The “E” in ESG refers to the assessment of how a corporation interacts with its environment and includes matters such as environmental sustainability, climate-related disclosures, and climate risk management. Under this sphere, companies measure and report their environmental impact and performance against pre-determined criteria.
According to Daato, each industry has different environmental criteria that depend on how a company operates and produces goods and the regulations that apply to it. Today, they determine how well a company performs. One significant aspect of environmental criteria is greenhouse gas emissions, which can significantly impact the environment.
Here is a general overview of environmental criteria.
Pollution and Waste Management
| Description | Economic activities that produce toxic byproducts which pollute our air, land, and waterways must be monitored and managed according to local laws and industry best practices. The overuse of fossil fuels like oil and gas, the introduction of pollutants in the form of chemicals, or even noise and light into the environment can have uncontrolled and unpredictable consequences for ecosystems and local communities. Pollution is closely related to waste management. |
| Indicators | Members and regulators want to see that there are waste management systems in place and compliance with existing regulations. Credit unions should focus on a preventative approach to reduce the risk of pollution while being ready with a remediation plan. Some indicators used include wastewater discharge limits, pollutant concentrations, emission limits, ambient air quality, handling of hazardous and non-hazardous waste, etc. |
| Risks | Failure to control pollution could result in significant fines and penalties, reputational damage and suspension of license to operate, and remediation measures that may cost even more than pollution prevention measures. |
| Opportunities | In the long run, pollution control measures could result in cost savings due to better efficiency. Turning waste into energy or other forms of revenue generation represent another financial opportunity. |
Emissions and Climate Change
| Description | Greenhouse gas emissions are a company’s direct contribution to climate change. These days, public pressure and regulators are holding companies accountable for their emissions. Overemphasis on emission reductions skews the focus heavily on risk, but other climate-related threats should be a part of a company’s climate adaptation plan. |
| Indicators | A company’s contribution to climate change is measured by its sustainability. This includes its energy consumption, energy efficiency, and emissions levels as well as reduction targets. Employees and members want to see a transition plan that signals a company’s adaptability to a future low carbon footprint. Part of this transition plan should include a risk assessment and scenario planning analysis as per TCFD recommendations and OSFI Guideline. |
| Risks | Companies may face stranded assets due to the physical and transition risks of climate change. Asset damage and climate-proofing the business may incur additional costs. Production lines can expect more frequent supply disruptions. |
| Opportunities | Businesses that prepare themselves for low carbon emission pathways are better able to overcome the challenges of climate change and differentiate themselves by adapting their business model. Improved energy efficiency and sustainability can result in cost reductions. |
Resource Efficiency
| Description | Businesses rely on finite resources, such as water and energy, to produce goods and services, so there is a vested interest in ensuring the longevity of available resources. Non-linear consumption and production processes designed to reuse or recycle materials effectively reduce waste and maximize resource use and sustainability. |
| Indicators | Most commonly, water use, energy use, and recycling efforts are a measure of resource efficiency. Process design that factors in resource optimization is also considered, as well as the results of lifecycle assessments and compliance with international standards or certifications for resource efficiency. |
| Risks | As demand for resources increases alongside economic growth, companies will have to pay a premium to access resources or experience supply chain interruption. |
| Opportunities | Companies will benefit from getting more output from less input, saving costs, and reducing waste. Circular economy practices can differentiate a company and prepare for supply shortages. |
Sustainable Operations
Many of our credit unions have taken the following steps to promote sustainability:
- Installing energy efficient heat and light systems;
- Reducing paper waste through targeted programs (55% of credit unions).Reducing IT waste with procurement guidelines and/ or equipment optimization; and,
- Participating in recycling programs (34% of credit unions).
In addition, three of our credit unions have joined the United Nations Finance Initiative:
- First West Credit Union, member of Principles for Responsible Banking
- Vancity Credit Union, member of Principles for Responsible Banking + Net Zero Banking Alliance
- Innovation Credit Union, founding signature of Principles for Responsible Banking
To read about credit unions who have taken environmental sustainability action to achieve B-Corp certification, please click here.
For sustainability resources, please see our Resources section.
Climate Action Working Group
At CCUA’s 2020 Annual General Meeting (AGM), a member resolution was adopted to establish a working group to explore the emerging issue of climate-related financial disclosure. The Climate Action Working Group (formerly, the Climate Change Disclosure Working Group) provides credit union system perspectives, advice and input to CCUA Management regarding issues related to climate-change impacting Canadian credit unions and supports CCUA in enhancing credit unions’ understanding of climate-related risks, opportunities and disclosure. Learn more about the Working Group or access further resources, please click here.
Climate-related Financial Disclosures
OSFI B-15 Guideline on Climate Risk Management
On March 7, the Office of the Superintendent of Financial Institutions (OSFI) published its Guideline B-15: Climate Risk Management, which sets out OSFI’s expectations for managing climate-related risks.
The Guideline is OSFI’s first prudential framework that is climate sensitive and recognizes the impact of climate change on managing risk in Canada’s financial system. Although there are currently two chapters in the guideline, there will be reviews and amendments based on the evolution of practices and standards. The two chapters cover Governance and Financial Disclosures.
The publication of Guideline B-15 follows OSFI’s release of the guideline for public consultation in May 2022. Here is CCUA’s system submission to the consultation. Click here to read a summary of the Guideline.
International Sustainability Standards Board
The IFRS Foundation is a non-for-profit responsible for developing global accounting and sustainability disclosure standards, known as International Financial Reporting Standards (or “IFRS Standards”). On 3 November 2021, the IFRS Foundation Trustees announced the creation of a new standard-setting board—the International Sustainability Standards Board (ISSB). The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide organizations with a consistent harmonized framework for sustainability reporting that can provide information for users to assess risk and opportunities, helping them make more informed decisions. The ISSB will merge two earlier frameworks – the Task Force on Climate-Related Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) – into one internationally recognized framework. On June 26, 2023, the ISSB published the sustainability standards. Please here to access. Click here to read the summary.
Other Supporting Disclosure Frameworks
Canadian Sustainability Standards Board
The Canadian Sustainability Standards Board (CSSB) opened Canada’s first draft sustainability standards for public consultation to advance the adoption of sustainability disclosure standards in Canada in March 2024.
It allowed the public comment on three key documents that will shape Canada’s first sustainability standards:
- drafts of proposed Canadian standards on both general requirements for disclosure of sustainability-related financial information and climate-related disclosures; and
- a paper discussing how the CSSB proposes to introduce changes, if required, to IFRS Sustainability Disclosure Standards for use in Canada.