More than a few sustainability reporting frameworks have been vying for supremacy in Canada. And with the newly formed International Sustainability Standards Board (ISSB) entering the fray in 2022, real estate organizations are compelled to get ahead of potential reporting obligations.
The real estate sector is well acquainted with Environmental, Social and Governance (ESG) matters. For years, companies have faced mounting pressure to address the financial and operational risks of climate change on their portfolios while communicating well-defined sustainability targets. Statistics indicate that as much as 75 per cent of institutional investors consider ESG factors—including sustainability, the E in ESG—as material to their investment analysis and are pushing ESG considerations downward on portfolio managers.
The sustainability standards that already exist include those designed through the Climate Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-Related Financial Disclosures (TCFD).
It has proven to be costly and cumbersome to report under multiple frameworks. That's why there's a growing call to introduce greater comparability and transparency to this increasingly important process.
Enter the ISSB.
Sustainability without borders
Formed by International Financial Reporting Standards (IFRS) Foundation's Trustees in November 2021, the ISSB was created to bring greater consistency to sustainability reporting. A Technical Readiness Working Group comprised of a number of the bodies mentioned above is drawing inspiration from past frameworks to draft prototype standards that would form more "global" sustainability reporting standards in the near future.
Once these new standards are released, it will fall upon each country to determine how (or even if) they will embrace ISSB's direction. Overall, the idea is to provide a sense of direction for companies on how to deal with value-focused sustainability reporting and point the way for the types of processes and controls that will be required to keep pace with investor appetites and help organizations better understand and address the impact of climate change on their operations.
The timelines for ISSB's standards are still unknown, as is the extent to which they will impact Canada's real estate community. What is clear, however, is that the ISSB's efforts underscore a growing focus on sustainability and ESG reporting. Ready or not, data regarding such factors as greenhouse gas emissions are quickly becoming priorities to various real estate stakeholders, and investors in particular want greater clarity over ESG governance, risk management and metrics.
All of this is to say that any companies applying these standards will need processes and controls in place to provide sustainability information with the same degree of quality and timeliness as their financial information. Moreover, if the ISSB's standards are adopted in Canada, real estate organizations will be called upon to conduct deeper scenario analyses on how hypothetical—but increasingly likely—climate risks and opportunities will impact their organizations. This translates to more work and resources, to be sure, which is why now is the time to prepare.
A Canadian alternative
Whether or not Canada embraces ISSB's standards—and to what extent—remains to be seen. One additional factor to consider is that the Canadian Securities Administrators (CSA) is championing its own "National Instrument (NI) 51-107 Disclosure of Climate-related Matters," based on TCFD recommendations. This homegrown reporting guideline would cover scope 1/2/3 GHG emissions and related risks or reasons for non-disclosure. Unlike the ISSB's proposed standards, it would not require organizations to conduct scenario analyses.
If N1 51-107 ends up being issued as expected, it will mandate year-end disclosures for publicly listed companies in Canada for as early as fiscal years ending December 31, 2023. Here again, there is motivation to get ahead of the curve.
Preparing for more
No matter how sustainability and ESG reporting takes shape in Canada, I believe there are upcoming changes to reporting standards which cannot be ignored. Real estate board members and managerial leaders alike share a responsibility for identifying, evaluating, and acting upon organizational risks—and that includes the very real impacts of climate change.
Of course, this is about more than keeping stakeholders happy. It's about reducing liabilities, maintaining access to capital, and safeguarding the company's future strategies. After all, it's one thing to forecast the weather; it's something else altogether to be prepared when a storm hits.