Thoughts

5 min read

Canada Should Prepare by Looking at Europe’s ESG Practices

Thoughts

  • author-avatar
    EVORA
  • author-avatar
    Kris Kolenc

How might Europe’s sustainability regulations affect Canadian real asset investors? As European standards advance, their influence is beginning to reach across borders. Understanding these developments now can give Canadian companies a head start in meeting future regulations and investor requests. Here’s what you need to know.  

 

Investors are Raising the Bar

Canada is reaching a significant turning point in its sustainability efforts, and observing Europe’s journey can offer valuable insights on how to prepare for the future.  

Regulations & frameworks like the Sustainable Finance Disclosure Regulation (SFDR), Corporate Sustainability Reporting Directive (CSRD), and the EU Taxonomy are pushing companies to improve their environmental and social practices and disclosures – shaping what investors expect. For Canadian companies, especially those looking to attract European investment, these changes are already making waves.  

Take SFDR, for example. This European regulation requires financial products marketed to EU investors to meet specific sustainability requirements. If you’re a Canadian seeking European investment, this is something you need to consider. While Canada doesn’t have a similar regulation for Canadian investors yet, we might see one as the market grows – European sustainability trends and regulation often hint at what’s coming globally. 

In Europe, even voluntary reporting is becoming a requirement of many investors. We’ve seen this with GRESB and many European investors are beginning to ask commercial real estate managers what percent of their portfolios are aligned to the EU Taxonomy, even if the latter are not obliged to perform alignment screening. This kind of investor pressure could also increase in Canada as voluntary standards like the Canadian Sustainability Standards Board’s (CSSB) proposed Canadian Sustainability Disclosure Standards (CSDS) become finalized (it is important to note that this is linked to the Canadian Securities Administrators (CSA) who are in process of creating Canada’s first mandatory climate disclosure requirements). Companies that get ahead of the curve can build trust and stand out in a market that continues to pay more and more attention to ESG performance and disclosure.
 

 

“Anticipate Further Regulation”

Even if you only have domestic assets and investors, Europe might still be showing us what’s coming next in Canada. Getting ahead of these trends, by aligning with international best practices even before they’re required, can position companies for long-term success.  

 

Kris Kolenc, EVORA’s Business Development Manager in North America, has been helping clients across Canada, Europe and the US for many years now, and his recommendation is clear: “Anticipate further regulation. It’s always better to be prepared in advance and not just comply and react when new regulation is released.”  

 

By improving data collection and governance now, Canadian companies can save time and resources later if similar European regulations are introduced in Canada. The CSRD, for example, requires companies in Europe to assess impact through a double materiality assessment (i.e. impact materiality and financial materiality, not just a single materiality assessment like most organizations are used to) and report their data more rigorously. Both the double materiality assessment and data being reported through a CSRD disclosure (most often through a company’s annual sustainability report) will also have to go through an external assurance process. The reach of CSRD is broader than the EU – it also applies to non-EU companies with significant business operations in the EU, and CSRD reporting standards are slowly emerging as the highest beacon of reporting expected from EU investors. 

In addition to the European regulatory developments, the IFRS S1 and S2 standards on general sustainability-related financial disclosures and climate-related disclosures, respectively are gaining traction in Europe, with the UK Financial Conduct Authority intending to mandate their use from 2025. In Canada, the CSSB will align their CSDS with the global baseline of IFRS S1 and S2 – but with modifications to serve the Canadian public interest. 

 

 

Taking Action Ahead of Time

The key lesson from Europe is that sustainability reporting isn’t just about following the law – it’s about reducing risk and building trust. So what can Canadian commercial real estate do now? Even if these regulations seem distant, learning from global best practices and refining your internal processes accordingly can put you in a stronger position in the market. Being ready when investors, regulators, or other stakeholders demand more will give you a competitive edge. 

 

At EVORA, we’ve spent years helping companies navigate these challenges in Europe and the US. We’re ready to bring that experience to the Canadian market. We’ve worked with real asset investors and asset managers to create strategies that align with SFDR, the EU Taxonomy, and CSRD. Our team can help you stay ahead of regulatory changes and meet investor demands by improving transparency, reducing risks, and improving your overall sustainability performance. 

We’re excited to support the Canadian market in reaching their sustainability goals. Reach out to us if you’d like to know more about how we can help!