Hydro Ottawa and ESG – New to the name, not new to the game

2022-09-21

“Show me the money!”

For the longest time, this quote from the film Jerry Maguire pretty much summed up the prevailing philosophy in the financial investment world. Buy low, sell high. Maximize rates of return. Yield a stable dividend. Check these boxes and investors were happy.

But in recent years this model has been changing. With an international consensus around tackling climate change and the heightened influence of social movements, investors are shifting their understanding of what constitutes a “good investment.”

These days, if you open up the business section in most newspapers or tune into the quarterly earnings calls for many companies, you’re as likely to hear about “people” and “purpose” as you are “profits.” That’s because, for many investors, it’s not just about dollars and cents anymore. Investors want more information on how companies are reducing their environmental impacts, addressing social issues and running their businesses more ethically. Out of this push has emerged the concept of environmental, social and governance (ESG) reporting.

But what does “ESG” mean in practice?

What is ESG?

“ESG” refers to environmental, social and governance factors that are considered in investment decision-making. Knowing the strength of a company’s balance sheet is important. But when it comes to ESG, the focus is on non-financial performance indicators.

ESG practices are intended to create accountability and a purpose-driven culture. The notion of ESG is about positively influencing company behaviour and facilitating socially-responsible investing.

Interest in ESG has risen steadily since the term was coined in a 2005 United Nations report. It’s now one of the hottest topics in global financial markets. Financial regulators around the world are in different stages of either proposing or implementing ESG reporting requirements. And it’s not just government authorities who are taking action. Ask some of the biggest money managers in Toronto, New York or London. They’ll say that combating climate change and fostering sustainability have become investment imperatives, because they drive value and make good business sense.

ESG helps tell a story that doesn’t otherwise come across in statements about profits and loss. The image below shows a few of the common areas in which investors are interested in ESG reporting:

Graphic with description of ESG

Disclosing how materials are sourced through sustainable and ethical supply chains, how many Board members are from underrepresented groups, or how a safe and healthy workplace is maintained – these are all examples of ESG reporting in practice.

Hydro Ottawa’s history with ESG

How does Hydro Ottawa fit into this discussion? We’ve had best-in-class environmental, social and governance practices in place for as long as we can remember. But we haven’t talked about these activities under the formal banner of ESG. They’ve happened organically, as part of our long-standing strategic focus on good corporate citizenship and our responsibilities as a community-owned company that delivers an essential service to customers.

For example, we developed our first Environmental Sustainability Strategy back in 2010, way before the idea of “ESG” enjoyed the kind of prominence that it does now. Since then, we’ve steadily reduced our environmental impact, including decreasing paper and water usage, diverting over 90 per cent of non-hazardous waste from landfills, and integrating electric vehicles into our fleet. We’ve also demonstrated our commitment to lowering emissions in our sector by increasing the capacity of our renewable generation fleet by over 500 per cent, making us Ontario’s largest municipally-owned producer of green power.

More recently, Hydro Ottawa received the Sustainable Electricity CompanyTM designation from Electricity Canada, which attests to responsible business practices across a range of sustainability indicators. In addition, 2022 marked the 11th year in which we were named one of Canada’s greenest employers.

While the “E” in “ESG” arguably gets the most attention from investors, our record in addressing the “S” and the “G” is also strong. We have a long history of placing employee safety as our top priority and we’ve received best-in-class certifications for our occupational health and safety systems. Similarly, our efforts to foster a diverse workforce and an inclusive workplace have been recognized by numerous local and national organizations. And our employee charitable fundraising has raised more than $2 million over the past 10 years in the spirit of giving where we live.

Hydro Ottawa also prides itself on maintaining leading governance practices for a company of our size and mandate. We meet or exceed governance standards applicable to much larger corporations, we proactively disclose information like executive compensation, and for many years, approximately 50 percent of our Board positions have been held by women.

Where do we go from here?

Between our own sustainability journey and all the momentum building around ESG, the outlook is favourable for continued leadership by Hydro Ottawa in this space.

We’ve already given strong signals in this regard through our 2021-2025 Strategic Direction. Our corporate strategy is anchored in an ambitious commitment to reach net-zero operations by 2030. This will make us the first municipally-owned utility in Canada to reach this critical milestone. At the same time, we plan to be a catalyst for other organizations to take similar action – whether it’s helping the City of Ottawa to achieve its clean energy and climate change objectives, the Ottawa International Airport to reduce its greenhouse gas emissions and energy consumption, or The Ottawa Hospital’s New Civic Campus to minimize its carbon footprint.

Alongside this cornerstone initiative, our Strategic Direction acknowledges the need to enhance our ESG reporting. Various international accounting and financial reporting bodies have introduced different frameworks for how companies can measure their ESG performance, using a range of metrics. Hydro Ottawa is in the process of evaluating these standards and best practices, and we plan to adopt an approach that will best meet the needs of our stakeholders.

When it comes to ESG, you might say that we’re not new to the game, just new to the name. So we’ll be looking to speak the language of ESG more fluently in the years ahead.

A hallmark of our evolution as a company has been a commitment to sustainability. We’re excited to continue strengthening these efforts through the lens of ESG. Investors and regulators (in their best Jerry Maguire voice, of course) are saying “show me the ESG!” and we don’t intend to disappoint.

Special contribution by Patrick Brown and Robin Kennedy