ACCA - The global body for professional accountants

A recent ACCA Canada conference explored new ways of defining value creation as the country moves towards a stronger regime for controlling its greenhouse gas emissions

This article was first published in the February 2014 International edition of Accounting and Business magazine.

Canada’s environmental reputation has taken a beating in the past decade after the country dropped out of the Kyoto Protocol and started developing emissions-rich oil sands for an energy-hungry world. It was appropriate, then, that the country’s oil capital, Calgary, hosted an ACCA conference on 16 October 2013, that discussed whether corporate Canada is ready for the green economy.

It is important to set clear standards that can be quantified in ledgers, says head of ACCA Canada Suzanne Godbehere: ‘It’s really about finding a new definition of value creation,’ she says. The trouble is a lack of clarity over definitions.

‘The term “green economy” is used a lot, and some may define it differently,’ Godbehere said. ‘It is low carbon, resource-efficient and socially inclusive. It also includes other topics such as: the metrics for measuring the success of an economy; how we can address the high levels of inequality at the local and national levels; the greening of economic sectors; how governments and business can consider natural capital in their decisions; and the skills that we need to work and thrive in such a system.

‘Hopefully, we can start the discussion on bringing finance to the table, relative to the topic of sustainability.’

Achieving consensus requires standard disclosure, measurable targets and third-party reporting – in short, meaningful verification.

Calgary is in the western province of Alberta, which is home to 80% of Canada’s oil and gas industry. Given that Canada is the world’s second-fastest growing oil producer after the US, Matt Loose, director of the corporate sustainability practice Stratos, stressed: ‘The challenges in Alberta are particularly important.’

This is because while Alberta’s oil sands are an enormous financial and economic asset, their true value will become clear only after the full costs of developing them, including environmental performance and pollution legacies, have been reckoned up, as Suncor Energy’s executive adviser of sustainability and innovation, Gord Lambert, pointed out.

Billions invested

In October, Suncor sanctioned the operation of Fort Hills, Canada’s fifth oil sands mine. In partnership with France’s Total, Fort Hills will have a capital investment of C$13.5bn (US$12.9bn), along with billions of dollars more for pipelines and processing infrastructure.

These are big numbers, providing much-needed capital investment and jobs. At present global oil prices, Fort Hills alone could generate over C$1 trillion of direct and indirect economic benefits for Canadians.

Suncor uses cutting-edge technology to mitigate environmental impacts. Fort Hills will be a showcase, but it takes time. It took more than 35 years after the first barrel was produced from oil sands in 1967 to put Suncor in a cash break-even position.

Lambert noted that energy, environment and economy are inextricably linked. The problem is how to reconcile all three in a way that supports all stakeholder interests, including industry, investors and the public. ‘I wouldn’t pretend we have all the answers,’ Lambert said.

Yet he conceded that looming regulations to cut greenhouse gas (GHG) emissions pose a real if unspecified risk to projects such as Fort Hills. Canada has started to tighten up its emission controls, setting a goal of reducing GHG emissions 17% below 2005 levels by 2020. And in 2010, the government set renewable fuel standards for petrol, followed by restrictions on exhaust emissions for passenger vehicles and heavy-duty trucks in 2012, to align with US regulations.

Also in 2012, Canada imposed restrictions on coal-fired power, which accounts for about 11% of Canada’s GHG emissions. Oil sands, which account for about 7% of emissions – and rising – have been exempt, but international pressure may prove irresistible. Such rules will involve verification and will also encourage businesses that can demonstrate their green reporting credentials.

According to Nelson Switzer, PwC’s leader of sustainable business solutions, making a business case for environmental good practice requires a sharp, honest assessment of the costs as well as the benefits. This includes assessments of operations, stakeholder engagement, and products and services that are tailored for sector-specific issues, with companies developing a standard disclosure policy for social and environmental data.

In short, PwC is aiming for a new methodology to help companies and capital markets identify, manage and mitigate their environmental, social and economic risks. ‘We provide the rigour around the trust,’ Switzer said. The first step is to quantify and verify them in a way that can be measured.

Bob Mann, chief operating officer of Canadian-European investment research firm Sustainalytics, oversaw the development of the company’s flagship product, the Jantzi Social Index (JSI). This is modelled on International Financial Reporting Standards for ethical investment funds to measure the sustainability of corporations and rank them. Mann called it an ‘authenticity score’ along the lines of the international Global Reporting Initiative (GRI).

The JSI is an environmental, social and governance (ESG) index that can be used by investors to benchmark the performance of ESG portfolios and funds. It has also been used by financial institutions to develop investment products, including an indexed mutual fund and an exchange traded fund (ETF). Sustainalytics ESG ratings can be understood as an authenticity score measuring a company’s commitment to sustainable practices.

International consistency

It is important for those numbers to also be consistent internationally as well as locally, as the Canadian oil patch attracts billions of dollars of foreign investment. Increasingly, Mann said, investors are looking for information on the environmental performance of Canadian oil sands producers.

However, the need to measure and reduce environmental impact is a problem that cuts across virtually every sector of the economy. Telecoms company Telus is building high-speed networks to support the proliferation of mobile devices; all those iPads, PCs and smartphones are energy-intensive in the manufacturing process as well as their use and development.

According to Andrea Goertz, Telus’ senior vice president, strategic initiatives, chief communications and sustainability officer, ‘the company is creating environmentally sustainable workplaces and implementing socially responsible work practices to reduce energy use’. She is responsible for a programme to retrofit offices and data centres to make them more energy-efficient. It also aims to encourage telecommuting and other ways of reducing the emissions of individuals.

It is also likely that there will be ancillary benefits from making such changes, requiring creativity and hard number crunching. She called it ‘inclusive wealth accounting’, which Telus may consider incorporating into its annual corporate sustainability (CSR) report.

Since 2000, the Canadian government has encouraged the use of CSR reports to highlight how companies adhere to international ethical norms. Goertz is proposing that CSR reports include environmental performance as a subheading. She admitted, though, that pinpointing the tangible benefits can be difficult.

According to Godbehere, assigning the hidden value of those intangibles is the key to Canada’s future prosperity. How will Canada know when it is able to declare it has a successful economy, taking account of its environmental costs as well as its financial wealth?

‘We need it to reach the boardroom and the CEO level to know it’s being taken seriously. We’ve come a long way, but there’s more to do.’

Shaun Polczer, journalist

Last updated: 21 Mar 2014