From Canada to the World: The WFE’s Global Meeting on Sustainability

TMX had the privilege in June of hosting the World Federation of Exchanges' Global Meeting on Sustainability. Throughout the day’s sessions, we discussed the stake that all of the WFE’s member exchanges have in supporting public companies and investors as we move toward a more sustainable future. But as we adopt measures to support sustainability, exchanges must also consider the different characteristics of their particular financial environments and constituents.

TMX Group occupies a unique position at the centre of Canada’s capital markets ecosystem: owner and operator of our premier equities and derivatives markets, Toronto Stock Exchange and Montréal Exchange, as well as our junior marketplace, TSX Venture Exchange. We take it as our responsibility to serve and support stakeholders across this dynamic ecosystem today, while striving to ensure our markets remain globally competitive long into the future.

As the operator of the 8^th largest exchange group in the world by market capitalization, TMX operates within a country whose relatively small population is spread across the globe’s second-largest nation by land mass. Our abundant natural resources and vibrant capital markets are both essential to Canada’s economic success.

Natural resources and SMEs

Although our listed companies represent a widely diversified economy, we remain the world’s leading exchange group for the natural resource industry; mining and oil and gas account for approximately 35 per cent of our listings. In particular, the oil and gas industry is Canada’s leading exporter and will require significant investment to support its transition to a low-carbon economy.

At the same time, Canada’s small and medium enterprises (SMEs) have an enormous role to play in leading us into a sustainable future. Approximately two thirds of our listed companies are SMEs and close to 75% of venture-listed companies are considered to be pre-revenue. As they do in other jurisdictions, SMEs need considerable support in making this transition to a sustainable future. As we coordinate our efforts with global initiatives, we also seek to support these small companies with tools and guidance that they can use in reporting on their environmental, social and governance endeavours.

Sustainability reporting evolution

A significant proportion of companies recognize the urgency of meeting their ESG challenges. As they compete for capital in an increasingly limited marketplace, they are acutely aware of the increasing demand among investors for comprehensive and comparable reporting on their sustainability initiatives.

Even in private markets, large investors regard comprehensive sustainability reporting as a relevant factor in making investment decisions. In addition, senior companies involved in mergers and acquisitions now integrate the ESG performance of potential targets.

While these reporting requirements have been driven primarily by institutional investors, focusing their investment decisions on larger companies, SMEs are well-advised to prepare for accounting for their ESG activities, both to demonstrate their prudent management and to meet future investor demands as they evolve into larger organizations. One-third of our TSX listings graduated from TSXV, for example, and these companies constitute 20 per cent of the S&P/TSX Composite Index.

Companies of all sizes currently provide sustainability reports voluntarily, but progressively, these reports may become mandatory. It is expected that to prepare their annual statements, companies will have to deliver their financial and sustainability information at the same time, applying the same precision in language and intention to both requirements.

For SMEs, the challenge lies in identifying the financially material sustainability and climate-related risks and delivering consistent and comparable data to support investment decision-making and corporate peer analysis. It will require ingenuity and flexibility to meet this challenge in a diversified SME community, in Canada and globally, without imposing an unduly heavy regulatory burden on their limited resources.

As regulators, exchanges and capital markets participants across the world are considering the implementation of sustainability and climate-related disclosures requirements for their markets, the principles of proportionality, materiality and sustained competitiveness should guide their reflection.

Comparability challenges

Comparability of data is necessary for public companies of all sizes, in all industries, and on a global scale. Organizations such as the International Sustainability Standards Board and The Global Reporting Initiative are working to ensure interoperability between standards. But considerable work remains to be done in order to identify the global-standard baseline for companies and investors to determine material risks.

Minerals and mining investors, for example, are asking companies to report on their efforts to curb their carbon emissions. They require consistent year-to-year data from these companies, along with defined emission-reduction targets. Meeting these demands presents a formidable challenge for these companies, which currently operate within a patchwork of regulations that are applied differently to different activities, from upstream extraction, to downstream refining.

Already heavily regulated and acutely aware of the risks of a changing climate, companies in the mining and minerals sector range in size from small exploration firms operating in remote locations to large industrial processors of the critical minerals required for alternative energy initiatives. To maintain a sustainable growth trajectory, they will need access to a global investment marketplace, where the demand for consistent climate-related reporting continues to accelerate.

Support and education

In Canada, organizations such as the Prospectors and Developers Association of Canada have developed tools, such as an online greenhouse gas calculator, specifically to assist smaller companies in applying best sustainability practices to their operations.

Meanwhile, TMX provides educational tools to help companies report successfully on their sustainability initiatives and to make sure that the investment community understands their priorities.

Supply chain and biodiversity reporting

The task has become even more challenging with the increasing demand for sustainability reporting that extends into supply chain, which may account for more than 70 per cent of a firm’s definable emissions. New regulatory initiatives in the European Union, for example, such as the Corporate Sustainability Due Diligence Directive, currently require large issuers to obtain detailed ESG information from their supply chains. This will affect issuers in other jurisdictions and may have a significant impact on their ability to attract international investment and to continue or expand their exports.

The transition toward a more sustainable future becomes even more complex as companies accommodate nature and biodiversity into their sustainability efforts. Despite the challenges involved in understanding, defining and reporting on biodiversity impacts, this aspect furthers the pursuit of climate targets set out in the Paris Agreement and presents an opportunity to align corporate requirements with Net Zero objectives.

To make this transition, companies need to understand and follow some fundamental elements to meet the demands of the global investor community, such as baselining emissions data and integrating supply chain reporting in their sustainability disclosures. They are also expected to specify the work they’re doing to abate their emissions with information on technology deployment, budgeting and timelines, and incorporate their transition plans into their business plan for auditing purposes.

Insights for all

Our efforts in Canada to orient our resource-focused economy and capital markets toward a lower-carbon future can offer important insights for exchanges in other jurisdictions.

At TMX, we strive to bring Canadian companies to the world, the world to Canada, and to bring sustainability to life in the organizations and ecosystems we foster. As we assess and measure the impact of climate change on organizations, our goal is to help companies become better citizens in a global community, a goal that is shared by WFE members throughout the world.

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