The Canada Energy Regulator and ESG – Research findings

The CER and ESG

The CER is committed to ensuring safety, security, and environmental protection; enhancing Canada’s global competitiveness by enabling sound projects to be carried out; and advancing reconciliation with Indigenous Peoples.^Footnote 29 At a high level, the values and purpose of the CER and ESG reporting are aligned. Both speak to decision-makers and other stakeholders interested in ensuring that energy companies perform responsibly with respect to people and environment. ESG-related issues such as environmental protection, consultation with Indigenous groups and stakeholders, and the safety and security of pipeline operations are vital to the work of the CER.^Footnote 30 These are deeply embedded throughout the CER Act, the CER’s regulations, and its work and culture.^Footnote 31 Fifteen of our 21 regulations have content related to ESG factors (see Appendix 1).

The CER’s regulatory functions versus ESG

Each of the CER’s core responsibilities have varying degrees of overlap with ESG. Energy Adjudication and Oversight (Safety and Environment) are areas of CER responsibility that overlap with issues raised in ESG reporting and evaluation. Topics such as air emissions of criteria pollutants, area of land disturbed or deforested, greenhouse gas emissions, socio-economic considerations, and stakeholder engagement are all considered under the energy adjudication function.^Footnote 32 Topics such as environmental protection, damage prevention, and emergency management are considered during safety and environment oversight activities. These topics also appear in both the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) standards, and in the case of greenhouse gas emissions, the Task Force of Climate-related Financial Disclosures (TCFD) standards.

Energy Information produced by the CER – such as the Energy Futures series, commodity reports, or energy market analysis – has direct or indirect ties to ESG topics. This includes data on emission trends, safety performance, environmental impacts, energy supply and demand, and scenario analysis regarding the impacts of government policy and pricing on the industry.

Engagement requirements and practices for the CER are more focused and stringent than what is outlined in ESG frameworks because engagement by the CER is required, not just recommended. Also, CER consultation and engagement activities^Footnote 33 are far more focused and structured than what is recommended in ESG frameworks. These activities include engagement with stakeholders and Indigenous Peoples on topics within the CER’s mandate to ensure that the feedback received informs CER decisions and work.

Although there is overlap between the topics covered by CER’s regulatory functions and ESG factors, there are also critical differences, as detailed in the table below.^Footnote 34

Table 1: Key Differences between the CER’s Regulatory Functions and ESG

Of these six areas, there are two critical differences between ESG reporting and the CER’s reporting requirements:

• Reporting “granularity” – refers to the level of aggregation of a company’s activities and assets that is reflected in its ESG versus its CER reporting. The CER’s functions generally pertain to a single geographically bounded project (i.e., a pipeline or a transmission line segment) during an adjudication process or it pertains to an energy system once the pipeline or transmission line is in operation. In contrast, ESG data is rolled up to the parent company level. Usually these are not the same since not all parent company projects are regulated by the CER, especially in the case of multinational companies operating outside Canadian jurisdiction.
• The quality, detail, and frequency of data collected to measure ESG performance versus regulatory compliance. ESG reporting may not disclose data methods, thresholds, benchmarks, or performance measurements. This reporting contrasts with how the CER evaluates compliance and performance, which frequently refers to standardized and published information on metrics definition, data collection methodology, and thresholds or benchmarks for performance indicators. CER requirements of ESG-related factors included in its mandate on environmental protection, safety, and security of CER-regulated infrastructure are more comprehensive and detailed than what may be disclosed in ESG reporting.

These differences mean that ESG information and the CER’s regulatory information^Footnote 37 cannot substitute for one another. At this time, a company’s ESG report may be unlikely to help streamline, speed up, or strengthen a company’s applications under the CER’s energy adjudication processes. It is also unsuitable to meet compliance with the CER’s safety and environment oversight requirements. Overall, ESG reporting at the parent company level does not necessarily correlate with what is required for regulatory purposes at the project level. In addition, the CER’s data methods, data quality, and the level of scrutiny on regulated companies’ safety and environmental performance (operations and management) exceeds current guidance in ESG frameworks.

Given there are already numerous frameworks providing guidance on ESG disclosure, and the differences between the CER’s reporting granularity and data detail, the research concluded the CER should avoid action in two areas:

• Developing a jurisdictional “CER standard” for ESG reporting. This would likely result in adding to companies’ reporting burden because the CER only regulates assets of regulated companies and ESG reports are prepared at the parent company level, requiring companies to recreate metrics on a project level. As well, the financial community is pushing for ESG reports to be based on international standards and frameworks like GRI, SASB, and TCFD making jurisdictional standards incomparable. Rating agencies are also unlikely to consider jurisdictional standards when rating a company’s ESG performance.
• Mandating ESG reporting for CER-regulated companies. Unless the CER determines it can use ESG reports to deliver its mandate (i.e., used in adjudication processes or safety and environment oversight activities), this would create unnecessary obligations for regulated companies. Also, pressure from other stakeholders has already resulted in a high proportion of CER-regulated companies producing ESG reports without them being mandated.

ESG-related initiatives by the CER’s regulatory peers, government entities, and Indigenous Peoples

ESG continues to evolve as a tool to manage risk. Securities regulators^Footnote 38 around the world have been monitoring ESG developments and providing ESG guidance. In January 2022, The Canadian Securities Administrators published guidance on ESG-related investment fund disclosures.

A preliminary review by the CER of publications from over 30 Canadian federal, provincial, and territorial entities, including regulatory peers, showed several ESG-related initiatives were underway or planned:

• In August 2021, the BC Oil and Gas Commission reported working towards the development of a Corporate Sustainability Strategy that will be aligned with ESG criteria.
• The Alberta Ministry of Energy established an ESG Working Group from 2019 to 2020 that is supported by an ESG Secretariat to lead the co-ordination of ESG initiatives across the Government of Alberta. The Alberta Energy Regulator recognized the influence of ESG standards in its Alberta Energy Outlook 2021 Report, but did not identify specifics.
• In the 2021 Energy and Mines Ministers’ Conference (EMMC)^Footnote 40, co-chaired by Saskatchewan, provincial and territorial ministers responsible for energy and mining across Canada discussed opportunities for Canada’s competitiveness, economic growth, and low-carbon innovation. Energy and mines ministers shared regional perspectives on how to position the energy and mining sectors to benefit from ESG investment trends.
• In the Government of Canada, several organizations have ESG-related initiatives:
  • In the February 2021 Roadmap for a Renewed U.S. – Canada Partnership, Prime Minister Trudeau and President Biden agreed to have public and private financial institutions work to advance the adoption of climate-related financial risk disclosure and align financial flows and climate goals, including the achievement of a prosperous net-zero^Footnote 41 emissions economy.
  • The Federal 2021 Budget required federal Crown Corporations with assets over $1 billion to begin annual climate-related financial disclosure starting 2022; smaller Crown Corporations are to follow in 2024. The Canadian Net Zero Emissions Accountability Act also requires the Minister of Finance, in cooperation with the Minister of Environment and Climate Change, to publish an annual report outlining key measures that federal departments and crown corporations have taken to manage the financial risks and opportunities related to climate change.
  • In November 2021, Innovation, Science and Economic Development Canada (ISED) and the United States Department of Commerce agreed to share ESG best practices, including issues related to sustainable finance, diversity, and corporate governance, and partnering with private sector ESG practitioners.
  • In May 2021, Environment and Climate Change Canada (ECCC) and the Department of Finance launched the Sustainable Finance Action Council, as recommended by the Expert Panel on Sustainable Finance.
  • Natural Resources Canada’s (NRCan) 2021 Departmental Plan indicates that they will play a leadership role on ESG issues and strategies for the natural resources sector.
  • In March 2022, Statistics Canada launched an experimental ESG dashboard that presents a series of environmental, social, and governance indicators that shows non-financial performance of some industries.
• The First Nations Major Projects Coalition (FNMPC) is researching ways in which Indigenous rights can be meaningfully integrated into ESG standards. In a separate initiative, the FNMPC has developed an Environmental Standard for major projects involving clean energy.