The Canada Energy Regulator and ESG – Executive Summary

Environmental, Social, and Governance (ESG) refers to the integration of environmental, social, and corporate governance factors as drivers in investor and company decisions. It began as an investment strategy but has evolved such that ESG-related factors are now considered more broadly, including in government policies and business strategies.

Purpose of research

The Canada Energy Regulator (CER) has conducted research to better understand its role within the ESG arena. The CER recognized the potential competitiveness implications of ESG on the Canadian energy sector, the increasing impact of ESG on CER-regulated companies,^Footnote 1 and the overlap between ESG factors and its regulatory oversight. We assessed ESG in terms of:

• The CER’s mandate and ESG – whether there is alignment and to what degree these align.
• The CER’s regulatory function vs. ESG – whether there is overlap between ESG and the CER’s operational standards and information management, such as metrics, reporting, and disclosure of information. Whether ESG information could strengthen, streamline, or augment information required by the CER as part of its energy adjudication and oversight processes.
• ESG-related initiatives by the CER’s regulatory peers, government entities, and Indigenous Peoples.

Research findings

At a high level, CER and ESG reporting are aligned. They both provide information to decision-makers and other stakeholders who want to ensure energy companies act responsibly toward people and the environment. However, there are differences:^Footnote 2

Research findings

	CER Regulatory Functions	ESG
Purpose	To ensure pipeline, power line, and offshore renewable energy projects within the CER’s jurisdiction are constructed, operated, and abandoned in a safe and secure manner that protects people, property, and the environment as per legislative mandateFootnote 3 and Crown duties.	To inform investors and other audiences about sustainability performance and the associated financial risk.
Outcomes	Informs stakeholders and the public about energy adjudication processes and energy systems’ lifecycle performance. The CER may impose orders and penalties that could affect regulated companies’ operations and finances.	Informs public knowledge and influences the reputation of the company. Informs rating agencies, institutional investors – banks, pension funds, asset managers – and public investors of a company’s sustainability and how they manage ESG risks.
Reporting granularityFootnote 4	Usually a single, geographically bounded project/facility.	Company-wide operations, combined across all geographies and subsidiaries.
Topic selection for reported metrics (materiality)Footnote 5	Identified by a regulatory framework that includes the Canada Energy Regulator Act (CER Act), regulations, and guidance developed by legal, regulatory, and market experts.	Identified through ESG frameworks, most of which were developed by financial experts.
Quality of information reported	CER reporting is specified in legislation, regulations, and approval conditions. These methods identify the standards for data gathering and reporting.	ESG reporting by companies is generally based on international and national standards. Reporting methods on many of these standards is often open to interpretation.
Performance evaluation: data quality, detail, methodology	The CER evaluates company compliance and performance using standardized and published thresholds, benchmarks, or performance standards stemming from the CER’s regulatory framework; and identifies compliance with specific conditions.	Determined by the reader/user of the information. ESG reporting may not disclose data collection methods, thresholds, benchmarks, or performance measures.

Research Conclusions

CER regulations and ESG are not interchangeable

The analysis confirms that the emergence of widespread ESG reporting has not uncovered deficiencies or gaps in the CER’s mandate and how it operates. The increasing consideration of ESG factors in financial markets indicates that investors and stakeholders recognize that ESG performance may enhance a company’s competitiveness. When investors use ESG in their decision-making, they often start with the ESG profile of the country in which a company operates. They then look at the industry’s ESG profile, before looking at the ESG profile of the company itself. The CER contributes to the Canadian energy industry’s ESG profile and its competitiveness by being an effective, transparent, and trusted regulator.

The current differences in the level of detail and quality between ESG reporting and the CER’s regulatory information means they are not interchangeable. A company’s ESG report fulfills investors’ and other stakeholder’s information needs but does not meet the CER’s regulatory requirements.

ESG integration will be monitored closely

The CER will continue to monitor the increased integration of ESG to identify if this will lead to potential changes in its regulatory processes and standards.

The CER will not require ESG reporting from our regulated companies

The research concluded that the CER should avoid intervening or acting in two areas:

• Developing a jurisdictional “CER standard” for ESG reporting.
• Mandating specific ESG reporting for CER-regulated companies.

CER regulations are robust and sufficient

The CER’s regulatory framework is robust, thorough, and evolves to reflect changes in policy, best practices, and input from stakeholders and Indigenous Peoples. The CER will continue to monitor the increased integration of ESG in companies’ reporting across Canada and the world.

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