Frequently Asked Questions

Many of Canada’s major asset owners and managers seek a collaborative approach to support the corporate sector in the transitioning economy. Engaging constructively with top emitters is critical for the success of Canada’s transition to a low carbon economy and the long-term prosperity of Canadian communities as we move toward a net zero world. Engagements will inform company boards and senior leaders on the concerns and expectations of the financial community as this relates to a timely transition to a low carbon economy, to spur organizational change. Through these engagements, corporate issuers will be encouraged to achieve the following: 1) Define accountability and oversight of climate change risks and opportunities; 2) Develop a clear roadmap anchored in comprehensive strategies to reduce their GHG emissions across their value chains; 3) Set measurable targets of relevance to their sector; 4) Disclose their climate data in alignment with the best-in-class standard of the Task Force on Climate-Related Financial Disclosures (TCFD); and 5) Align advocacy activities, including those done through industry associations, with the goals of the Paris Agreement.

CEC was formed to focus on high-emitting carbon sectors, with the aim of encouraging companies in sectors to build climate resiliency across the value chain consistent with Canada’s commitment to the Paris Agreement on Climate Change. While it is understandable that companies have complex business structures, the ultimate goal of their decarbonization strategies needs to ensure that, as a whole, it will be able to meet the conditions for a 1.5-degree scenario. Therefore, investors will expect to see climate action plans that outline an overall strategy and the contributions of all company activities that will help to eliminate GHG emissions by 2050.

The CEC is committed to ensuring that companies examine the climate-related risks and impacts connected to their most material sources of greenhouse gas emissions. This means CEC Participants consider how companies can effectively address and disclose how they manage climate risks, as well as direct and indirect Scope 1, 2 and 3 emissions across their value chains.

For example, the most material or greatest source of greenhouse gas emissions of an auto manufacturer are those generated during the use of the vehicles it sells (Scope 3). Value chain emissions, like those of vehicles, are substantial sources of greenhouse gas emissions. Such value chain emissions are highly material to reducing emissions. Transportation emissions account for a quarter of annual global emissions. If only Scope 1 and 2 emissions had been used to assess the footprint of auto companies, transportation emissions would have not been sufficiently taken into consideration.

Methodological frameworks such as those produced by the Science Based Targets initiative (SBTi) can help investors assess the robustness of a company’s emissions reduction target and determine the extent to which it is aligned with the goals of the Paris Agreement. Targets are considered “science-based” if they are in line with what the latest climate science says is necessary to meet the goals of the Paris Agreement. That is, to limit global warming to well below 2°C above pre-industrial levels, with the optimal aim being to limit warming to 1.5°C. Companies can submit their emissions reductions targets to SBTi for review and validation, providing investors with an independent assessment of their robustness and level of ambition. Science-based targets are generally anchored over time frames of 2030 and 2050.

Net-zero emissions by 2050 corresponds to the level of action the Intergovernmental Panel on Climate Change (IPCC) says is necessary to prevent damaging impacts of climate change. Specifically, the IPCC’s Special Report on the Impacts of Global Warming of 1.5°C calculates that a 1.5°C global warming trajectory will require a global reduction in greenhouse gas emissions of about 45 percent by 2030 (relative to a 2010 baseline), and net-zero emissions by 2050. According to the International Energy Agency’s Net-Zero by 2050: A Roadmap for the Global Energy Sector report, released in May 2021, holding global warming to 1.5°C will require some sectors, such as electric utilities, to achieve net-zero emissions even earlier than 2050.

In order to have a reasonable chance of holding global warming to 1.5°C, the IPCC’s Special Report on the Impacts of Global Warming of 1.5°C calculates that a global reduction in greenhouse gas emissions of about 45 percent by 2030 (relative to a 2010 baseline) is required. The 2020’s will therefore be a “decisive decade” where global emissions must decrease substantially if the world is to have a chance at avoiding some of the worst impacts of climate change. 

While it is encouraging that many companies are committing to net-zero emissions, it is essential for there to be near-term accountability in order for these commitments to be credible. This is because it is easy for company executives to make big future commitments when the responsibility for achieving them will fall to their successors. Therefore, investors should expect companies to outline near-term accountability measures that provide them with confidence that their commitments will be met. This could include disclosures such as the indicators within the CEC Net Zero Company Benchmark.

The “just transition” is a principle asserting that the impacts on workers, communities and countries should be considered in the transition to a net-zero emissions economy. In Canada, just transition issues also aim to ensure that the low-carbon transition is done in ways that enable equity-deserving groups – such as women, Indigenous Peoples, racialized individuals, people with disabilities and youth – to benefit from a net-zero carbon economy. A just transition for workers and communities as the world economy responds to climate change was included as part of the Paris Agreement. Specifically, Article 4.1 states that limiting global temperature increase should, “take into account the imperatives of a just transition of the workforce and the creation of decent work and quality jobs.” Responding to climate change will require companies to undertake demanding shifts in strategy, capital allocation and technological deployment. 

While the evidence shows that the shift to a resilient, net-zero economy will boost prosperity and create more jobs than are lost, there will likely be transitional challenges for workers, communities and countries as this shift takes place. Poorly done, the result could be not only “stranded assets” (i.e., assets that at some time prior to the end of their envisioned economic life can no longer earn an economic return due to changes associated with the transition to net-zero), but also “stranded workers” and “stranded communities”. This could slow or even stall climate policy and progress, while contributing to economic stagnation and political instability.

To address this, CEC engagement strategies will consider Disclosure Indicator 9 of the CEC Net Zero Benchmark to ensure that Focus List companies acknowledge, plan for, and commit to the Just Transition principles by addressing adverse impacts of decarbonization strategy implementation on Indigenous communities, Indigenous governments, and/or Indigenous businesses and contractors. For instance, a just transition can be incorporated into a CEC investor engagement by ensuring that a utility company has adequate plans in place to compensate affected workers and Indigenous communities as it phases out coal-fired power plants.

CEC does not focus on banks and the financial sector. The Initiative focuses on those companies with the largest direct and indirect greenhouse gas emissions, including their value chains, rather than financed emissions. Investors are encouraged to engage with financial institutions through alternate channels and complementary programs.

In order to have a reasonable chance of holding global warming to 1.5°C, the IPCC’s Special Report on the Impacts of Global Warming of 1.5°C calculates that a global reduction in greenhouse gas emissions of about 45 percent by 2030 (relative to a 2010 baseline) is required. The 2020’s will therefore be a “decisive decade” where global emissions must decrease substantially if the world is to have a chance at avoiding some of the worst impacts of climate change.  

While it is encouraging that many companies are committing to net-zero emissions, it is essential for there to be near-term accountability in order for these commitments to be credible. This is because it is easy for company executives to make big future commitments when the responsibility for achieving them will fall to their successors.  

Therefore, investors should expect companies to outline near-term accountability measures that provide them with confidence that their commitments will be met. This could include disclosures such as the indicators within the upcoming Climate Engagement Canada Net-Zero Company Benchmark (short-/medium-term emissions reduction targets, detailed decarbonization strategies explaining the changes the company plans to make to achieve its commitments, as well as changes to executive compensation structures to incentivize company executives to achieve these commitments).

The general approach to selecting the initial Focus List was to select companies that are publicly traded and included in the S&P/TSX 300 Composite Index

In December 2022, Rio Tinto (the world’s second largest metals and mining company) completed its acquisition of Turquoise Hill Resources. 

The development of the CEC Focus List centers investor action on the most critical sectors to the decarbonization of the Canadian economy. To accomplish this, the CEC Secretariat assessed Canada’s emissions trajectories of key economic sectors in electricity production, heavy industry, management, oil and gas, and transport sectors. This assessment included various datasets that grouped companies based on both the Global Industry Classification Standard (GICS) and the North American Industry Classification System (NAICS).  

Further consideration has been given to suggestions made by Technical Committee members as well as CEC participants. Companies in the focus list have been ranked according to their GHG emissions as reported by MSCI. Company selection allows strategic clustering of company peers in sectors that are critical to the decarbonization of the Canadian economy. These cohorts create opportunities for themed engagement narratives (e.g., net zero transition at oil & gas companies, net zero energy transition amongst utilities, reducing scope 3 emissions along the value chain of food retailers, etc.). The list is composed of the following sectors: 

  • Oil & Gas 
  • Utilities 
  • Mining 
  • Agriculture & Food 
  • Transportation
  • Other (Materials, Industrial and Consumer Discretionary)

Canadian corporations often have complex structures and a high level of diversification within their business segments. Companies often do not fit squarely into these classification systems. Instead, efforts were made to cluster companies in sectors that are likely to face similar climate-related risks and opportunities. These clustering efforts were also adopted to ensure that investor teams were able to engage companies with similar businesses or that face similar circumstances related to their net-zero transition. 

The CEC secretariat has phased the launch of engagement teams according to four groups: 

  • Group A, with sixteen companies launched in June of 2022.  
  • Group B, with nine companies launched in August 2022.
  • Group C, with seven companies launched in September 2022. 
  • Group D, with the remaining companies, will launch on a rolling basis, once additional participants are recruited into each engagement team.

The CEC engagement handbook for participants lists a series of Principles of Collaboration which are meant to act as a guide for how they will be working together. These principles include: 

  1. No surprises – Participants should communicate early and often with other Participants engaging the same Focus List Company, if alternative interventions are planned to ensure any action is fully considered and serves to amplify rather than divide; 
  2. Respect different perspectives – Participants should take time to understand different perspectives, approaches and limitations. They should also seek ways for different approaches to be complementary; 
  3. Trust in the goals – Participants should keep their focus on the outcomes they are seeking to achieve and remember that all Participants have signed up to the same goals (and have mutual accountability).  

Investors are also expected to provide quarterly progress reports to the Engagement Secretariat using a simplified framework provided by the Secretariat. Participants will send to Climate Engagement Canada (CEC) information on engagement progress. Reports will include, at minimum, information on engagement outreach in the reporting period, correspondence received, meetings held, and any progress against engagement objectives. Reports may also identify challenges identified and other relevant information to assist in the development of the overall strategy of the Initiative. These reports are confidential, with information shared only with the CEC Technical Committee and Steering Committee.  

The Initiative will produce public progress reports on its website, which may include, for instance, benchmarking data and/or summaries of noteworthy Focus List Company commitments. When and if Focus List Companies make public commitments, these advances will be reported by CEC publicly.

Climate Engagement Canada (CEC) seeks to protect the privacy of Participants. Participants can disclose the companies they are engaging with as part of the Initiative, as well as the collaborative engagement groups they are participating in, at their own discretion. However, they must first obtain explicit permission from each relevant Participant before disclosing the following:  

  • Participants assigned as Lead Engagement Participant for any collaborative engagement group;
  • Names and identities of other Participants in a collaborative engagement group;  
  • The Focus List Companies engaged by other Participants; and  
  • Any other involvement that other Participants may have in CEC.

As a global systemic and intensifying risk, climate change threatens the ability of long-term investors to sustain value and meet their investment objectives over time. These risks are present in all economies, asset classes and industries, whether directly or indirectly. As such, climate change is one of the most significant risks facing investors today – one that cannot be diversified away 

In April 2018, the Government of Canada appointed the Expert Panel on Sustainable Finance to explore opportunities and challenges facing Canada in the field of sustainable finance. The Expert Panel’s Final Report, published in December 2019, presented a package of concrete recommendations focused on spurring the essential market activities, behaviours and structures needed to bring sustainable finance into the mainstream in Canada; and align sustainable finance with Canada’s broader climate and economic goals.  

In considering CEC’s overall engagement strategy, it is important to consider how scaling up climate action and ambition within certain sectors of the Canadian economy might help the country meet its international commitments. CEC’s guiding principles state that its central objective is to ensure that companies set measurable, sector-relevant targets. The definition of sector-relevant targets falls, in the first instance, to credible and ambitious industry initiatives and their regulators. Investors will also come together in facilitated sectoral dialogues to compare notes and define an appropriate level of expectation for companies in each sector. 

CEC was formed to focus on high-emitting carbon sectors, with the aim of encouraging such companies to build climate resiliency across the value chain consistent with Canada’s commitment to the Paris Agreement on Climate Change. While it is understandable that companies have complex business structures, the ultimate goal of their decarbonization strategies needs to ensure that, as a whole, it will be able to meet the conditions for a 1.5-degree scenario. Therefore investors will expect to see climate action plans that outline an overall strategy and the contributions of all companies’ activities that will help to eliminate GHG emissions by 2050. 

Yes, fixed-income investors are welcome to join the Initiative. Although not owners of the entities they invest in, fixed-income investors are still important stakeholders that can encourage issuers to improve their management of climate change risks and opportunities, as well as develop more sustainable business practices. In addition, even though fixed-income investors have different access to management and no ownership rights, they can still join collaborative engagement groups or engage companies on their own. 

For more information on how fixed-income investors can consider ESG issues like climate change in their investment strategies, see PRI’s Introduction to Responsible Investment in Fixed Income Starter Guide.

This largely depends on how receptive a specific Focus List Company is to engagement, and whether you are joining Climate Engagement Canada as a Lead Investor or as a Supporting Investor. Lead Investors should plan to dedicate more time and resources to an engagement than Supporting Investors. 

Regardless of the role Participants choose when joining the Initiative, appropriate time should be committed to each engagement to fulfil the goals of Climate Engagement Canada. Although each engagement varies, Participants should expect to attend multiple meetings with their Focus List Company and the collaborative engagement group throughout the year, with increased time likely needed in the run-up to and throughout proxy season.

The size of each collaborative engagement group varies, based on many factors, such as the number of Lead Investors and Supporting Investors that indicated their preference to engage with a company from the company focus list. For some Company engagements, there may be only a single Lead Investor. For other Company engagements, there may be eight to 10 Participants involved, for instance.

Participants can be involved in as many engagements as they wish, with a minimum of two, provided that these engagements are open to additional investor support. However, Participants should note that engagements can be intensive, and therefore should allow enough time and resources to ensure they are able to generate a successful outcome.

Yes. Participants can change their role and target Company for any reason (e.g., as a result of changes to their investment holdings, focus or internal capacity). In addition, Participants are encouraged to make a commitment for the three years of the Initiative to ensure continuity of engagement and progress with all Focus List Companies engaged.

No. The Climate Engagement Canada Secretariat can only share the names and identities of Participants engaging each Focus List Company once a prospective investor has signed on as a Participant to Climate Engagement Canada.

At the outset of the Engagement Program, Participants are expected to have holdings in the Focus List Companies they choose to engage. While ongoing ownership is encouraged, it will not be monitored. There are two reasons for this: 1) The makeup of portfolios is anticipated to fluctuate over time; and, 2) CEC recognizes that companies’ climate-related activities may pose systemic risks that concern all CEC Participants, regardless of holdings at any given time. Nonetheless, if/when Participants become aware that they no longer own a stake in a given company, they are encouraged to inform the CEC Engagement Secretariat. There is a higher level of expectation in this regard, however, for Engagement leads. If you are leading an engagement team, and no longer hold the company in your portfolio, please: a) disclose this to your peers on the engagement team, and b) inform the Secretariat, who will then find other leads/replacements for the company you are exiting, and possibly other engagements you may wish to join.

A prior relationship with or a previous history of engaging a Focus List Company before Participants join a collaborative engagement group in Climate Engagement Canada is preferred, but this is not a requirement.

Generally, Climate Engagement Canada will not issue a press release for each new investor that joins the Initiative. Participants are welcome to issue their own press release announcing that they are joining the Initiative, as long as it is consistent with the Climate Engagement Canada published materials. Participants must adhere to Climate Engagement Canada guidelines on Public Announcements and use the Initiative’s logos.

How soon after filling out the sign-on form will my organization’s name be posted on the Climate Engagement Canada (CEC) website? Generally, your organization name is added to the list of Participants on the Climate Engagement Canada website within a few days of you filling out the sign-on form. However, please note that if you are joining as an Investor Participant, you are not formally a member of Climate Engagement Canada until you join a collaborative engagement group.

Climate Engagement Canada is a three-year initiative. However, each Focus List Company engagement under the Initiative is unique and will therefore be at a different stage based on a number of factors. These could include the Focus List Company’s receptiveness to engagement or its sector.

 A minimum requirement for institutions seeking to participate in Climate Engagement Canada as Investor Participants is to join a collaborative engagement group for at least two Focus List Companies each year. This responsibility may be delegated to a service provider identified by the Participant. Participants who fail to do this will first be asked to come into compliance by the Climate Engagement Canada Secretariat. If, after a genuine attempt to engage the Participant, the Climate Engagement Canada Secretariat determines that the Participant still has not met this requirement, the Secretariat may recommend to the Climate Engagement Canada Steering Committee to make the final decision as to whether the Participant should be delisted.

CEC has developed our Net Zero Benchmark to assess the Net Zero performance of companies in our focus list. The CEC benchmark is modeled after the CA100+ benchmark and will be maintaining alignment between both initiatives. For the first iteration of the CEC benchmark, we used the framework that CA100+ used in March of 2022 as the basis. The intention is to keep pace with future versions.

The Net Zero Benchmark evaluates the extent to which companies are aligned with a future of net zero emissions and the Paris Agreement’s aim of keeping global temperature rise to 1.5°C against a number of important disclosure metrics (with alignment assessments to come). The company data on Disclosure Framework Indicators are based on openly available information about emissions reductions targets, decarbonization strategy, capital allocation alignment, climate policy engagement, governance, just transition and TCFD disclosures. The Benchmark draws on distinct analytical methodologies and data sets to provide investors and other stakeholders with a robust tool to facilitate engagement with Focus List companies.

The CEC Net Zero Company Benchmark, which focuses on the top corporate emitters in Canada, provides a framework from which participating investors can develop targeted engagement strategies where corporate actions are incongruent with limiting global warming to 1.5°C. It also establishes a standard by which the level of ambition in companies’ climate strategies can be evaluated.

The Benchmark compares Focus List Companies on a national and international scale to other companies in an effort to motivate them to take action and keep global warming to 1.5°C. Investors can utilize benchmark scores to determine whether a company’s declared decarbonization goals and its actual or projected decarbonization investments and activities are aligned.

Currently, the benchmark measures components of an effective decarbonization strategy that apply to all Focus List companies. As such, the Disclosure Framework is sector-neutral and does not customize indicators to particular industries. The latest climate science indicates, however, that the timeline for achieving net zero GHG emissions varies by sector, and therefore, certain sectors may need to set more ambitious goals than others. In future iterations, the CEC Benchmark will have in place mechanisms to ensure it continues to keep pace with new developments in its rapidly changing environment and remains compatible with evolving national to global benchmarks and standards. As well, the alignment assessments will be done using a sectoral analysis. The CEC Disclosure Indicators are designed to produce comparable assessments across sectors, relating to the quality and rigour of company disclosures across the different indicators.

The CEC Benchmark measures how committed companies are to achieving the higher-ambition goals of the Paris Agreement, which aim to limit global warming to 1.5°C. Many of the indicators in the Disclosure Framework of the CEC Benchmark focus on this commitment. For example, Indicator 1 checks if companies have pledged to achieve net zero emissions by 2050, which is the level of ambition needed to limit global warming to 1.5°C. Other indicators, such as Benchmark metrics 2.3, 3.3, and 4.3, examine how closely a company’s emissions align with 1.5°C scenarios. Indicator 6 looks at whether companies plan to invest in ways that align with 1.5°C, while Indicator 7 assesses whether companies are lobbying in support of the Paris Agreement. Finally, Indicator 10 assesses whether companies have included a 1.5°C scenario in their climate-related analysis.

Indicator 1: Net Zero Ambition by 2050 (or sooner) of the CEC Benchmark is designed to capture the company’s high-level commitment to net zero, i.e. the foundational commitment that any company intending to transition should make. Indicator 1 should be seen as complementary to Indicator 2: Long-term targets of the CEC Benchmark, which includes a verification step in the form of Sub-indicator 2.3 that evaluates whether a company’s long-term target (covering the timeframe from 2035-2050) is aligned with a 1.5C pathway for its sector. Sub-indicator 2.3 as well as Sub-indicators 3.3 and 4.3 come closest to SBTi’s approach, though they are not the same thing. Transition Pathway Initiative (TPI), which assesses Sub-indicator 2.3, for CA100+ use a slightly different approach to verifying company targets, although both TPI & SBTi draw on the same foundations (both SBTi and TPI use the IEA’s Net Zero Emissions by 2050 – or 1.5C – scenario and the Sectoral Decarbonisation Approach to map out 1.5C pathways for sectors). This means that they don’t always come to the same conclusion on whether targets are 1.5C aligned or not.  In sum, Indicator 1 is framed differently than the SBTi standard, but together with Sub-indicator 2.3, it puts forth a similar level of ambition by checking whether companies have robust, 1.5C-aligned long-term targets.

The assessment of sub-indicator 5.2 and related metrics leverage the Canadian Taxonomy and/or the European Union’s Green Taxonomy criteria on turnover, revenues, and/or green projects as appropriate and will continue to do so in future iterations of the Benchmark. The criteria used to assess companies with significant operations in jurisdictions subject to green revenue classification systems and regional taxonomies will be at the discretion of the CEC Secretariat and/or data service providers conducting assessments for the CEC Benchmark.

Advocacy in support of climate policies consistent with the Paris Agreement, as well as ensuring that any trade association of which a company is a member does the same, is a pillar of strong climate governance. Investors recognize that clear, stable and ambitious climate policy is crucial to their ability to assess and manage climate-related risks, support innovation, and invest in low-carbon and climate-resilient opportunities. Conversely, corporate advocacy activities that are inconsistent with meeting the goals of the Paris Agreement present several financial risks to investors, including: 

  • Regulatory risks – Delays in policy action on climate change could result in the need for stronger and more drastic regulatory interventions later, leading to higher costs for investee companies; 
  • Systemic economic risks – Delay in the implementation of the Paris Agreement could increase the physical risks from climate change, which elevates uncertainty and volatility in portfolios, and poses a systemic risk to global economic stability; and 
  • Reputational and legal risks – Investee companies may face backlash from their consumers, investors or other stakeholders if they, or the organizations they support, are seen to be delaying or blocking effective climate policy. 

Research suggests that many companies that investors retain investments in are blocking or significantly weakening effective climate policy, either directly or indirectly via their industry association memberships. As such, investors have recognized that to ensure a smooth net-zero transition and safeguard the value of assets, acting to prevent negative climate lobbying is as fundamental a focus for engagement as other objectives like securing emissions targets.

To develop a uniquely Canadian approach to accelerate the de-carbonization of our economy, Canadian investors must reflect national commitments, such as the Calls to Action of the Truth and Reconciliation Commission, and the United Nations Declaration on the Rights of Indigenous Peoples.

To put these commitments into action, the CEC Secretariat formed a Just Transition Working Group and determined that the CEC Benchmark should establish an indicator focused on Indigenous issues and reconciliation that is distinct from the CA100+ Just Transition Indicator. Among the key considerations for having a separate indicator around Indigenous issues are to highlight the importance of incorporating an Indigenous lens to Canada’s net-zero transition, the unique legal and social context surrounding Indigenous rights, and the potential outsized impact that transitioning out of GHG-intensive industries may pose on First Nations, Inuit and Métis workers, communities, and customers.  

The CEC Just Transition & Indigenous indicators are informed by Canadian and international policy documents, including the CA100+ Just Transition Indicator, Section 35 of the Constitution Act 1982, call to action #92 of the Truth and Reconciliation Commission of Canada, the Paris Agreement, the International Labour Organization’s (ILO) Just Transition Guidelines, and the World Benchmarking Alliance’s Corporate Human Rights Benchmark (CHRB) and its Just Transition benchmarks, among others.  As such, Indicator 9 is crucial in ensuring that Canadian companies adopt practices that support a just transition and reconciliation with Indigenous Peoples and other equity-deserving groups in Canada.

Yes. Before the publication of the Benchmark scores, our Focus List companies will receive a preliminary version of the framework and methodologies, as well as an assessment of their performance against the Disclosure Framework. During this review period, the companies can provide feedback and point out any inaccuracies. Final assessments are also shared with the companies before the Benchmark is launched as a courtesy.

These FAQs have been updated as of July 2022 to reflect the most recent information of Climate Engagement Canada (CEC).

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