This post originally appeared in the Lawyer's Daily.
In January 2021, the First Nations Major Project Coalition commissioned a report titled Indigenous Sustainable Development: Discussing Opportunities in ESG.
ESG stands for environmental, social and governance and generally, are measures for assessing ESG risks and benefits in projects through Canada. ESG has been or discussions around ESG has been around for some time now, with consultations and reports nearly two decades old between stakeholders and regulatory bodies, like the Ontario Securities Commission. Similarly, the Canadian Securities Administrators published environmental reporting guidance in 2010, affirming this guidance in a 2019 document on climate change related risk reporting.
The difference between then and now is that the discussions in the public sphere are becoming more prominent about ESG risks and benefits on major projects. It is not just a conversation for investors but also communities and everyday individuals.
For those without a securities legal understanding, a bit of background is required. All publicly traded companies (meaning, those with shares listed on a stock exchange) are required to report any risk that may impact a reasonable investor’s decision to buy, sell or hold securities of that company. These risks will be laid out in that company’s ongoing public disclosure documents, which are all publicly available. The decision to put a risk into those documents involves, what is called, a materiality assessment. The test for materiality is objective.
One of the key things to remember in an ESG risk analysis is that some projects may reach a materiality threshold, as defined in securities legislation, while others may not. To get a seat at the table means Indigenous nations will have to start talking the talk.
This materiality threshold is different for various companies and projects. There may be a certain financial threshold but other factors may impact materiality if that financial threshold isn’t met. Namely, are there any political or reputational risks that may arise as a result of the risk? For some Indigenous nations, their concerns may never reach a materiality threshold but reporting issuers ought to consider the risk if they misinterpret an Indigenous concern as being non-material; the analysis is always ongoing.
There are plenty of guidance documents that describe some of the considerations for reporting issuers, other than investment funds, when assessing ESG risks. Some may be alarmed to see that Indigenous “activists” are labelled as a regulatory or litigation risk in some public disclosure documents. For some projects, Indigenous intervention is defined similarly. This is the language of the landscape and frankly, reporting issuers ought to begin to see Indigenous nations as an opportunity to expand their ESG framework, including seeing engagement and consultation of Indigenous nations as a benefit. After all, it is a constitutional obligation for governments and private entities.
In the end, Australia has been setting the stage for creating co-ordinated opportunities with many stakeholders including Indigenous nations with their Australian Sustainable Finance Initiative. A similar initiative ought to be adopted here in Canada to avoid the piecemeal approach to ESG considerations and Indigenous concerns.