ESG | Why should  
governments care  
and what can  
governments do?
GOVERN 
MENTS
GOVERN
MENTS
OVERN 
ENTS
Marla Orenstein & Brendan Cooke | June 2022

ESG: Why should governments care and what can governments do?
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Canada West Foundation
© Canada West Foundation | ISBN 978-1-989323-90-8  | June 2022
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Contents
	
Executive Summary  
Proactive means competitive
	
Introduction 
Growing interest but currently  
little understanding
	
Part 1 
Why should governments care about ESG?
	
Because ESG intersects with protection  
of people, society and the environment
	
Because ESG influences business and  
investment attraction
	
Because ESG affects government’s credit  
rating and borrowing costs
	
Part 2 
How can governments respond?  
The gory details
	
Support strong and consistent ESG reporting
	
01 / Mandate climate change disclosure reporting
	
02 / Recommend or require that public 
companies provide full ESG disclosure
	
03 / Create your own ESG standard/framework  
for companies in your jurisdiction
	
04 / Endorse specific ESG frameworks
	
05 / Consider guidance for locally-relevant topics
	
06 / Align performance/compliance data with 
ESG reporting frameworks
	
Raise the bar for EGS performance
	
07 / Benchmark and improve the jurisdiction’s  
own ESG performance
	
08 / Build a solid foundation of environmental,  
social and governance policy and regulations
	
09 / Set targets, benchmarks or thresholds for  
ESG performance by companies
	
10 / Use ESG as an input into decision-making  
around permitting or oversight
	
11 / Manage government investments  
using ESG criteria
	
12 / Manage public procurement using  
sustainability criteria
	
Communicate your ESG story
	
13 / Better organize data for ESG- 
interested audiences
	
14 / Broadcast your data and performance
	
15 / Certify product origin
	
Provide clarity around ESG spending  
and investment
	
16 / Define what can be called “ESG investing”
	
17 / Define “green” and “transition”  
finance instruments
	
18 / Provide guidance to investors
	
Summary of potential actions and priority areas
	
Conclusion 
Rapid evolution and real opportunity
01
02
06
09
14
15
21
27
30
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Executive Summary
Proactive means 
competitive
Environmental, social and governance (ESG) investing has seen 
a rapid rise both in Canada and internationally. ESG’s relevance 
for business and investors is well understood. However, 
governments haven’t caught up. Federal, provincial/territorial 
and municipal governments in Canada need to understand  
why ESG is relevant to them and how they should respond.
Ignoring these questions is not an option. Increasingly, ESG is a point of differentiation that affects 
competitiveness both for jurisdictions and the companies that operate within them. Sustainability 
performance has become “table stakes,” and governments that don’t explicitly grapple with these 
issues risk having others dictate how their performance will be assessed. 
A real opportunity exists for governments in Canada at the municipal, provincial and federal 
levels to support strong and consistent ESG reporting, raise the bar for performance, communicate 
success to different stakeholder audiences, and provide clarity for investors. These actions will 
help companies operating in the jurisdiction; they also help the government by building its brand 
and its investment attractiveness. But there are many possible routes forward, and it can be easy 
for governments to get lost along the way or invest time in ineffective endeavors.

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Why should  
governments care?
THERE ARE THREE MAIN REASONS WHY GOVERNMENTS NEED TO PAY ATTENTION TO ESG:
01
Because it intersects with protection of people, society and the environment  
ESG intersects with government’s mandate to protect people, social and 
institutional structures, and the environment. As governments enact or  
change legislation, regulations and policies that govern emissions, water use, 
waste management, health and safety, gender equity or corporate  
governance (as a few examples), there are knock-on effects for companies’  
ESG performance, and for the ESG “story” for the jurisdiction itself.
02
Because it influences business and investment attraction 
A large and growing portion of global investors use ESG factors to direct where 
they place their money. To the extent that governments support clear ESG 
disclosure and strong ESG performance, it boosts investment competitiveness 
—and procurement competitiveness—among businesses in that jurisdiction.  
It also helps investment attraction agencies tell a better story when they 
attempt to draw foreign direct investment (FDI) to the jurisdiction. 
03
Because it affects the government’s credit rating and borrowing costs  
It isn’t just companies on the receiving end of ESG ratings; increasingly, it is 
jurisdictions as well. Over the last few years, major credit rating and investment 
research agencies such as Moody’s, S&P, Fitch and MCSI have begun to apply 
ESG factors in their risk assessments of governments at municipal, regional and 
national levels. Their ESG ratings directly affect the government’s credit rating, 
ability to secure financing and borrowing costs.

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What actions can 
governments take?
THERE ARE FOUR CATEGORIES OF ACTIONS THAT GOVERNMENTS CAN TAKE TO MAXIMIZE 
THE BENEFITS THAT COME WITH ROBUST ESG PERFORMANCE:
Support strong  
and consistent  
ESG reporting
There is a role for government in building strong and consistent ESG 
reporting within the jurisdiction—across companies, sectors, industries 
and government departments, as well as across multiple levels  
of government. This provides all parties with a shared language and 
framework, so that they can more easily talk with one another and  
tell a common story as they compete globally.
Raise the bar for  
ESG performance
Both companies and jurisdictions are judged on their ESG performance 
—and the two are closely linked. Raising the bar involves using  
data and policy to incentivize high performance, make conditions  
more appealing to investors and stakeholders, and send strong  
signals about continuous improvement.
Communicate  
your ESG story
For strong performance to translate into benefits, government needs  
to ensure that data and information relevant to ESG is accessible  
to interested audiences, both in terms of being easy to find and being 
easy to use.
Provide clarity  
for investors
ESG is a tool to help investors evaluate financial investment risk and 
opportunity. Government agencies have a role in providing clarity and  
setting rules—with ESG just as with other financial claims. This clarity  
in turn increases investor confidence and attracts further investment.
Table ES-1 presents 18 specific actions that can be taken under these four categories.  
It is critical to note that not all actions described are recommended. While some actions  
are clearly marked as “not recommended,” even those marked as “potentially useful”  
may not be appropriate for some governments, or at certain times.
The right-most column of the table highlights what we consider to be priority areas for  
new or additional government action. These priority areas: a) have the potential to generate  
large improvements around ESG within the jurisdiction, b) have relatively low effort being  
put towards them currently, and/or c) can be most effectively carried out by government as 
opposed to other entities.

Canada West Foundation
Table ES-1 
Summary of Potential Actions  
and Priority Areas
Potentially 
useful?
Extent  
of current 
efforts
Priority  
area for new 
government 
action
Support strong  
and consistent  
ESG reporting
01
Mandate climate disclosure reporting
Yes
High
02
Recommend or require that public companies  
provide full ESG disclosure
Yes
Medium
03
Create your own ESG standard/framework  
for companies in your jurisdiction
No
04
Endorse specific ESG frameworks
Yes
Medium
05
Consider guidance for locally relevant topics
Yes
Low
06
Align performance/compliance data with  
ESG reporting frameworks
Yes
Low
Yes
Raise the bar for 
ESG performance
07
Benchmark and improve the jurisdiction’s  
own ESG performance
Yes
Low
Yes
08
Build a solid foundation of environmental,  
social and governance policy and regulations
Yes
High
Yes
09
Set targets, benchmarks or thresholds  
for ESG performance by companies
Yes
Low
10
Use ESG as an input into decision-making  
around permitting or oversight
No
11
Manage government investments  
using ESG criteria
Yes
Low
12
Manage public procurement using  
sustainability criteria
Yes
Low
Communicate  
the ESG story
13
Better organize data for ESG-interested audiences
Yes
Low
Yes
14
Broadcast your data and performance
Yes
Low
Yes
15
Certify product origin
Yes
Low
Provide definitions 
and clarity around 
ESG investment
16
Define what can be called “ESG investing”
Yes
High
17
Define “green” and “transition” finance instruments
Yes
High
18
Provide guidance to investors
Yes
Medium
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Introduction
Growing interest 
but currently little 
understanding
Over the past five years, Environmental, Social and Governance (ESG) reporting has skyrocketed 
—both across the Canadian economy and globally. Mostly, ESG has been framed as an issue that 
is relevant for businesses (which disclose their ESG performance) and for investors (who use the 
information to decide where to put their money). But governments in Canada—both national and 
subnational—face questions about how they should respond. They need to understand:
What governments  
in Canada need to 
understand about ESG
How ESG aligns or intersects with government efforts  
and obligations to protect people and the environment
Whether the government should take a role in regulating  
ESG disclosure, performance or ratings
How governments can capitalize on investors’ interest  
in ESG to attract capital to their region
How ESG ratings affect a government’s credit rating  
and ability to secure financing 
What actions are possible, which are recommended,  
and which are fraught with problems
While a profusion of guidance about ESG is produced every day in the form of reports, webinars 
and briefings, almost none of it focuses on what governments can or should be doing.

Figure 1
Canadian companies listed on the  
S&P/TSX Composite Index that  
released an ESG report (%)
ESG?
What is
ALTHOUGH THE CONCEPTS considered under ESG are not new, ESG is rapidly 
gaining momentum on the world stage. Over the past five years, there has been  
a meteoric rise in ESG uptake:
•	 In 2020, 71% of companies listed on Canada’s S&P/TSX Composite Index released  
an ESG report—almost double the rate from four years earlier (see Figure 1).
•	 Globally, figures are similarly high. A survey conducted in 2020 of the top 100 
companies in each of 52 countries found that 80% report on their ESG performance 
—and this figure rose to 96% among the world’s 250 largest companies.¹
•	 Within Canada, the energy sector is also taking ESG reporting seriously,  
as documented in the Canada West Foundation’s 2021 report ESG and the  
Canadian Energy Sector.
ESG refers to the environmental, social and 
governance performance of organizations.  
Environment
Captures information on topics  
such as greenhouse gas (GHG) 
emissions and carbon footprint, 
biodiversity impacts, water use, 
waste management, air pollution, 
land use and deforestation.
Social 
Describes the company’s 
relationship with people, including 
its employees, customers,  
suppliers, host communities and 
host governments. Social metrics 
may include human rights,  
health and safety, gender equity, 
diversity, relationships with 
Indigenous groups, supply chain 
management and labour practices. 
Governance
Describes features such as 
executive pay, Board diversity, 
political lobbying and oversight  
and compliance policies.
SNAPSHOT // Defining ESG
71%
58%
48%
39%
36%
2020
2019
2018
2017
2016
Source: Millani, 2021. Millani’s 5th Annual ESG 
Disclosure Study: A Canadian Perspective.
07
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S
G

Canada West Foundation
Overlapping  
interests
SNAPSHOT // Defining ESG (continued)
It is also critical to remember that ESG is not interchangeable with 
greenhouse gas (GHG) emissions or performance on climate change.  
While emissions and climate change are important components  
of ESG—and often draw the most attention—many other topics, both 
environmental and non-environmental, are included in the ESG landscape.
ESG & Sustainability:
Closely related 
but not identical
Both ‘ESG’ and ‘sustainability’ are terms often used when 
talking about environment, social and governance topics.  
While the two are closely related concepts, they are not 
identical. ESG is a set of metrics primarily of interest to financial 
investors evaluating risk (not always direct financial risk— 
for example, poor occupational health and safety performance 
comprises an indirect financial risk). Sustainability is somewhat 
broader and of interest to a wider range of audiences who  
want to gauge values alignment. This distinction—and the 
overlap—is shown in Figure 2. However, the terms are often 
blurred in the popular media and even among companies 
producing reports (some of which call it an “ESG report” and 
some a “sustainability report”, even though the content may  
be near-identical).
Primary Audience: 
Financial 
investors
The primary audience for ESG reporting information  
is financial investors who want to better understand the 
risks of investing in particular companies. Studies² have 
shown that companies which focus on ESG are more likely 
to be better managed, leading to lower costs, improved 
community relations and fewer litigations, while also being 
more resilient to external risks – all outcomes that appeal 
to investors. And the amount of money invested using ESG 
considerations is enormous. 
•	 Globally, asset funds applying ESG criteria to  
investment decisions have almost doubled over  
four years, and more than tripled over eight years, 
reaching a value of $40.5 trillion in 2020 and a 
projected $50 trillion by 2025.3,4 
•	 In Canada, such funds grew to $3.2 trillion in  
2019, representing 61.8% of Canada’s assets  
under management.⁵
Stakeholders 
who value 
sustainability 
But the growth in ESG has also been driven by the 
demands of other stakeholders—including governments, 
consumers, employees, NGOs and the general public—
who want to understand the extent to which companies are 
acting in ways that align with stakeholder values. 
Figure 2
ESG & sustainability reporting: closely related, but not identical
ESG  
REPORTING
Concerns  
about financial / 
investment risk
SUSTAINABILITY 
REPORTING
Interest in  
values alignment
ESG
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CLIMATE
GHG

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Part 1
Why should 
governments 
care about ESG?
Increasingly, ESG is a point of differentiation that affects 
competitiveness both for jurisdictions and the companies that 
operate from within them. Sustainability performance has 
become “table stakes.” And governments that don’t explicitly 
grapple with these issues risk having others dictate their story. 
But more explicitly, there are three good arguments for  
why governments—whether municipal, provincial/territorial  
or federal—need to sit up and pay attention to ESG.

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01
Because ESG intersects with 
protection of people, society 
and the environment
The first reason for government to care about ESG is that it intersects with government’s mandate 
to protect people, social and institutional structures and the environment, as well as to fulfill its 
democratic obligations. 
All governments use legislation and regulations to control what actions may or must be taken 
with respect to water, air, land, plants, wildlife and other environmental topics/media. Many of 
these topics are also considered under the banner of ESG. This means that as governments enact 
or change legislation or regulations that govern these areas, there will be knock-on effects in 
terms of companies’ ESG performance.
Governments also establish conditions that protect human health and safety, and individual and 
community well-being. Here too, ESG marches down the same road—although governments have 
a far broader focus than typical of ESG measures. 
Governments also protect investors by setting rules around financial claims. As ESG is 
fundamentally a type of financial claim and rests on the pillar of corporate governance, 
governments are once again drawn into the conversation. 
In all these areas, government actions intersect with ESG by providing stringent protections that 
enhance transparency and build public trust.

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02
Because ESG influences 
business and investment 
attraction
A second reason for governments to care about ESG is because it influences business and 
investment attraction. This manifests in several ways.
Attracting direct investment
A large and increasing number of global investment funds use ESG factors to direct where they 
place their money. Companies with stronger ESG performance are more likely to be able to access 
those ESG-directed funds or to have lower borrowing costs.⁶ To the extent that governments support 
clear ESG disclosure and strong ESG performance, it boosts the investment competitiveness of the 
businesses in that jurisdiction. 
It also helps investment attraction agencies tell a better story when they attempt to draw foreign 
direct investment (FDI) to the jurisdiction. Global FDI flows have been decreasing over the last few 
decades, from $22 trillion in 2006 to $11 trillion in 2018, with the greatest declines seen among  
the richest countries.⁷ This means the same number of jurisdictions are fighting over an increasingly 
small pie and ESG can (at least in theory) provide a leg up. This issue is particularly relevant 
in light of Russia’s recent invasion of Ukraine, with many investors re-thinking asset investment 
strategies to align with global security concerns.
Attracting customers
ESG investors don’t just look at a company’s own performance, but increasingly, that of its entire 
supply chain.⁸ As a result, many companies look to procure goods and services only from suppliers 
that can themselves demonstrate strong ESG performance. To the extent that governments support 
clear ESG disclosure and strong ESG performance in their jurisdiction, it increases the desirability  
of local companies as suppliers.
Attracting new businesses
For companies looking to relocate, a jurisdiction with strong ESG performance may be  
attractive because it lends credibility to the ESG claims of the companies that are based there. 
(Although strong ESG performance may increase the desirability of some jurisdictions, it is  
critical to note that it is seldom sufficient it itself; political risk and ease of doing business are  
other factors that remain important in this equation.)

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03
Because ESG affects 
government’s credit rating  
and borrowing costs
Finally, ESG ratings have started to affect jurisdictions’ credit ratings, borrowing costs and ability 
to secure financing.
It isn’t just companies that are on the receiving end of ESG ratings – increasingly, it is jurisdictions 
as well. Over the last few years, major credit rating and investment research agencies such as 
Moody’s, S&P, Fitch and MCSI have begun to apply ESG factors in their borrowing risk assessments 
of governments at municipal, regional and national levels. Their assessments are based on the 
jurisdiction’s exposure to and management of ESG risk factors, and how these factors might impact 
long-term economic performance. Table 1 shows how two different agencies—Moody’s and Fitch 
Ratings—apply ESG factors when considering sovereign credit ratings.
Increasingly, those ESG ratings affect the government’s ability to secure financing, obtain lower 
borrowing costs9,10 and attain lower sovereign bond yield spreads. The equation is simple: better 
ESG performance by the jurisdiction equals a higher credit rating and a lower cost of borrowing. 
How much of a difference does it make? Quite a bit, even among developed countries. A study 
of 20 OECD countries found that a 10 per cent higher country ESG score reduced the sovereign 
bond spread by almost 11 per cent in the short term, and over 16 per cent in the long term.¹¹ 
In addition, some jurisdictions have begun to issue sovereign green bonds—bonds issued by 
government explicitly to fund environmentally positive projects. Sovereign green bonds or other 
sustainability-linked bonds had been issued by 22 nations as of 2021, with 13 more signaling 
intent to issue. These bonds may have lower rates because of the secondary perceived benefit 
of helping the planet—but this only works if the jurisdiction has credibility that the environmental 
goals will be achieved.
In short, many of the factors that are considered by credit rating agencies under the rubric of 
ESG are ones that have influenced a jurisdiction’s creditworthiness for a long time. Countries with 
traditionally poor governance practices have long been seen as a risk, for example. But credit rating 
agencies and lenders are increasingly explicit in considering the full suite of ESG factors when 
making decisions about governments and financing – and governments need to get out in front.

Table 1
How credit rating agencies consider ESG in assigning government credit ratings
EXAMPLE 1  |  FITCH RATINGS
Fitch Ratings has developed a suite of ESG factors that they evaluate for relevance for each jurisdiction when developing their credit 
ratings. The table below shows their Sector-Specific ESG Factors for Local and Regional Governments.
Environmental 
Factors
GHG Emissions and Air Quality
Emissions and air pollution as constraints on the economy and revenue growth; 
enforcement/compliance with governmental/regulatory standards.
Energy Management
Impact of energy resources management on the economy and governmental 
operations, including enforcement/compliance with governmental/regulatory standards.
Water Resources Management
Water resource availability impacts on the economy and governmental operations, 
including enforcement of governmental/regulatory standards.
Biodiversity and Natural  
Resource Management
Impact of natural resources management on the economy and  
governmental operations.
Natural Disasters and Climate Change
Impact of extreme weather events and climate change on the economy,  
governmental operations and policy related to natural disasters treatment.
Social  
Factors
Human Rights and Political Freedoms
Policy framework on social stability and human rights protection.
Human Development, Health and Education
Impact of health and education on economic resources and governmental operations.
Labor Relations and Practices
Impact of labor negotiations and employee (dis)satisfaction.
Public Safety and Security
Impact of public safety and security (including cybersecurity) on business  
environment and/or economic performance.
Population Demographics
Impact on economic strength and stability (labor force supply, household income, 
population and aging, etc.).
Governance  
Factors
Political Stability and Rights
Impact of political pressure or instability on operations; tendency toward  
unpredictable policy shifts.
Rule of Law, Institutional and Regulatory 
Quality, Control of Corruption
Government effectiveness; control of corruption; regulatory quality; management 
practices and their effectiveness; respect for property rights.
International Relations and Trade
Trade agreements and impact on economy and revenue growth.
Creditor Rights
Willingness to service and repay debt; exposure to outstanding or pending litigation.
Data Quality and Transparency
Limitations on the quality and timeliness of financial data, including transparency  
of public debt and contingent liabilities.
	 	
Source: Fitch Ratings. Where ESG Matters for International Public Finance. November 17, 2021
Source: Moody’s Investor Service. Moody’s approach to assessing ESG in credit analysis. 2017.
Exhibit 2: ESG trends can affect key sovereign credit considerations
EXAMPLE 2  |  MOODY’S
Moody’s takes a different tack, 
stating that the agency assesses 
how individual environmental, 
social and governance factors 
impact economic competitiveness, 
government effectiveness, rule  
of law, political risk and control  
of corruption and ultimately lead  
to assignment of a graded credit 
rating to the jurisdiction.
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Part 2
How can 
governments 
respond? 
The gory details
The previous section presented three compelling reasons for 
governments to care about ESG. The obvious next question is: 
how can governments respond?

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This section presents 18 actions that governments can consider, drawing on examples of what 
has been done previously in Canada and internationally. It is critical to note that not all actions 
described are recommended. Some are clearly marked as “not recommended.” However,  
even those marked as “potentially useful” may not be appropriate for some governments, or at 
certain times. Our intention was to compile a complete list of actions that have been considered 
or attempted, to help inform governments that are currently grappling with questions about  
the value of different approaches. The 18 actions are grouped into four complementary categories 
or themes:
Support strong and  
consistent ESG reporting
Communicate your  
ESG story
Raise the bar for  
ESG performance
Provide clarity  
for investors
Each action also describes the relevant government entities that could be involved. Responsibility 
for specific actions is delegated differently across different jurisdictions, and when it comes 
to ESG, almost every jurisdiction examined for this report has taken a different approach. 
Depending on the location, the activities described below have involved elected policy-makers; 
officials across numerous ministries and departments; financial regulators; central banks; stock 
exchanges; national standard setting organizations; investment attraction agencies; energy 
regulators; environmental regulators; and numerous others. Ultimately, the government in each 
jurisdiction must decide for itself where efforts are best housed.
Support strong and 
consistent ESG reporting 
For companies, the landscape of ESG reporting can be difficult to navigate, with no single  
arbiter of what ESG reporting is or should be. For investors looking to understand ESG 
performance there is also confusion, as differing approaches to disclosure can make it tough  
to compare apples to apples.
The role for government lies in building strong and consistent ESG reporting within the 
jurisdiction—across companies, sectors, industries and government departments, as well as  
across multiple levels of government. Consistency helps all parties to have a shared  
language and framework so that they can more easily talk with one another and tell a common 
story as they compete globally.

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01
Mandate climate change disclosure reporting
Climate-related disclosures are just one part of ESG, but—for obvious reasons—a very important 
part. As a result, there has been an outsized focus on climate within the ESG space. And recently, 
there have been some profound developments in this area.
Mandatory climate change disclosure is on the rise—in some cases for financial institutions and 
in other cases for large public companies, with the U.K., France, Switzerland and New Zealand 
among the countries that have recently implemented such legislation. In the U.S., the Securities and 
Exchange Commission (SEC) published draft rules in March 2022 that require public companies  
to disclose climate-related information in their SEC filings.¹² Information to be disclosed includes:
•	 The company’s GHG emissions (Scope 1, Scope 2 and in some cases Scope 3 emissions)
•	 Climate-related risks that may have a material impact on the company’s business,  
operations, or finances
•	 Climate-related financial metrics, including the costs of moving away from fossil fuels
And mandatory climate disclosure is also coming to Canada. The federal government’s budget  
of April 7, 2022, outlined a plan to require federally-regulated financial institutions to begin 
reporting on climate-related financial risks—with efforts to be headed by the Office of the 
Superintendent of Financial Institutions (OSFI). While this rule only applies to federal financial 
institutions, the government noted that it expects there will be impacts for all types of Canadian 
businesses as requirements trickle down to the businesses that financial institutions work with.  
In addition, in October of 2021, the Canadian Securities Administrators (CSA) published proposed 
climate-related disclosure requirements that would apply to public companies.¹³ The new 
requirements extend the CSA’s existing requirements for reporting climate change-related risks. 
Most large emitters in Canada are public companies subject to these rules.
In most jurisdictions—including Canada, the U.S. and the U.K.—the entities behind these efforts 
have chosen to align their reporting requirements with the Task Force on Climate-Related 
Financial Disclosures (TCFD) framework, which represents the current global standard for how 
climate change risk is disclosed. This is a good move, as the use of a common reporting standard 
increases clarity and reduces reporting burden. 
Given these efforts, do additional government agencies—particularly at a provincial level—need 
to get in on the act of requiring climate change disclosure? Possibly, but there are two key issues. 
The first is jurisdiction; within Canada, who has the right to compel companies to disclose their 
climate actions and risk? The second is the question of where the benefit outweighs the burden. 
As noted above, public companies, heavy emitters, and many large private companies fall 
under the existing or proposed rules. For many or most small- and medium-sized privately held 
companies, the burden of mandatory climate change reporting likely outweighs the potential 
benefit of producing this information. This leaves Crown Corporations and other government-
owned enterprises, which are often entities with large footprints, under a great deal of scrutiny. 
There is an appropriate role for governments to require climate change reporting from Crown 
Corporations, to align with what is expected from other sectors and organization types.

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Recommendation 
•	 As mandatory climate change reporting becomes increasingly universal in coming years, 
government’s role is to ensure that reporting requirements for external companies and 
organizations are effective, harmonized and provide information of value. 
•	 Different levels of government (federal, provincial, municipal) can also play a role in mandating 
climate change disclosure from government-owned enterprises. 
Entity 
•	 At the federal level within Canada, efforts around mandatory climate change disclosure 
reporting are being led by the Canadian Securities Administrators and the Office of  
the Superintendent of Financial Institutions. Provincial governments may have an additional  
role with respect to Crown Corporations.
02
Recommend or require that public companies provide full ESG disclosure
Beyond the disclosure of climate-related topics, there arises the question of whether government 
agencies should require—or even just recommend—that companies produce ESG reports that 
cover the full suite of material environmental, social and governance issues. 
To date, there are no examples of governments mandating full ESG reporting by companies. While 
regulators and other government agencies commonly require companies to provide data that 
falls under the ESG umbrella (whether on water use or gender diversity on Boards), none require 
companies to produce a comprehensive ESG report. The closest example of mandatory disclosure 
is the European Union’s Non-Financial Reporting Directive (NFRD) and its proposed Corporate 
Sustainability Reporting Directive (CSRD).¹⁴ Under the NFRD, large public interest companies—such 
as publicly traded corporations and banks—are required to provide information on their policies 
and performance regarding environmental and social matters, human rights, and anticorruption. 
However, the requirements are vague and do not constitute comprehensive ESG reporting. 
However, this may change under the proposed CSRD, which will expand the scope of companies 
impacted and will require alignment to E.U. sustainability reporting standards—and it can be 
assumed that these standards will be based on one of the globally recognized ESG frameworks.
This is an area where stock exchanges have begun to fill the void. Globally, a number of stock 
exchanges—sometimes working with securities market regulators and central banks—have 
begun to either recommend that listed companies produce ESG reports, or require that they do 
so as a condition of remaining listed on the stock exchange. As of March 2022, 27 exchanges 
worldwide (of 114 in total) had mandatory ESG disclosure, requiring companies to provide public 
ESG information in order to be listed on the exchange.¹⁵ Of these, four have a market cap over 
USD$1 trillion (Euronext, the Hong Kong Exchanges, the National Stock Exchange of India, and 
the Johannesburg Stock Exchange). No North American exchanges currently have mandatory 
ESG disclosure. In addition, 43 stock exchanges provided voluntary ESG disclosure guidance for 
listed companies – including both major exchanges such as NASDAQ and the New York Stock 
Exchange, as well as Canada’s TMX Group (Toronto Stock Exchange). 
This is an emerging area and one that governments should pay close attention to moving forward. 
It is common for governments to require some environmental, social and governance information 
to be disclosed by companies, but it is not yet the case that governments require—or even 
recommend—that companies provide ESG information on all material issues. Led by developments 
in Europe, this may well change in coming years. As it does, there will be a role for government 
in proactively setting standards and being involved in the development of tools and reporting 
frameworks, including involvement with the international committees that set those standards— 
in much the same way that governments have done with electrical standards, for example.

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Recommendation 
•	 Not yet recommended. Requiring or recommending full ESG disclosure and reporting is not  
a common government practice, although many stock exchanges are leading the way for listed 
companies. However, government should keep a close eye on this area in order to remain in 
front of rapidly evolving norms and expectations.
Entity 
•	 Globally, this action has been led by stock exchanges and security commissions. In Canada, 
the Canadian Securities Administrators would likely be in a good position to lead any 
developing efforts.
03
Create your own ESG standard/framework for companies in your jurisdiction
Some governments have considered the idea of developing a jurisdictional standard for ESG 
reporting—in other words, a template or framework that tells companies based in the jurisdiction 
exactly what topics to report on, and what metrics to use or how to approach the reporting.  
This idea is appealing because it could theoretically provide a context-specific set of material 
issues that are more locally relevant than those in global frameworks; and would provide 
consistent guidance for companies operating in the jurisdiction.
In practice, however, this idea has several critical problems baked into it.
First, it would only add to, and not replace, the international standards that the global financial 
community expects to see in a company’s ESG report. This means that rather than streamlining the 
reporting process for companies, it would instead add complexity and burden. It also leaves an 
enormous grey area around companies that operate in and from multiple jurisdictions. Finally, it is 
unlikely to influence the rating of companies by ESG rating agencies, which are unlikely to care about 
the existence of a provincial or national ESG framework as they evaluate company performance.
Recommendation
•	 Not recommended
04
Endorse specific ESG frameworks
However, even without creating its own framework or standard, there are ways that a government 
can encourage companies to develop robust and (appropriate) reporting.
A strong option would be for a government to endorse a specific framework as a preferred way 
for companies in its jurisdiction to report their ESG disclosures. An endorsement would not have 
the weight of a requirement or regulation, but would promote good practice and may improve 
disclosure standardization for companies in the jurisdiction.
A number of frameworks or standards for ESG reporting have been developed by multinational 
organizations and have gained international traction. These include (but are not limited to):
•	 Global Reporting Initiative (GRI)
•	 Sustainability Accounting Standards Board (SASB)
•	 Task Force on Climate-related Financial Disclosures (TFCD)
•	 International Integrated Reporting Council (IIRC)
•	 Climate Disclosure Standards Board (CDSB)
•	 CDP (formerly the Carbon Disclosure Project)

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However, there has recently been some movement towards consolidation and harmonization 
across a number of these global frameworks to reduce “confusion and cost for both producers 
and users of sustainability information.”11 Two proposed consolidated frameworks (the ISSB and 
the ESRS) are summarized on page 20 and comprise the leading contenders for government 
endorsement (at least as of the time of publication of this report; this field is changing very rapidly). 
For governments looking to endorse a framework that only pertains to climate change and  
GHG emissions, the TCFD has been rising to the top as the instrument of choice. Unlike the ISSB, 
ESRS, SASB or GRI which cover a broad range of E, S, and G topics, the TCFD applies only to  
a company’s disclosures with respect to climate change.
Recommendation
•	 Potentially useful. This action can help create consistency within a jurisdiction; but even 
without government endorsement, certain ESG standards and frameworks are becoming the 
norm based on the recommendations of agencies such as the Canadian Coalition for Good 
Governance; major Canadian and international investment management firms; and stock 
exchanges. 
Entity 
•	 This endorsement could come from any or all of: elected leadership; ministries or departments; 
financial regulators; or non-financial regulators (e.g., energy regulators).
05
Consider guidance for locally-relevant topics
One problem with global standards is that they often lack adequate guidance on specific issues 
that are important but relevant only in some jurisdictions. Indigenous rights and relationships 
is a prime example. Most global frameworks provide no direction on disclosure, and those that 
do (SASB and GRI) address it only at a very high level or in a very limited fashion. Indigenous 
groups do not appear to have been consulted as to what topics or indicators they would like 
to see included. Nonetheless, Indigenous rights, reconciliation and relationships are of critical 
importance to most companies, and certainly to all governments within Canada. 
Because of these deficiencies, some efforts have been made to develop supplemental 
materials that can provide guidance on locally-relevant topics that are poorly served by global 
approaches. For example, the Independent Review Committee on Standard Setting in Canada is 
conducting a review of whether a Canadian version of or supplement to the ISSB standards would 
be useful. And the First Nations Major Projects Coalition (FNMPC) has been publishing materials 
exploring the intersection of ESG and the rights and interests of Indigenous groups in Canada.
Either preparing such supplementary guidance, or endorsing a supplementary framework created 
by other groups, could be a useful jurisdictional action that would provide both clarity and 
consistency to reporting organizations.
Recommendation 
•	 Medium priority. As in the action item above, this action can improve clarity and consistency for 
reporting companies. Some progress is occurring—led mainly by non-governmental organizations—
but some government involvement or endorsement of these external efforts could be useful. 
Entity 
•	 Preparing supplementary guidance could involve ministries or departments that are responsible 
either for the types of companies preparing disclosures (e.g., energy); or for the topics being 
addressed in the supplement (e.g., Indigenous rights). It may also involve financial regulators. 
Government agencies should make efforts to coordinate closely with other Canadian 
jurisdictions or external organizations that may be undertaking similar work.

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Leading Contenders for Consolidated 
Reporting Standards
The International Sustainability Standards Board (ISSB)
On November 3, 2021, the International Financial Reporting Standards (IFRS) Foundation announced 
the formation of the International Sustainability Standards Board (ISSB).¹⁶ The ISSB will establish 
one globally recognized set of ESG disclosure standards that will replace multiple standards that 
are in use today. It brings together many of the current major ESG reporting standards, including 
the Climate Disclosure Standards Board (CDSB, an initiative of CDP) and the Value Reporting 
Foundation, which houses the Integrated Reporting Framework and the SASB Standards; and also 
draws on the work of the Task Force on Climate-related Financial Disclosures. 
The IFRS is the body responsible for setting international accounting standards and they have 
indicated that the new ISSB standards are likely to have strong accountability procedures, and 
integrate with verification processes already used by financial verifiers. 
The organization has also confirmed that the focus for the new standards will continue to be 
investors and other users of financial information (as opposed to other stakeholders interested  
in sustainability more broadly).
Overall, the ISSB is a gamechanger for ESG reporting. Greater standardization globally had been 
called for by preparers and users of ESG information, and this new approach provides exactly 
that. It will facilitate wider adoption of ESG reporting as the standards are easier to use, facilitate 
auditing of the information, make it easier to analyse and compare ESG performance, and provide  
a clear front-runner. The ISSB is expected to be up and running by June 2022, and will establish  
its head office in Frankfurt and a secondary hub in Montreal. 
These attributes make the ISSB a clear front-runner by government agencies looking to endorse  
a particular standard. 
European Sustainability Reporting Standards (ESRS)  
and Global Reporting Initiative (GRI)
The ISSB is focused on ESG reporting that satisfies the needs of financial investors. For stakeholder 
audiences interested in sustainability more broadly, a different approach may be of more interest.
The European Sustainability Reporting Standards (ESRS) are currently under development, led by 
the European Financial Reporting Advisory Group (EFRAG), working in partnership with the Global 
Reporting Initiative (GRI)—an international sustainability standards-setting organization established 
in 1997 by the United Nations’ Environment Programme. All companies that are required to report 
under Europe’s Corporate Sustainable Reporting Directive will be required to comply with these 
sustainability reporting standards.
The ESRS is still under development, but will represent a complement to the ISSB, with the ISSB 
focused more narrowly on reporting for investor audiences, and the ESRS presenting information 
that is of interest to a wider group of stakeholders.
ISSB
ESRS

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06
Align performance/compliance data with ESG reporting frameworks
Assembling ESG data can be extremely time-consuming and expensive for companies. The cost 
of climate disclosure alone has been estimated to be around USD$420,000 per year for a small 
publicly listed company, and $530,000 per year for a larger company.¹⁷
Companies in certain sectors—such as energy—also need to report performance data to different 
levels and agencies of government, including (but not limited to) energy regulators. Governments 
can help companies be efficient by ensuring that the data does not need to be assembled  
and reported in multiple formats. This applies both to ESG reporting frameworks and to reporting 
across multiple layers of government.
If government aligns its own reporting requirements with the way data needs to be provided 
under ESG reporting frameworks—for example, by using the same metrics and indicators  
to represent specific topics—this will help companies to assemble relevant data only once, but 
use it for multiple purposes. While this may not be possible for all data, the review of reporting 
requirements to increase efficiency for the reporting entities is good practice. 
Recommendation 
•	 High priority. Making the process integrated rather than additive helps reduce  
red tape for companies.
Entity 
•	 Ministries and regulators that require private-sector companies to report data.
Raise the bar for  
ESG performance
Both companies and jurisdictions are judged on their ESG performance—and the two are closely 
linked. Raising the bar involves using data and policy to incentivize high performance, make 
conditions more appealing to investors and stakeholders, and send strong signals about continuous 
improvement. At the same time, this must be done in a way that takes into consideration the 
capacity of different companies and organizations to adapt, and ensures that the government 
doesn’t inadvertently decrease competitiveness—the opposite of what is intended.

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07
Benchmark and improve the jurisdiction’s own ESG performance
The actions described above are intended to bring improvement and consistency to the ESG 
disclosures of companies operating in a jurisdiction. But as described in Part 1 of this report, 
governments themselves are also being graded on their ESG performance, with implications  
for their credit ratings and borrowing costs. This means that it is critical for governments to 
do some strong self-reflection in order to understand, benchmark and improve their own ESG 
performance, and to do this both honestly and transparently, and in a way that makes it clear  
that the jurisdiction is serious about improvement. In addition to improving the jurisdiction’s 
own credit rating, this will boost the ESG credibility claims of the companies operating in the 
jurisdiction—a win all around.
There is no established path for governments that want to go down this road, and few governments 
worldwide have developed any public-facing materials that describe the approaches they 
are taking. However, the Government of Alberta recently went through an ESG soul-searching 
process—described in the box on page 24—that provides a concrete example of how this  
task can be robustly approached. 
The Alberta government gave the initial task of reviewing needs and options to an ESG Secretariat 
that reported to the Premier’s office. After extensive consultation, the Secretariat chose to develop 
a jurisdictional ESG framework that would act as “the connective tissue that ties together the work 
in each ministry to a common vision and set of outcomes”—in other words, a whole-of-government 
approach in which all departments were talking the same language and working to the same end. 
The process is still underway, making it too early to evaluate the extent to which it has helped  
the Alberta government reach its goals. But there are three elements of Alberta’s approach that 
have broad application for any government: 
a)	Identify and benchmark current ESG performance
b)	Improve ESG performance over time
c)	Communicate the jurisdiction’s ESG performance and future  
plans for improvement to interested audiences 
Recommendation 
•	 High priority. This action feeds directly into the government’s credit rating and borrowing costs, 
and the ability of investment attraction to tell a compelling story. It is also something that will 
take a long time to develop and implement, so getting sufficient lead time is critical.
Entity 
•	 This is likely to work best if led by elected leadership (Premier’s office, City Council, etc.)  
but conducted using a whole-of-government approach.

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ESG
Case Study
Alberta’s Jurisdictional ESG Strategy
In March 2021, the Government of Alberta established an ESG Secretariat, the first of its kind 
by any province, to serve as a strategic coordinating body for all ESG-related activities across 
government. The ESG Secretariat was given responsibility for threading together Alberta’s broad 
policy environment into a unified narrative that communicates Alberta’s commitment to strong 
ESG performance, as well as to provide a clearinghouse for factual ESG data and performance 
metrics across industry sectors. 
After spending most of the year consulting with a broad range of stakeholders, the Secretariat 
decided to pursue an innovative “Jurisdictional ESG framework” approach. Rather than focusing 
on the performance of individual corporations, or of the government as a business entity, the 
jurisdictional approach looks at the performance of the province as a whole. 
Using the UN’s Sustainable Development Goals as a starting point, the Secretariat conducted  
a review for relevance—ultimately settling on 16 key factors (Table 2) that will be used to measure 
the province’s performance both now and into the future. Moving into 2022 and beyond, a major 
part of the Secretariat’s work will be to garner intragovernmental support for the jurisdictional 
framework. This will include mapping policies, performance to date, strategic investments, and 
investments from industry to measure ESG performance.
Table 2
Jurisdictional ESG Framework for Alberta (draft)
Environment
Social
Governance
•	Fresh water availability, 
conservation and renewal
•	Emissions, effluents, 
decarbonization and renewability 
•	Natural capital, biodiversity, 
remediation and reclamation
•	Waste reduction, recycling  
and redirection
•	Physical climate and  
weather risk
•	Demographics, immigration, 
inclusion, diversity and social 
mobility 
•	Indigenous partnerships, 
participation and reconciliation
•	Wellness and wellbeing, safety 
and security 
•	Education, skill development, 
income growth and affordability 
•	Citizenship, community 
engagement and civil society 
•	Compliance, transparency  
and public disclosure
•	Human rights and production 
responsibility 
•	Institutional governance, 
credibility and independence
•	R&D, innovation and  
technology adoption
•	Job creation, exports and 
economic growth
•	Financial stewardship and  
future capacity 
Ultimately, the goal of the Secretariat is to advance the province’s ESG performance – and 
then to use that positive performance to showcase Alberta as a confident and respected global 
brand. The jurisdictional framework will be useful both as an internal tool to ensure all parts 
of government are speaking the same language, and as an external stakeholder tool to help 
communicate the jurisdiction’s ESG performance to others.
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08
Build a solid and coherent foundation of environmental, social and  
governance policy and regulations
One of the fundamental roles of government is to enact policy, legislation and regulations that 
protect the safety and wellbeing of people and the environment—whether it pertains to emissions, 
water, waste, gender equity, or governance transparency and accountability. In many cases, this 
role is aligned with the overall purpose and approach of ESG. As governments enact new policies 
and regulations, improve existing ones, and improve monitoring, oversight and enforcement, the 
ESG performance of companies in the jurisdiction may improve by providing a “floor.” (The may 
relates to the fact that the design and implementation of a regulation greatly affects the extent 
to which it achieves its objectives.) It may also help the government produce a credible ESG 
improvement story that affects its own credit ratings—as described earlier. 
It is also helpful for a government to consider the coherence of its policies—and climate change 
policies in particular—as both the jurisdiction itself and the companies operating within it are 
judged on this. A coherent set of policies ensures both that there are no gaps and that the full 
suite of policies is aligned with net zero targets and agreements. 
An additional action that government can consider is to empower government agencies (such 
as regulators) to consider sustainability as part of decision-making. Because many government 
agencies work under enabling legislation that does not explicitly mention sustainability or ESG 
considerations, they are unable to incorporate these factors when making decisions—and many 
find it frustrating and limiting in terms of serving government’s overall sustainability objectives.
Recommendation 
•	 This action is a high priority, as it strongly influences the way that the jurisdiction is viewed  
by investors and ESG / credit rating agencies. 
Entity 
•	 All policy-making functions (elected leadership, ministries and departments and regulators). 
09
Set targets, benchmarks or thresholds for ESG performance by companies
In some cases, it can be useful to establish specific benchmarks, thresholds or targets that can  
be used to objectively gauge company performance and to identify what constitutes adequate, 
good or exceptional performance in specific E, S or G areas. 
Not all ESG topics are amenable to setting benchmarks or targets—but many are. And setting 
binding thresholds and targets is an activity that has been taken on both by government and  
by industry organizations. 
Governments in Canada have set thresholds or performance targets for methane emissions; 
vehicle performance; fuel composition; occupational health and safety performance;  
and employment conditions, for example. In addition, a number of Canadian industry sectors 
—including forestry, mining, beef, chemistry and electricity—have established performance 
management programs* that set binding targets or thresholds for company performance  
for all companies that are members of the industry association. 
*	See the Canada West Foundation’s report Performance Management and the Oil Sands for a review of the performance management 
programs across these five sectors.

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In setting targets or thresholds, governments can support beneficial outcomes that are important 
for people or the environment; enhance performance of individual companies and the jurisdiction 
itself; and provide a point of differentiation that can be used in soliciting ESG investment or 
attracting Foreign Direct Investment. Extreme care must be taken, however, to ensure that targets 
and thresholds are realistic and achievable, and do not inadvertently reduce the competitiveness 
of companies operating in the jurisdiction.
If targets or thresholds are established, this raises the question of how to verify or validate 
performance claims. In the example of the industry performance management programs above, 
external third-party validators are used. For the emerging ISSB standards, auditing will also be 
conducted by external qualified parties. Validation and auditing is not an area that government 
should be directly involved in unless the target/threshold measures are tied into a regulatory 
compliance obligation, in which case the applicable regulator would have a structure and 
mechanism set up to verify compliance.
Recommendation 
•	 Potentially useful for some ESG topics, but targets and thresholds must be crafted carefully  
to ensure they are achievable and don’t squelch competitiveness. 
Entity 
•	 The establishment of targets and thresholds is typically done by elected leadership with 
support from ministries or the applicable regulators.
10
Use ESG as an input into decision-making around permitting or oversight
Of all entities within government, regulators—and in particular energy and environmental 
regulators—have a distinct and particularly large overlap with ESG. 
Energy and environment regulators are charged with ensuring that regulated entities (which are 
usually private sector companies) perform responsibly with respect to people and environment. 
The topics that they review to determine a company’s compliance include water, waste, emissions, 
land use, health and safety, and other environmental and social (and sometimes governance) 
elements. Furthermore, regulators are charged with conveying this compliance information  
to a broad range of stakeholder audiences. In this way, the mandates of regulators have a strong 
alignment with the purpose and approaches used in ESG disclosure.
Because of this overlap, some regulators have raised the question of whether a company’s ESG 
disclosures could be used to streamline, speed up or strengthen a company’s application during 
the permitting process. However, there are several key differences between ESG and regulatory 
approaches that severely limit the utility of this. 
The first difference is the granularity, or level, of observation. Regulatory permitting decisions are 
made about a specific project in a specific location. Information is required about the potential 
effects of the project on its local environment. ESG information, in contrast, is reported at the level 
of the parent company, using a single metric to represent all of its operations across all projects, 
subsidiaries, provinces and countries.
As an example, the Impact Assessment Agency of Canada may be asked to make a determination 
about issuing a permit to Shell for an exploratory drilling project off the coast of Nova Scotia. While 
Shell engages in extensive ESG reporting, it does not break out its Canadian operations separately 
from its global operations, let alone at a project level. This means that the specificity of information 
provided in ESG reports is insufficient for the regulator to use in assessing the past or likely future 
performance of the drilling project.

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The second difference is rigour of the data. Regulators evaluate company compliance and 
performance with reference to standardized and published information on metrics definition,  
data collection methodology and thresholds or benchmarks for performance indicators.  
They do this because the data they collect, use and publish must have legal validity. ESG data, 
by contrast, rarely includes any information about methodology, and does not make reference  
to standardized thresholds, benchmarks or performance standards that can be used to gauge  
the adequacy of a company’s efforts. (The one exception is for GHG reporting, for which there  
is starting to be consensus around how to measure and how to report and—to some degree—
what constitutes good performance.)
Finally, the topics addressed in a company’s ESG reports are those that have been identified  
as relevant primarily to investors, rather than adhering to regulatory terms of reference. 
As a result of this mismatch, it is not appropriate to use ESG data to make decisions about 
regulatory permitting or oversight.
Recommendation 
•	 Not recommended
11
Manage government investments using ESG criteria
Governments at the federal, provincial and municipal levels hold substantial financial assets—
such as public pension funds and sovereign wealth funds—that are invested in income-generating 
instruments. Although these funds have a primary fiduciary duty to maximize returns, analysis has 
expanded to include ESG consideration. According to DBRS Morningstar, “Pension Funds believe 
that neglecting ESG analysis would be a failure of fiduciary duty as it may lead to the mispricing 
of risk and poor asset allocation decisions.”¹⁸ They cite CPP Investments, with approximately 
$500 billion in assets, which stated “We believe that companies that effectively manage 
Environmental, Social, and Governance factors are more likely to create financial value over the 
long term, improving investment performance by the Fund.” The policy uses broad ESG criteria 
and does not screen for particular sectors like oil and gas or alcohol. 
A different approach that governments can take is to use policy to direct investments to support 
specific environmental, social or governance outcomes, where maximizing financial returns is 
not the prime directive. For example, the Caisse de depot et placement du Quebec (CDPQ) has 
earmarked a $250 million investment fund to be deployed over four years to increase diversity 
and inclusion in companies within Québec and Canada. And in British Columbia, a new Crown 
corporation, InBC, will handle a $500 million strategic fund that will invest in companies that meet 
the government’s social, economic and environmental policy objectives. Such investments  
can be used to incentivize improvement from companies in the jurisdiction that receives funding.
There are several benefits that stem from managing government investments with an eye towards 
sustainability, ESG, or preferred environmental, social or governance outcomes. First, it may 
generate better returns. Second, it is a way to demonstrate that the government manages its money 
based on its values—which comes back to successfully telling the ESG story of the jurisdiction.
Recommendation
•	 Potentially useful. This action can help demonstrate a government’s alignment with  
ESG principles and can help create ESG high performers in the jurisdiction. However, this 
recommendation may not be as immediately critical as others in this report.
Entity 
•	 Investment funds across government.

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12
Manage public procurement using sustainability criteria
Some governments—particularly at a national level—have stated that they are interested in 
advancing sustainable public procurement in line with the UN’s Sustainable Development Goal 
target 12.7. As described by Canadian Business for Social Responsibility (CBSR), sustainable 
public procurement directs the purchasing of goods, services, works and utilities based on criteria 
that include the overall benefit to society and the environment as well as the economy.
To date, however, efforts have been patchy, and no government seems to be doing this particularly 
well. For the most part, the language of sustainability has been used broadly, but the actual scope 
of issues has been quite narrow: primarily GHG emissions and supply chain issues related to 
human rights and modern slavery, on top of criteria that have been in use for much longer, such as 
preferring local or minority-owned businesses.
There are substantial implementation challenges for governments that want to engage in 
sustainable procurement, or procurement that considers particular environmental, social or 
governance factors. One challenge relates to international trade agreements. The World Trade 
Organization (WTO) Government Procurement Agreement governs procurement spending  
across 48 members, including Canada. While the agreement was revised in 2012 to permit 
environmental considerations, it has yet to explicitly address the social aspects of sustainability.19 
Other implementation challenges include the development of appropriate performance  
indicators; sufficient guidance for government departments and agencies; and cross-governmental 
collaboration. Germany has attempted to meet these challenges by developing a Centre of 
Excellence for Sustainable Procurement that works with public contracting bodies at the federal, 
state and local levels.
Recommendation 
•	 This area is still relatively undeveloped. However, it is an area to watch as it is likely to  
evolve as governments grapple with how to align their actions with broader commitments  
(such as “building back better”) and objectives (such as the UN Sustainable Development Goals).
Entity 
•	 All parts of government would be involved, as virtually all engage in some public procurement. 
However, direction-setting needs to come from the top.
Communicate your ESG story
Good performance doesn’t matter if people don’t know about it. Governments need to engage 
with a broad range of ESG-interested audiences—investors, consumers, data analysts, industry 
organizations, NGOs, ESG raters and the general public—to ensure that they have the information 
they need to understand and substantiate claims of ESG performance. This requires making 
data accessible, usable and meaningful. And it means building trust that the government is truly 
committed to improvement and not just spinning a good story.

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13
Better organize data for ESG-interested audiences
The government can support companies by providing credible and objective data that support 
ESG performance claims.
Many government agencies produce information that is of interest to audiences who want to 
better understand the ESG performance of a region, a company or a specific project. While much 
of this data is on environmental indicators, governments maintain useful sources of social and 
governance data as well. Some examples of ESG-relevant material include: 
•	 The Canadian Energy Regulator’s (CER) Canada’s Energy Future reports; safety performance 
dashboard; and provincial energy profiles
•	 Statistics Canada’s numerous provincial and sector level data tables on environmental  
metrics, and diversity and inclusion
•	 The B.C. government’s geospatial data available through iMapBC
•	 The Alberta Utilities Commission and Alberta Electric System Operator’s data on  
provincial power capacity and generation profiles
•	 The Saskatchewan government’s Business and Economy dashboard
However, this data is not always packaged in a way that makes it easy to find or easy to use. 
Government can take action to organize or package this information in a way that highlights  
its ESG relevance and increases ease of use for audiences that are interested in using data for 
this purpose. This includes not only those audiences who review ESG reports, but also individual 
companies that want to use the data as part of their disclosure efforts. 
This action will require outreach to identify what information is relevant to these groups, and 
may include adjusting what metrics are used, how data is presented, or simply highlighting the 
relevance of the information for ESG purposes. 
Recommendation 
•	 High priority, with a lot of bang for the buck. It fills a need that can’t be addressed by markets 
alone and is highly appropriate for governments to step in and provide information.
Entity 
•	 All parts of government that produce and publish data relevant to ESG: ministries and 
departments, regulators, data agencies and others.
14
Broadcast your data and performance
The action items above suggest a variety of ways that governments can improve ESG reporting 
consistency and clarity, and induce improvements in performance across both the private sector 
and government itself. But there is no point in doing any of that if nobody knows about it. 
For agencies that create ESG-relevant data and information, this means doing the work to ensure 
that interested audiences are aware that the data exist and can easily find it. Part of this may 
be as simple as making this information highly visible on the agency website; another part may 
involve outreach to ESG-interested organizations or groups. 
But investment attraction agencies—at the municipal, regional or national level—can also use the 
ESG “story” to promote companies as investable and to better advocate for the jurisdiction.

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Alberta’s jurisdictional ESG framework (described on page 24) represents one approach that 
its investment attraction agency, Invest Alberta, will be able to use to demonstrate credible 
ESG performance in the province. Another emerging example comes from B.C., where the B.C. 
Government is developing an ESG Centre of Excellence. While details have not yet been released, 
the government states that the Centre is intended to “facilitate ESG investments in B.C., attract 
socially and environmentally conscious investors, and diversify markets for B.C.’s world-class 
goods and services under a respected and trustworthy ESG brand.” Both these efforts represent a 
coordinated and highly visible effort across the provincial government to promote ESG performance 
to external investors as a way of differentiating companies and the jurisdiction as a whole.
Recommendation 
•	 High priority; this action can help bridge the gap between ESG perception and on-the-ground 
performance reality.
Entity 
•	 All parts of government that produce and publish data relevant to ESG (ministries and 
departments, regulators, data agencies) as well as investment attraction agencies.
15
Certify product origin
Once a jurisdiction’s ESG brand has been built, governments can leverage the benefit by helping 
companies authenticate that their products actually come from that region—particularly for products 
such as commodities where it may be important but difficult for purchasers to verify the origin.
While the private sector offers several solutions to assist in the verification and certification 
of goods and services, there has to date been very little activity in this area by governments. 
However, the British Columbia government’s Ministry of Energy, Mines and Low Carbon 
Innovation is a front runner in this area. The Ministry has partnered with IBM to pilot a “digital trust 
ecosystem” that uses blockchain technology to confirm the B.C. origin of mining products.20  
The ecosystem will connect producers with purchasers and provide verified and secure ESG data, 
as well as confirm the source location of raw materials. It will make use of government-held  
data on the emissions profile of the producer’s operations. While the pilot focuses only on the  
mining sector and GHG emissions data, once it is proven it could be applied across multiple 
industries with an expanded offering of additional ESG metrics. 
While demand for certified-origin oil and gas products is not yet strong, this may change with 
sanctions on products of Russian origin. 
Certification-of-origin systems can provide multiple benefits to the organizations and jurisdictions 
that implement them. It provides easy access to existing ESG data by producers, consumers  
and investors; but also uses this data to elevate a trustworthy ESG narrative for the entire region. 
Recommendation 
•	 Potentially useful, under the right circumstances. Although this action has precedent and  
may bring benefit, creating such a system is difficult and expensive; and in order to derive 
benefit a jurisdiction has to be well informed about whether a particular market cares about  
a commodity’s origin and must be careful not to inadvertently give competitors an easy  
way to block Canadian exports.
Entity 
•	 This activity would need to be led by the relevant government ministry or department, working 
with the relevant regulator (for example, an energy regulator) where applicable.

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Provide clarity around ESG 
spending and investment
At its core, ESG is a tool designed to help investors evaluate investment risk and opportunity,  
an area regulated directly and indirectly by government. However, there is no single template for 
how government needs to be involved because different jurisdictions have very different models 
of how they oversee and regulate investments. Depending on the jurisdiction, the financial 
agencies charged with protecting and informing investors—including financial regulators, central 
banks, stock exchanges and standards associations—may be positioned within government, 
outside government or at an arm’s length. Which agency has oversight over securities markets, 
pensions, insurance, collective investment schemes, etc. also differs across jurisdictions. 
Despite the many forms that financial regulation and oversight may take, government in all cases 
maintains a strong role in ensuring that financial actors and markets operate in a fair, transparent 
and stable manner for ESG claims as well as more traditional financial representations.
16
Define what can be called “ESG investing”
ESG funds are investment tools that curate a portfolio based on the environmental, social and 
governance performance of the equities, bonds or other instruments within the fund. As noted 
earlier in this report, ESG investing* has grown exponentially in recent years. With this growth  
has come an increasingly stringent view on what qualifies as an ESG fund. This has been largely 
due to concerns about “greenwashing,” or misrepresentation of how the fund actually uses  
ESG information to select its investments. 
In response, many financial regulators across the globe have implemented—or are in the 
process of implementing—regulations and guidance to clarify what can be claimed to be an 
ESG investment. This frequently takes the form of mandatory or voluntary disclosure standards 
regarding the focus of the fund; what ESG metrics are considered; the degree to which ESG is 
used in decision making; and the policies and procedures used to curate the portfolio. Table 3 
provides a sample of the regulations and guidance documents that exist today. Almost all such 
disclosure standards have been produced at the national level, although the Ontario Pension 
Benefits Act represents an example of sub-national guidance. 
To put some “teeth” behind the guidance and regulations, securities regulators in both Canada 
and the U.S. have conducted reviews of ESG investment products, with penalties including 
regulatory enforcement and potential liability misrepresentation.²¹ Similarly, Morningstar— 
a global investment data provider—cut 1,200 funds worth $1.4 trillion in assets from its sustainable 
investment list in February 2022, after determining that their claims for ESG investing were  
not sufficiently substantiated according to the EU’s Sustainable Finance Disclosure Regulation.²²
*	
ESG investing, ethical investing, sustainability investing, impact investing – all these have slightly different meanings and objectives,  
but all invest in companies based on factors beyond just financial performance.

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Table 3
Sample of regulations and guidance on what constitutes  
an ESG investment fund
Country
Document
Year
Publisher
Canada
Ontario Pension Benefits Act
2016
Financial Services 
Commission of Ontario
Canada
CSA Staff Notice 81-334 – ESG-Related  
Investment Fund Disclosure
2022
Canadian Securities 
Administrators
European 
Union
Sustainable Finance Disclosure Regulation
2021
European  
Parliament
Israel
Amendment of the Provisions of the Consolidated 
Circular – Chapter 4 of Title 5 (Management 
of Investment Assets): Investment related to 
environmental, social and corporate governance, 
cyber and technology risks
2021
Capital Markets  
Authority
Malaysia
Guidelines on Sustainable and Responsible 
Investment Funds
2017
Securities Commission 
Malaysia
Switzerland
Guidance 05/2021:
Preventing and combating greenwashing
2021
Swiss Financial Market 
Supervisory Authority
United 
Kingdom
The Occupational Pension Schemes (Investment 
and Disclosure) (Amendment) Regulations 2019
2019
UK Pensions  
Regulator
United States
Enhanced Disclosures by Certain Investment Advisers 
and Investment Companies about Environmental, 
Social, and Governance Investment Practices
2022
Securities Exchange 
Commission
Recommendation 
•	 Useful, but within Canada action has already been taken. In January 2022, the Canadian 
Securities Administrators issued guidance to investment funds on ESG fund disclosure 
practices.²³ For the time being, it is unlikely further action will be required. 
Entity 
•	 In Canada, issues pertaining to the validity of claims made by investment funds—including  
ESG funds—are regulated by the provincial securities regulators under the umbrella of the 
Canadian Securities Administrators. 
17
Define “green” and “transition” finance instruments
Increasingly, companies and jurisdictions are able to leverage strong ESG performance to raise 
capital. One mechanism to do this is through issuing bonds that raise funds for sustainability-
related initiatives. Financial markets classify these bonds in several ways. “Green bonds” are 
used to finance projects that have a positive environmental impact. “Transition bonds” are 
used by heavy emitters to aid their transition to lower emissions. (A related financing approach, 
sustainability-linked loans, have interest rates tied to a company’s ability to meet certain ESG 
performance standards. When objectives are not met, the preferential lending rates associated 
with the sustainability goals are removed, resulting in a higher rate of borrowing.) Defining  
green and transition finance instruments has quite large financial repercussions. Since 2014,  
the annual “sustainable debt issuance” has grown from $43 billion to over $780 billion.²⁴

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The rapid rise in the use of green bonds and transition financing has led to many questions from 
investors. Mainly: how do we know that we are getting what we paid for—a project that is truly 
green or facilitates a transition to lower emissions?
This is where financial agencies have stepped in. Currently, there is no global standard, but there 
have been numerous jurisdictional efforts to define what projects and economic activities should 
be classified as green or sustainable. The most prominent is the EU’s Taxonomy for Sustainable 
Activities,²⁵ which was introduced in 2020. In Canada, a parallel taxonomy is under development, 
with efforts being led by the Canadian Standards Association.²⁶ The CSA’s final taxonomy 
document was intended to be released in June 2021; however, as of May 2022, the report has not 
been issued and an updated release date has not been provided.
The heavy lifting on this action has already been done by the Canadian Standards Association 
with their development of national definitions. Sub-national definitions for green or transition 
instruments are not recommended and would likely be ignored by the financial sector. However, 
there is a potential role for both national and sub-national governments in supporting and 
promoting the standards once they have been published.
Recommendation 
•	 Useful, and the Canadian Standards Association is in the process of developing national 
definitions for green and transition finance instruments via a Canadian “taxonomy.” 
Jurisdictional governments can support and promote the taxonomy after it has been published. 
Entity 
•	 Supporting and promoting the taxonomy would fall under the purview of financial regulators, 
and particularly securities regulators, which are responsible for dictating how financial 
information is reported and for ensuring investment claims are accurate.
18
Provide guidance to investors
While the majority of ESG guidance in the financial sphere has been developed for companies 
and fund managers, some agencies such as the TMX Group²⁷ and the U.S. Securities Exchange 
Commission²⁸ have also begun providing guidance to individual investors. Such guidance helps 
individuals to understand ESG investing and evaluate ESG-related financial product offerings.
Recommendation 
•	 Low priority. Investors are more likely to turn to banks and investment advisors for this 
information than to government bulletins. Government efforts—through financial arms—can 
ensure that these institutions are providing transparent and accurate information to their clients. 
Entity 
•	 Securities commissions and stock exchanges.
Summary of potential actions and priority areas
Table 3 summarizes the potential actions described above and highlights those that comprise  
a priority area for new or additional government action. These priority areas have the potential to 
generate large improvements around ESG within the jurisdiction, have relatively low effort being 
put towards them currently, and/or are most effectively carried out by government.

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Table 4
Summary of Potential Actions  
and Priority Areas
Potentially 
useful?
Extent  
of current 
efforts
Priority  
area for new 
government 
action
Support strong  
and consistent  
ESG reporting
01
Mandate climate disclosure reporting
Yes
High
02
Recommend or require that public companies  
provide full ESG disclosure
Yes
Medium
03
Create your own ESG standard/framework  
for companies in your jurisdiction
No
04
Endorse specific ESG frameworks
Yes
Medium
05
Consider guidance for locally relevant topics
Yes
Low
06
Align performance/compliance data with  
ESG reporting frameworks
Yes
Low
Yes
Raise the bar for 
ESG performance
07
Benchmark and improve the jurisdiction’s  
own ESG performance
Yes
Low
Yes
08
Build a solid foundation of environmental,  
social and governance policy and regulations
Yes
High
Yes
09
Set targets, benchmarks or thresholds  
for ESG performance by companies
Yes
Low
10
Use ESG as an input into decision-making  
around permitting or oversight
No
11
Manage government investments  
using ESG criteria
Yes
Low
12
Manage public procurement using  
sustainability criteria
Yes
Low
Communicate  
the ESG story
13
Better organize data for ESG-interested audiences
Yes
Low
Yes
14
Broadcast your data and performance
Yes
Low
Yes
15
Certify product origin
Yes
Low
Provide definitions 
and clarity around 
ESG investment
16
Define what can be called “ESG investing”
Yes
High
17
Define “green” and “transition” finance instruments
Yes
High
18
Provide guidance to investors
Yes
Medium

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Conclusion
Rapid evolution & 
real opportunity
The world of ESG is growing and evolving rapidly, and shows no signs of slowing down  
in the short- to medium-term. Across the globe, agencies inside and outside government have 
been working to improve consistency, provide clarity and ensure the validity of ESG disclosure 
and performance. Nonetheless, it is still a very messy playing field.
A real opportunity exists for governments in Canada at the municipal, provincial and federal 
levels to support strong and consistent ESG reporting, raise the bar for performance, communicate 
success to different stakeholder audiences, and provide clarity for investors. These actions  
will help companies operating in the jurisdiction; they will also help the government by building  
its brand and its investment attractiveness. But there are many possible routes forward and it can 
be easy for governments to get lost or invest time in ineffective endeavors. 
For this reason, the final action that governments should consider—although it may seem 
obvious—is to keep a close eye on the rapid changes in the ESG landscape so that they can 
identify and act on areas of opportunity as they arise.

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Citations
1	
Threllfall R, Shulman J, King A, Bartels W. The Time Has Come: The KPMG Survey of Sustainability 
Reporting 2020. KPMG, December 2020.
2	
Whelan T, Atz U, Van Holt T, Clark C. ESG and Financial Performance: Uncovering the Relationship by 
Aggregating Evidence from 1,000 Plus Studies Published between 2015-2020. NYU Stern Center for 
Sustainable Business. 2021.
3	
Baker S. Global ESG-data driven assets hit $40.5 trillion. Pensions & Investments, July 2, 2020.
4	
Kishan S. ESG by the numbers: sustainable investing set records in 2021. Bloomberg, February 3, 2022. 
5	
Business Wire. Canadian ESG Assets Surge to $3.2 Trillion. Published November 26, 2020. 
6	
Lodh A. (2020). ESG and the cost of capital. MSCI, February 5, 2020.
7	
Chipalkatti N, Le QV, Rishi M. Sustainability and Society: Do Environmental, Social, and Governance 
Factors Matter for Foreign Direct Investment? Energies; 14(19):6039, 2021.
8	
Placa F. What you don’t know can hurt you: Getting to the bottom of Supply Chain Risk.  
Sustainalytics, January 18, 2022. 
9	
AllianzGI Global Investors GmbH. ESG in Sovereign Bonds. No date.
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borrowing costs. The Quarterly Review of Economics and Finance, 66, 13-20, 2017.
11	
Capelle-Blancard G, Crifo P, Diaye MA, Oueghlissi R, Scholtens B.  Sovereign bond  
yield spreads and sustainability: An empirical analysis of OECD countries. Journal of Banking  
& Finance, 98, 156-169, 2019.
12	
U.S. Securities and Exchange Commission. SEC Proposes Rules to Enhance and Standardize  
Climate-Related Disclosures for Investors. March 21, 2022. 
13	
Canadian Securities Administrators. Canadian Securities Regulators Seek Comment  
on Climate-Related Disclosure Requirements. October 18, 2021. 
14	
European Commission. Corporate Sustainability Reporting. No date. 
15	
Sustainable Stock Exchanges Initiative. Stock Exchange Sustainability Activities.  
No date, Accessed April 5, 2022.
16	
IFRS. International Sustainability Standard Board. No date.
17	
Eaglesham J and Kiernan P. Fight Brews Over Cost of SEC Climate-Change Rules.  
Wall Street Journal, May 17, 2022. 
18	
DBRS Morningstar. How Large Canadian Public Pension Funds Approach Sustainable Investing.  
July 8, 2021.

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19	
Hamilton S, Naheen S, Da Ponte M, Rotchild L. Moving to Mandatory: A Research Paper  
on Sustainable Public Procurement in Canada. Canadian Business for Social Responsibility, 2021.
20	 Duffy P. Building a digital trust ecosystem for mining in British Columbia. IBM, November 2, 2021.
21	
McGrade L, Fuller K, Lau S, Stanley J. Canadian securities regulators conduct a “green”  
sweep of ESG products and practices. BLG, April 30, 2021.
22	 Schwartzkopf F, Kishan S. ESG Funds Managing $1 Trillion Are Stripped of Sustainable Tag  
by Morningstar. Bloomberg, February 10, 2022.
23	 Canadian Securities Administrators. Canadian securities regulators publish guidance  
on ESG-related investment fund disclosure. January 19, 2022.
24	 Climate Bonds Initiative. Sustainable Debt Market, Summary Q3 2021. October, 2021. 
25	 European Commission. EU Taxonomy for Sustainable Activities. No date.
26	 CSA Group. Defining Transition Finance in Canada. February 1, 2020. 
27	 TMX Group. Sustainable investing 101. No date.
28	 U.S. Securities and Exchange Commission. Environmental, Social and Governance (ESG)  
Funds – Investor Bulletin. February 26, 2021.

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