ESG due diligence in Canada

Canada continues to strengthen its understanding and implementation of corporate ESG risk mitigation. In the early days of the responsible investing movement, the country’s larger public pension funds were among the first to recognize the impact ESG could have on enhancing revenue, reducing costs and mitigating risks. Many of Canada’s banks, corporations and investors quickly followed suit, voluntarily aligning with international sustainability standards like the Principles for Responsible Investment (PRI) and the Task Force on Climate-Related Financial Disclosures (TCFD).

As mandatory measures begin to emerge, including reporting on climate risk management for banks, the fight against forced and child labor in supply chains across all sectors, and federal and provincial carbon pricing mechanisms, the country will see even more transparency across ESG considerations. This proactive approach is leading many investors and businesses to view ESG due diligence as an effective tool for identifying opportunities for value creation rather than solely as a way to mitigate risks.

The energy transition, for example, offers ample investment opportunities in renewable energy, electric vehicles and battery storage. Government incentives at various levels further support these initiatives, offering financial benefits for energy efficiency and retraining programs. On the risk side, the country’s exposure to wildfires and extreme heat events call for robust climate risk management strategies, especially for the transportation and logistics, mining and industrial manufacturing sectors.

Despite this support for ESG due diligence, investors are challenged by the limited access to reliable data, especially when targets may not provide comprehensive information. Canada’s diverse investment portfolio spans various global markets, making it difficult to maintain consistent and comparable ESG information. In particular, smaller investors struggle with limited resources and expertise compared to larger funds.

To help navigate these challenges, KPMG in Canada uses its subject matter expertise in various sectors and sustainability issues to provide clients with insights and practical tools. The firm’s global reach and access to a diverse client base support clients with leading trends and practices to help dealmakers connect ESG findings to revenue growth, cost management and asset valuation.

Looking ahead, climate change is expected to demand increased attention in terms of physical and transition risks. The social aspects of ESG, including talent attraction and retention, is also gaining prominence. Sustainability will increasingly influence valuations – all of which will likely make ESG due diligence an essential part of investment decision-making.

As ESG in Canada evolves from a voluntary, business-led initiative to a more structured practice, investors will need to stay agile and seek the professional guidance they’ll need to help turn ESG challenges into opportunities for sustainable growth and long-term value creation.

KPMG’s first global study on ESG due diligence captures insights from more than 600 active dealmakers in 35 geographies. Another 50 leading investors were interviewed to capture their best practices on leveraging ESG due diligence to unlock value creation opportunities in a deal.