A team of students from Université de Sherbrooke reviewed the sustainable development reports (SDR) of banking and other financial institutions listed on the Toronto Stock Exchange, as part of FM-FSI’s 2020 Best Sustainable Development Report Competition. BMO and Sun Life Financial (Sun Life) both won the award in their respective categories.
Simon Brissette and Antony Bureau-Royer took part in the project, improving their understanding of sustainable development, as well as environmental, social and governance (ESG) issues, while providing companies with an impartial perspective to optimize their SDR.
Transparency and added value in ESG reporting
"Companies are definitely showing transparency, but remain quite optimistic," says Simon. "Without omitting less favorable information, they do focus on data that is beneficial to them."
As for Antony, he found that SDRs vary considerably when it comes to transparency. "Some companies mostly draw attention to their successes, others emphasize their targets and the challenges they face, while some don’t really address them," he recounts.
Having a long-term outlook and providing an explicit description of the impact of measures taken were key for the winning companies. "The first five institutions clearly showed the day-to-day effects of their actions within the company, such as the changes related to decreasing carbon footprint or the quantity of paper used," mentions Antony.
Simon’s team noted that BMO’s strategy included five main ESG factors and various indicators for each of them. In CIBC’s case, the sustainable development assessment factors are consistent with the banking business segments established by the Sustainable Industry Classification System (SICS), and these factors were identified by a third party company. "This approach is therefore more independent," believes Simon. Scotiabank stands out by revealing the measures taken in 2018, 2019 and 2020 as regards certain ESG factors. "Its forward-looking attitude provides the investor with more information on materiality," says Simon. "The most important thing is to know what has been done, and especially the company’s strategy for the future, taking into consideration the measures that have already been implemented."
Antony’s team ranked Sun Life, Caisse de dépôt and Industrielle Alliance to the first three positions, and one thing their SDRs all had in common was a reference to environmental certification with regard to their facilities. What helped Sun Life win the award is a table listing which Global Reporting Initiative (GRI) indicator each component of the SDR is related to. "Our team thought this was a very interesting strategy," relates Antony.
Furthermore, the data that is reported reveals that companies value diversity, in particular through the number of women and persons belonging to various ethnic groups. Antony also noticed that some companies have no hesitation in pointing out the sectors they choose to invest in. "Sun Life, for example, has refused to invest in tobacco or cluster munitions," he remarks.
The Competition’s relevance and careers in responsible finance
Through their analysis of an SDR, which reflects the values and ethics of a company, finance students can deepen the knowledge acquired in class. "Thanks to this exercise, we can learn more about ESG risks, such as reputation," Simon explains. "The bachelor’s program is more focused on quantitative data, so I would say this has broadened horizons, at least mine."
Antony also noticed that ESG reporting is not a topic that is thoroughly addressed as part of the master in finance program. He feels the Competition will help promote discussion on responsible investment in the academic world. "All jobs will deal with ESG factors, so there should be at least one class about it and I hope an initiative like this one will draw attention to that need," he says.
As well, Antony believes companies are truly aware that sustainable development is an investment, more than an expense. "Rather than focusing on the duality of adding value for shareholders and expenses related to ESG factors, most companies saw it as a long-term investment," he observes.
For Simon, a future lawyer, while he isn’t targeting responsible investment itself, it goes without saying that this sphere will have an impact on his career. "Corporate ethics will certainly be key in law," he notes. "Since every company must now take it into account, sustainable finance will of course be part of my work," Antony adds.
Sun Life Financial, a source of inspiration in sustainable development
"Sustainability is a priority for Sun Life, it’s essential to our business’ success," says Susan Jantzi, Director, Corporate Affairs & Sustainability at Sun Life Financial. "An effective sustainability strategy and sustainability reporting that is robust and transparent are critical and intricately linked, and they really can’t be separated."
Sun Life’s ESG reporting is guided by the Global Reporting Initiative (GRI) standards. Also, stakeholder engagement and materiality assessment help ensure issuers are reporting on key topics. "We probably engage with 85 subject matter experts and data owners from across the company to write our SDR," Ms. Jantzi mentions.
Environmental performance objectives
Environmental performance data for investment properties targeted by Sun Life’s greenhouse gas (GHG) emission objectives is updated when the company receives utility invoices. This data, whether about the company’s facilities or its real estate investments, is added to an environmental data management system and monitored by portfolio managers.
Climate change is part of the risk management process across the company. "Sun Life also discloses climate change information through the Carbon Disclosure Project (CDP) and is a signatory to CDP’s climate change information request," Ms. Jantzi notes. The company is a supporter of the Task Force on Climate-related Financial Disclosures (TCFD), and is currently working to include TCFD recommendations in Sun Life’s reporting.
BMO’s ESG reporting combines accuracy and relevance
BMO, whose corporate purpose is inspired by the United Nations’ 17 sustainable development goals, works with all its operating groups, including capital markets, wealth and asset management, as well as personal and commercial banking, to ensure that their ESG reporting activities are consistent with and aligned to GRI, the Sustainability Accounting Standards Board (SASB) and the TCFD.
The company leverages new technology, which of course is reflected in their SDR. "In the past year, we have adopted and automated AI technology in our materiality assessment," says Simon Fish, EVP & General Counsel at BMO. "We use the ESG search engine Datamaran, helping us accelerate the due diligence process required under the GRI."
Convergence of standards
Mr. Fish points out that the World Economic Forum and European Union are attempting to find an authoritative, singular approach to sustainability disclosure. He also has had the opportunity to meet the executive chair of Accounting for Sustainability (A4S), a London-based global program created by the Prince of Wales’ charitable foundation. "Demonstrating the Prince’s own interest in all things environmental, this group that was established a couple decades ago is also seeking harmonization," he explains.
Climate and sustainable finance
"Climate change may be described as one of the most significant global challenges of our time, so it is central to our ESG reporting activities," Mr. Fish comments. "It is for this reason the Wall Street Journal reported on it, and the framework we use is being picked up increasingly by regulators and getting attention from several of our investors."
In 2019, BMO announced a commitment to mobilize $400 billion for sustainable finance by 2025. They also issued their first sustainability bond, in the amount of $500 million US, and launched the Impact Investment Fund to promote a sustainable economy. The company takes part in a United Nations environmental program to determine climate risk assessment methodologies. "We’re exploring new approaches and technologies to develop useful information on climate risk, and for supply chain management, something which has become particularly topical during this period of COVID-19," remarks Mr. Fish.
Mélanie Pilon, journalist for the Finance and Sustainability Initiative of Finance Montréal
