Only a few years ago, Environmental, Social and Governance (ESG) mandates were top of mind for corporations.
Most had felt the pressure to publicly address what had been perceived as major shortcomings in corporate behaviour.
ESG statements issued by companies were intended to outline progress in three areas: Efforts to measure and contain their impact on the environment; explain their relationship with stakeholders, employees, customers and the community concerning human rights and labour practices; and matters affecting their internal structure, transparency, board diversity and ethical conduct.
“Mandatory ESG reporting requirements are in effect for many organizations operating in Europe and are being finalized in other jurisdictions,” writes KPMG.
Canada currently only requires ESG reporting by federally regulated financial institutions like banks and insurance companies. Other public and private companies in other industries, including construction and real estate development, are being encouraged to comply on a voluntary basis.
However, there has been a recent shift in the ESG landscape.
“It is time to confront the uncomfortable truth: ESG as it stands — grounded in disclosures and voluntary market action — will not deliver the necessary change,” write Lindsay Hooper, CEO of the Cambridge Institute for Sustainability Leadership, and co-author Paul Gilding.
Hooper and Gilding see ESG as “largely an extra layer on top of traditional business models to manage risks and enhance reputations.”
They call for a redesign of markets “to eliminate the tension between profitability and sustainability. Governments must create conditions that make it economically compelling to phase out damaging activities.”
Yet in North America, the U.S. Security and Exchange Commission is no longer actively enforcing its climate disclosure rules, effectively pausing mandatory ESG reporting for publicly traded companies.
Donald Trump’s re-election has also put the environment back on the table.
Trump’s latest budget proposes funding cuts worth billions to several departments related to energy efficiency, renewable energy and environmental management, and has signalled the end of the popular consumer-focussed Energy Star program.
ESG mandates and reporting in Canada are also under scrutiny.
Changes made to the federal government’s Competition Act contained in Bill C-59 and passed in 2024 have put companies and individuals at legal risk, possibly facing significant fines, if their public environmental assertions don’t stand up to scrutiny. Private parties can now also bring actions against businesses. The question becomes whether it is better to say nothing at all rather than risk making statements that can become subject to review or attack.
Last month, the Royal Bank of Canada dropped its sustainable finance targets, including its $500 billion commitment to decarbonization efforts. The bank said the Competition Act amendments contributed to its decision to suspend disclosures.
In its 2024 sustainability report, RBC admitted, “it may not have appropriately measured certain of our sustainable finance activities as presented on a cumulative basis… In light of these developments, we will no longer be using this methodology going forward, and we are also retiring our sustainable finance commitment.
“Finally, we are considering potential changes to our overall approach to sustainable finance, including our Sustainable Finance Framework.”
RBC has also withdrawn from the UN-sponsored Net-Zero Banking Alliance, along with TD Bank, Bank of Montreal, National Bank of Canada, CIBC and Scotiabank.
As a result, ESG could now mean “the Environment is Shifting Gears.”
For the construction industry, the stronger regulatory framework underwriting public environmental claims will likely lead to increased transparency and accountability.
There is no reason for construction to take its foot off the pedal regarding its sustainability and carbon reduction efforts, even if their lending institutions reduce theirs.
Although public awareness has recently moved towards issues of economic immediacy, project design, development and construction are long-term games. Reducing carbons for the sake of the environment is critical and can’t wait.
As ESG principles evolve and become more tailored to suit the characteristics of individual industries, every party, including building systems contractors and material manufacturers, needs to continue efforts to be “green” and to address carbon reduction.
Project investors and clients will continue to expect sustainable and ethical practices from all involved. Acting responsibly will remain the correct path for the future and will be valued as a competitive advantage.
John Bleasby is a freelance writer. Send comments and Climate and Construction column ideas to editor@dailycommercialnews.com.
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