Frequently Asked Questions

About the Climate Engagement Canada initiative

Launched in 2021, Climate Engagement Canada (CEC) is a Canadian financial sector-led corporate engagement program to accelerate Canada’s transition to a low-carbon future. The program initiates engagements with publicly-traded company boards and senior management to address the concerns and expectations of the finance community to build climate resiliency across the value chain, consistent with Canada’s commitment to the Paris Agreement on Climate Change.

In April 2018, the Government of Canada appointed the Expert Panel on Sustainable Finance to explore opportunities and challenges in sustainable finance. The panel’s Final Report, published in December 2019, included Recommendation 10.2, which urged Canada’s leading asset managers to establish a national investor-led engagement Program, akin to Climate Action 100+, to drive consistent dialogue with Canadian issuers, inspired by the broader recommendations to align Canada’s financial system with a low-carbon future.

Through engagements, corporate issuers are 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. Ensure that advocacy efforts, including those conducted via industry associations, are aligned with the goals of the Paris Agreement.

CEC targets high-emitting sectors with a goal to incentivize companies within these industries to integrate climate resilience throughout their entire supply chain, consistent with Canada’s commitment to the Paris Agreement. 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 anticipate climate action plans that outline a comprehensive strategy and specify the contributions of all company activities toward eliminating GHG emissions by 2050.

Achieving net-zero emissions by 2050 is aligned with the level of action recommended by the Intergovernmental Panel on Climate Change (IPCC) to mitigate the damaging impacts of climate change. Specifically, the IPCC’s Special Report on the Impacts of Global Warming of 1.5°C outlines that a trajectory limiting global warming to 1.5°C necessitates a 45 percent reduction in greenhouse gas emissions by 2030 (relative to a 2010 baseline) and achieving net-zero emissions by 2050. The International Energy Agency’s Net-Zero by 2050: A Roadmap for the Global Energy Sector report, published in May 2021, further indicates that certain sectors, such as electric utilities, may need to reach net-zero emissions even earlier than 2050 to meet this goal.

The 2020s is 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. Mid and short-term targets allow investors to manage for risks of company staff making bold long-term future commitments with the responsibility to achieve them being put off down the road and potentially falling 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.

No, 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.

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.

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.

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 Investor 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.

The CEC secretariat 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, has launched and will continue to initiate engagements on an ongoing basis as additional participants are enlisted into each team.

* Of note, four out of the five companies currently not engaged by CEC Participants provided feedback on their preliminary assessments in the inaugural CEC Net Zero Benchmark in 2023. This underscores the high level of engagement these companies have with CEC and the assessment process of the CEC Benchmark.

About joining CEC as a participant

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 participate in collaborative engagement groups and or engage directly with companies.

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 CEC 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.

Recognizing that meaningful engagement is built through ongoing dialogue, at least two meetings with company representatives per year are encouraged.  Engagement teams are also encouraged to come together in a planning session ahead of each meeting with company representatives and after the publication of significant climate-performance data for their assigned companies to refine their engagement strategies (for example after the publication of annual reports and the release of the CEC Net Zero Benchmark). After each engagement meeting, CEC teams are also encouraged to come together to debrief their interactions with company representatives and to plan next steps.

The size of each collaborative engagement group varies, based on many factors, such as the number of Lead Investors and Supporting Investors who have indicated their preference to engage with a company from the Focus List. For some engagements, there may be only a single Lead Investor and a participating investor. For other engagements, there may be eight to ten Participants involved.

Participants are free to engage with as many Focus List companies as they wish, with a minimum requirement of two, as long as these engagements welcome additional investor involvement. However, Participants are expected to allocate sufficient time and resources to ensure successful outcomes.

Certainly. Participants have the flexibility to alter their role and designated Focus List company for any reason, such as changes in investment holdings, or internal capacity. However, it is mandatory to notify both the co-lead and the Engagement Secretariat before making such changes. Additionally, CEC Participants are encouraged to commit to a three-year period to maintain engagement continuity and facilitate progress with all Focus List companies involved.

The Secretariat will disclose the names and identities of Participants engaging with each Focus List Company only after a prospective investor has officially joined Climate Engagement Canada. Once you become a participant, you are welcome to request for access to information about the lead investors for all engagements before you commit to joining a team.

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 CEC’s publications. Participants must adhere to CEC guidelines on Public Announcements and use the Initiative’s logos. 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.

Institutions wishing to join CEC as Investor Participants must meet a minimum requirement of engaging with two Focus List companies annually. This responsibility may be delegated to a service provider identified by the Participant. Failure to fulfill this requirement will prompt initial intervention by the CEC Secretariat to ensure compliance. If, despite genuine efforts to engage, the Participant still falls short of meeting this requirement, the Secretariat may recommend to the CEC Steering Committee for potential delisting of the Participant.

About Focus List companies

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. The primary criteria was to rank companies according to reported and estimated scope 1 and 2 emissions. Therefore, companies not included in the list likely did not feature in the TSX 300 index or had reported/estimated emissions that ranked lower compared to those on the list. Additionally, the final list excludes Canadian companies already engaged in the CA100+ investor initiative, which encompasses numerous major emitters.

In December 2022, Rio Tinto, the world’s second-largest metals and mining company, finalized its acquisition of Turquoise Hill Resources. Consequently, Turquoise Hill was removed from the CEC Focus List, as Rio Tinto is now listed on CA 100+’s Focus List, where their climate impacts will be addressed. Additionally, following the removal from CA 100+’s list of two Canadian companies, Enbridge and TC Energy, the CEC governing bodies decided to add the companies to CEC’s Focus List. Engagement teams for these two companies launched in Fall 2023.

As of April 2024, there are 41 Focus List companies in CEC.

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). 

The Focus List ranks companies based on their GHG emissions reported by MSCI. This ranking allows for strategic grouping of peers in sectors critical to Canada’s decarbonization efforts. These sector-based cohorts enable themed engagement narratives, such as transitioning to net zero for oil & gas companies, transitioning to net zero energy for utilities, and reducing scope 3 emissions throughout the value chain for food retailers. The list includes the following sectors:

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

Canadian corporations often have intricate structures and diverse business segments, making classification challenging. Instead of fitting them into rigid systems, efforts were made to group companies based on sectors likely to share similar climate-related risks and opportunities. This approach facilitates engagement by investor teams with companies in similar businesses or facing comparable circumstances during their net-zero transition. 

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The CEC engagement handbook for participants lists Principles of Collaboration, which 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).

Each year Climate Engagement Canada will release the Net Zero Benchmark providing a detailed assessment of focus list companies’ progress. 

Investors are also required to submit progress planning forms to the Engagement Secretariat including details of engagement outreach, investor group strategies, company progress towards engagement objectives, challenges encountered, and other pertinent information to aid in the development of the Initiative’s overall strategy. These reports are confidential and shared solely with the CEC Technical Committee and Steering Committee.

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 emphasize the importance of companies establishing measurable targets relevant to their respective sectors. Initially, the determination of sector-specific targets relies on credible and ambitious industry initiatives and regulatory bodies. Then, investors will convene in facilitated sectoral dialogues to exchange insights and establish appropriate expectations for companies within each sector.

These FAQs have been updated as of May 2024 to reflect the most recent information of Climate Engagement Canada (CEC).

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