corporate) self-interest.
Make no mistake, it is the rare corporation that is truly interested in doing anything beyond the bare minimum they can get away with, in whatever societal context they currently operate, in the pursuit of profit maximization. Many (most?) investors wouldn’t have it any other way; particularly, I should think, investors in fossil fuels. Greenwashing (ecological), Hugwashing (social) and Buckwashing (financial) are alive and well.
cont...
2/4
If the CPAs’ governing body didn’t lobby the federal government, I’d have somewhat more confidence that they act fully within the legal, moral and ethical realms of a well-functioning, sustainable society.
As it is, leaving international regulation of reporting on anything directly or indirectly relating to the ecological health of the biosphere to a professional body whose main interest is aiding corporations to maximize their returns -- while, yes, keeping their books in order -- is absolute insanity. There is obviously a regulatory vacuum, and the world’s accountants are apparently more than happy to keep their clients happy by jumping in to fill it.
Rather than putting faith in NGOs, recently created from whole cloth by a very self-interested player, media outlets such as CNO should be a tad more skeptical. Take a page from The Intercept.
In my item #3, why did I call the text passage silly and its author naïve?
Quite simply because the text was in reference to Enbridge, a fossil fuel company, and the author of the quote, Scott Adams, infers that a fossil fuel company has options other than behaving like a fossil fuel company.
“Transition away from the product”? Are you serious?
“…this company is really likely to be disrupted as we transition”? No shite, Sherlock.
ANSI is a standards body, long established, working in a variety of contexts, with the active participation of interested bodies including corporations. It also interworks with standards bodies internationally. You might say they often work at an engineering level; for example, setting interface standards to facilitate the interworking of communications equipment (my direct point of reference). It is well-established and has a solid reputation. Would they accept a new working group related to GHG emissions? I have no idea. Would you rather have a bunch of self-interested and (even) conflicted, profit-seeking numbers folks or engineers set standards for reporting what goes in and comes out of mechanical installations?
cont...
3/4
ANSI is a standards body, long established, working in a variety of contexts, with the active participation of interested bodies including corporations. It also interworks with standards bodies internationally. You might say they often work at an engineering level; for example, setting interface standards to facilitate the interworking of communications equipment (my direct point of reference). It is well-established and has a solid reputation. Would they accept a new working group related to GHG emissions? I have no idea. Would you rather have a bunch of self-interested and (even) conflicted, profit-seeking numbers folks or engineers set standards for reporting what goes in and comes out of mechanical installations?
You wrote: “But investors (pension funds in particular) are trying to figure out how exposed their portfolio actually is.”
If they want to remove the potential liability, they know exactly what to do. And, being the big players they are, they should be backing up divestiture with lobbying of the federal government to accelerate the transition. Do you think the banks don’t have assurances from the feds that provide confidence in their ongoing lender relationships to fossil interests, which you not long ago wagged a finger at?^*
Not to mention insurance companies?^**
And the presence of fossil directors on the boards of big banks?^***
Not to mention a similar wag at the feds for giving more money which acts to lessen the uncertainly for those investors you are now concerned about?^****
cont...
4/4
You wrote: “…we're talking about understanding risk in a detailed way not a ballpark general way.”
In this age of monkeying about with numbers, do you actually believe that a reporting regime invented and maintained by conflicted corporate accountants, a cohort with a very checkered recent history, will provide an accurate accounting of all emissions (gross, net, prevented, saved, traded, wet, dry, whatever)? I posit that accurate (yes, I recognize the oxymoron) ballpark numbers are just fine for our needs. Better that than bogus “precision” that potentially has no basis in reality.
What margin of error (how many orders of magnitude) do you consider ballpark vs precise? I think the term ballpark can exist with the same order of magnitude as actual.
You wrote: “You need credible information to understand risk.”
John, you are seemingly ignoring all that you have previously written. The credible information is that combustion of fossil fuels is heating up the planet. If you want to re-risk a portfolio, then divest from fossil pushers.
That, in concert with gov'ts capping emissions which is the only action that I can see that will actually "cap" and subsequently reduce (as the cap is lowered) emissions. And which will reward those investors that have, in fact, divested.
Last point,
Where such reporting will be essential (assuming it's well-managed by a disinterested party) is in calculations of embedded emissions in trade goods.
I will try to post once more with the links that CNO blocked when I included them in the text.
Thanks for all this Ken. I appreciate the feedback. I'll just say I completely agree with you that fiddling about with precise numbers isn't necessary to understand fossil fuels are risky, and investors shouldn't need to know the exact amount of emissions to decide whether or not a fossil fuel company with no plan to transition is worthy of their investment. That said, what we're increasingly seeing from investors is a desire for more exact numbers that Enbridge and the others are resisting. If there is value for them to have a better understanding of whether an investment will be vulnerable in 2 years, 5 years, 10 years, etc with fuller disclosure, I think that would be helpful for people (not just investors) to know. The sense I have anyway is that unfortunately there are still too many on Bay Street who don't understand the risk is closer than they think, and also unfortunately, governments are too reliant on the financial industry's forecasts. But I do think some of this is changing (for the record changing way too slowly). Pension funds are really pushing for stronger disclosure because they typically hold an asset for a long period of time and are more vulnerable than a bank that is looking to recoup costs on a shorter time span (still a problem pension funds are still investing in fossil fuels). So I hear you, better disclosure doesn't immediately translate to better decisions. But I do think it's a stepping stone, and the industry's fierce push back to basic disclosure I think is revealing. That's what I was hoping the story here could address. The brewing fight on a level beneath legislation that will be influential to whatever binding rules are eventually adopted.
I think, John, that you may have a too strong belief that better angels will guide certain people to do the right thing. :) I believe, in contrast, that cynicism and self-interest reign supreme in the domain of corporate social responsibility (though It's been rebranded as ESG, for whatever reason), particularly as regards fossils.
I take, and agree with, your point about noting where the fossils pushback with respect to policy decisions. Of particular note -- maybe this goes hand-in-hand with a robust reporting regime -- is the fossil dislike of caps. I believe they favour carbon taxes because those can be gamed such that consumption will not decrease as much or as fast. As seen, carbon taxes are also a chaos-inducing political football. And don't fossils love chaos?! Not to mention recent actions by methane suppliers to have provincial gov'ts effect policy changes to support their business models. Whatever delays turning off the spigots and locks-in corporate welfare.
And, as you can discern, I don't much care to expend energy on scope 3 emissions; I think that battle only serves to distract from, and delay acting toward, the prize. In my opinion, that's an ongoing, steady reduction in total effective emissions within the Canadian economy (and the provisioning of assistance to other economies to do the same).
Thanks, again, for engaging with me.
Very interesting, this back and forth between John and Ken; it added depth.
Thanks to both of you.