FREQUENTLY ASKED QUESTIONS:
Net zero Company Benchmark

General Questions

Climate Engagement Canada (CEC) has developed our Net Zero Benchmark to provide a set of common standards for investors to evaluate corporate issuers’ progress towards aligning with the Paris Agreement’s ambition, limiting global warming to well below 2 degrees Celsius, while pursuing efforts to limit the increase to 1.5 degrees.

The CEC Net Zero Benchmark is not a disclosure mechanism or a database, but rather an assessment tool, based on publicly available information. It gathers data on corporate progress on climate disclosures and the transition to net zero emissions by 2050 or sooner.

The inaugural CEC Benchmark, based on the Disclosure Assessment Framework was published in December 2023. In 2024, we have established an earlier publication timeline to provide additional time to analyze and absorb the information ahead of the subsequent proxy season, a period of increased engagement between investors and companies.

The Policy Engagement Assessments were first published in April of 2024, and have been updated to coincide with the publication of the 2024 disclosure assessments

The CEC Net Zero Benchmark includes ten disclosure indicators—as recommended by the Technical Committee and its Just Transition/Indigenous Issues Working Group—whilst layering in additional context specific to Canada’s unique economy. The CEC Disclosure Assessment Framework was further refined by incorporating feedback from a consultation period, which involved CEC participant investors—including some of Canada’s largest asset managers and asset owners—, NGOs, and Indigenous representation. CEC participants use the Benchmark for input and discussion in their collaborative engagement activities with Focus List companies. The results of the Benchmark also provide input to investor participants and other stakeholders on areas that require additional focus, research, or support.

The company assessments are based on information readily and publicly available to investors about emissions reductions targets, decarbonization strategy, capital allocation alignment, climate policy engagement, governance, and just transition issues (e.g., regulated filings and voluntary disclosures such as ESG/Sustainability Reports). The CEC Benchmark also evaluates the extent to which companies disclose according to the framework recommended by the Task Force on Climate- Related Financial Disclosures (TCFD). The Benchmark draws on distinct analytical methodologies and data sets to provide investors and other stakeholders with a robust tool to facilitate engagement with CEC Focus List companies.

Focus List companies operate across the Canadian economy in the oil & gas, utilities, mining, agriculture & food, transportation, materials, industrials, and consumer discretionary sectors. The CEC Net Zero Benchmark, provides a set of detailed and comparative common standards to support corporate issuers’ progress towards aligning with the Paris Agreement’s ambition.

CEC participants use the Benchmark for input and discussion in their collaborative engagement activities with Focus List companies. The results of the Benchmark also provide input to investor participants and other stakeholders on areas that require additional focus, research, or support.

The CEC  provides insight and input into the Benchmark results, trends, and opportunities for collaboration and engagement. The Benchmark will continue to support CEC’s goal of driving dialogue with Canadian corporate issuers to promote a Just Transition to a Net-Zero economy.

Disclosure Indicators

According to the CEC Benchmark, in order to qualify as having a Net Zero Target, a company must clearly identify a base year and affirm that the target covers all or nearly all of the company’s Scope 1 and Scope 2 emissions.

“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. 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 2036-2050) 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, 3.3 and 4.3 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 1.5°C – scenario and the Sectoral Decarbonization 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 1.5°C 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, 1.5°C-aligned long-term targets.

The assessment of Sub-indicator 5.2 and related metrics have been designed to 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 Steering Committee and Technical Committee and considered as part of the CEC benchmark assessment process.

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 demonstrates alignment of a company’s activities with its commitments. Corporate advocacy activities that are inconsistent with commitments to meet the goals of the Paris Agreement may pose financial risks to companies and 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 associations they are members of, are seen to be delaying or blocking effective climate policy.   

Additionally, CEC integrates research findings from InfluenceMap to enhance this Indicator with Public Policy Alignment Assessments. These assessments independently evaluate and provide further insights on the degree to which companies are aligning their climate policy efforts with the objectives of the Paris Agreement, both directly and indirectly through the actions of their industry associations.

To develop a uniquely Canadian approach to accelerate the de-carbonization of our economy, Canadian investors are encouraged to reflect national commitments, such as the Calls to Action of the Truth and Reconciliation Commission, as well as 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 that, under the oversight of the Technical Committee and with the approval of the Steering Committee, determined that the CEC Benchmark should establish an indicator focused on Indigenous rights and reconciliation. 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.

The CEC Benchmark measures commitments and targets that companies have established, and whether these are in line with the goal of the Paris Agreement to limit global warming to 1.5°C by the end of the century. A number of the indicators in the Disclosure Framework of the CEC Benchmark focus on this item. For example, Indicator 1 confirms 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 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.

The establishment of a cut-off data is necessary to set a benchmark that can be assessed annually, and to allow Research Partners to conduct the assessment prior to publication.

A consistent annual cut-off deadline for accepted disclosures of June 1 has been applied for the CEC Disclosure Benchmark each year.

Some focus list companies are beginning to adjust the release date of their climate-related disclosures to match CEC’s Benchmark assessment timelines.

Yes, before the publication of the Benchmark final assessments, the CEC Focus List companies receive their assessment and associated methodologies. Before the annual disclosure assessments are undertaken, each Focus List company are asked to review the collection of their regulated and voluntary disclosures gathered for the annual assessments and are asked if there are additional documents published prior to June 1 deadline that should be included.

As a second step, focus list companies also have an opportunity to review the preliminary assessment of their performance against the Disclosure Framework prior to publication. During the review period, the companies are encouraged to provide additional references for evaluation against the Detailed Guidance (described in the Disclosure Assessment Framework of the CEC Benchmark). Final assessments are also shared with the companies before it becomes publicly available.

Investors should be able to readily access relevant sustainability reporting in company disclosures, including regulated disclosures (e.g., Annual Information Forms) and voluntary reporting—including but not limited to ESG/Sustainability reports or official company press releases. HTML sites are easily modified, difficult to date, and potentially complex to navigate. As such, these are less reliable sources of information for investors.

Alignment Assessments

The Public Policy Engagement Alignment Assessment complement the findings of Indicator 7 of the CEC Net Zero Disclosure Benchmark. The Policy Engagement Assessments focus on understanding the approach of 41 Focus List companies to public policy on climate change and their interactions with the largest and most active Canadian industry associations regarding climate-relevant policy.

CEC’s research partner, InfluenceMap, tracks and evaluates companies to understand the alignment between their lobbying efforts with the goals of the Paris Agreement. This includes both direct and indirect lobbying (through associations). The methodology and assessment for the Policy Engagement Assessments are reviewed and approved by the CEC Technical and Steering Committees.

According to InfluenceMap’s methodology, each Focus List company receivesfour assessments, capturing its overall performance of climate policy engagement, including:

  • Organization Score, for direct climate policy engagement
  • Relationship Score, for indirect policy engagement via industry associations
  • Performance Band or Real-World Climate Policy Engagement, a full measure of a company’s climate policy engagement, accounting for both its own direct engagement and that of its industry associations, and
  • Engagement Intensity, which correlates with Organization Score, and is a measure of the level of policy engagement by an entity, whether positive or negative.

To review Focus List companies’ most up-to-date results on public policy engagement alignment, please use this link, which leads to the individual assessments currently hosted on InfluenceMap’s website.

CEC Net Zero Benchmark methodology

The CEC Net Zero Benchmark follows global best practices whilst layering in additional context specific to Canada’s unique economy. The Benchmark was developed by the CEC Joint Secretariat (supported with the expertise of SHARE) under the oversight of the CEC Technical Committee and approval of the CEC Steering Committee. It was further refined by incorporating feedback from a consultation period, which involved CEC Participant Investors—including some of Canada’s largest asset managers and asset owners—NGOs, and Indigenous representation.

For a Detailed Methodology of the individual indicators of the Disclosure Assessments within the Benchmark please visit this link.

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