Guiding change through collaboration

29 Oct 21

The City of Toronto in Canada has embedded an understanding of the costs of climate change into its policymaking and financial planning processes

PUBLIC SECTOR ORGANISATIONS are currently dealing with tremendous upheaval triggered by the issues stemming from the unprecedented global pandemic, the growing climate change emergency, and dramatic social inequality.

These challenges pose additional burdens on the public sector as we urgently navigate stewardship, transparency and a continuously changing environment.

A signal of hope is provided by banks, asset managers and investors, who are beginning to acknowledge and take action through their Environment, Social, and Governance (ESG) strategies and disclosures.

But while disclosure is now required within these corporate entities, few public sector organisations have divulged how they are addressing the same issues.

Government bodies have always viewed themselves as transparent, democratic, and responsible due to the legislative controls they operate within.

However, their public disclosure documents don’t currently meet that mark.

Public sector organisations now have the opportunity to lead beyond their legislative responsibilities and demonstrate progress on critical ESG disclosure and performance metrics.

The Covid-19 pandemic has been a catalyst for us to think about evolving our economies in a more equitable and sustainable way. This directly correlates with ESG considerations.

What organisations, including those in the public sector, need now are common standards and key measurements to demonstrate progress in these critical areas.

This means that chartered professional accountants working in public sector organisations now have the opportunity to be trailblazers within the realm of ESG measurement advancement and to inspire others to do the same.

I strongly believe that public sector leaders have the opportunity to pave the way, developing and regulating standards to ensure the prioritisation of ESG goals deliver enhanced outcomes and define accountability.

The profession is uniquely positioned to deliver those measures because it is skilled, trusted and respected. This creates an unmatched possibility and obligation to report beyond ‘just the numbers’.

We can seize this moment by coming together to take action against climate risk.

We can influence how current and future generations make informed and relevant decisions by developing the required metrics to measure ESG progress.

What actions has the City of Toronto taken?

The City of Toronto has implemented several key strategies to address climate change and social issues, and strengthen governance.

We adopted ‘TransformTO’, Toronto’s ambitious climate action strategy, which sets greenhouse gas emissions targets aimed at improving health, growing the economy and advancing social equity.

We launched our first green bond in 2018, supporting specific capital projects that target climate mitigation and resiliency.

We became the first Canadian government to issue a social bond in 2020, to fund social and affordable housing investments, deploy affordable basic infrastructure to communities, and support socio-economic advancement and empowerment.

The bonds have been supported by the creation of a ‘Social Debenture Framework’, that intentionally expands our sustainability framework to demonstrate our commitment in both the green and social space. By creating green bonds and social bonds, we have attracted new types of investors from all around the world – investors who keep ESG reporting at the top of their priorities and insist that sustainability and equity issues are incorporated in their investment choices.

We also created the Toronto Investment Board, an independent, skill-based board with experience in investing and ESG issues.

This board directs the city’s strategy to invest its investable assets in a reasonable and prudent manner.

The investment managers selected by the board are all signatories to the United Nations Principles of Responsible Investing and have had to demonstrate a process for ESG integration in their decision-making.

Since there is no single source of reporting for ESG initiatives, Toronto has chosen to take the lead and become the first Canadian public sector entity to release an ESG performance report, demonstrating our commitment to each of the three areas.

‘To maintain public trust and confidence, it is imperative that public sector organisations invest wisely, focusing on demonstrating stewardship and accountability over financial resources’

The inaugural report, released in January 2021, included topics ranging from the City’s greenhouse gas (GHG) reduction targets, social and economic inclusion, and workplace culture and inclusion.

The report set out the priorities in each of the ESG areas along with associated performance metrics aligned with the United Nations Sustainable Development Goals.

What lessons have we learned?

To maintain public trust and confidence, it is imperative that public sector organisations invest wisely, focusing on demonstrating stewardship and accountability over financial resources.

For this reason, we are proud to be the first municipality in Canada to incorporate our GHG target and progress in the notes to our financial statements.

We are also one of the first municipalities in Canada to voluntarily adopt the recommendations made by the Task Force on Climate-Related Financial Disclosures (TCFD), with publication of the city’s climate risks and opportunities in our 2019 annual financial report, which outlined our strategy to mitigate those risks and meet our net zero target.

TCFD was intended to influence the allocation of capital for public companies, but for public sector organisations it goes beyond capital market allocation decisions.

It is essential to understand how climate issues are impacting the city and our ability to provide services.

In addition, Toronto’s decision-makers are mandated to consider climate risks in their policies and financial planning processes.

In order to do so, public sector organisations need reliable information and clear standards to measure against. Our profession is expected to meet those types of information requirements in the financial sphere, but we will need to extend our expertise to develop those needs.

Getting started on the TCFD journey was challenging, even when accountants worked closely with sustainability professionals.

It was important to understand what data was available; what risks or opportunities impacted service delivery and asset infrastructure; what opportunities could be woven into policies and processes; and what has already been disclosed as compared to the recommendations.

As an industry, we can build best practices that will bring true comparability to the disclosures recommended by TCFD.

In our experience, multi-disciplinary team collaboration was the key to getting started, with knowledge pooling helping to support efficient adoption, and harmonised approaches enabling consistency of disclosures.

By starting small, the City of Toronto was able to develop disclosures and harness buy-in from across the organisation.

More collaboration with sustainability professional organisations will build the methodology and enable the development of this information. Each actor plays an important role in guiding change and taking action to enhance sustainability in our global community.

We can all motivate one another to address risks associated with climate change, and disclose our progress on environmental, social and governance factors.

Public understanding about the need for action is increasing as the impact of climate change becomes more apparent.

As a result, it is necessary to know both the feasibility and the cost of meeting greenhouse gas emissions targets, as well as the cost of impacts of extreme weather on interdependent infrastructure systems.

Cross-disciplinary teams can determine the data required and establish processes to capture that information.

‘Public understanding about the need for action is increasing as the impact of climate change becomes more apparent’

In Toronto, different teams of professionals are working together to ensure that, in the end, capital investments will be directed to those programmes with the greatest impact.

Implementation of TCFD in annual financial reporting highlights good practice for finance and accounting professionals, and the role and value that accountants can bring to sustainability.

More work lies ahead

Toronto will continue to take an integrated ESG approach, with responsible practices embedded across the organisation to build a sustainable, transparent and resilient foundation for the delivery of quality services and value over the longer term.

Striving to be a caring and friendly city that invests in quality of life for all, the City of Toronto prioritises maintaining and creating housing that is affordable, investing in people and neighbourhoods, and enhancing social outcomes for residents and our global community.

We are committed to achieving our climate goals, including the reduction of greenhouse gas emissions and accomplishing our net zero targets, which will require transformational changes in how we live, work, commute and build.

Enhancing the city’s resilience will enable us to survive, adapt and thrive in the face of challenges.

Toronto is striving to be a leader in making positive impacts and hopes to demonstrate to others that incorporating ESG into financial and policy decisions is not only possible to do, but it is the right thing to do.

We have experienced first-hand that when working together you can address climate risks and social inequities.

We are proud of the actions in ESG priorities that the City of Toronto has undertaken and look forward to partnering and collaborating with other forward-looking public sector organisations in developing key metrics to measure the success of our initiatives.

As the saying goes, ‘what gets measured, gets done’.

By developing key metrics, chartered professional accountants can be the leaders to drive a sustainable future for us all.

Image credit | Paddy-Mills

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  • Heather Taylor

    is chief financial officer and treasurer at the City of Toronto, Canada

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