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AFP 2022 Blog

AFP 2022 Blog


Emerging from the ESG Embryo: Developing an ESG Program at Teranet

Oct 5, 2022

By John Garofano, Treasurer, Teranet Inc.

Teranet operates the land registration systems in the provinces of Ontario and Manitoba, and leverages that position to market property and data solutions and to provide collateral management services to other Canadian customers, including financial services, governments, utilities and customers in other sectors. Teranet also has established financing programs, including capital markets bond issuance.

Teranet has a strong relationship with our capital markets dealers, and investors really like our company’s business model. However, we have noticed a shift in the capital markets landscape. Teranet’s bond investors — as well as other major customers — have started asking questions about Teranet’s ESG profile, so we realized we needed to develop an ESG program. But where to start?

Teranet faced some key challenges in the development of an ESG program. To begin with, while the company is officially classified (in bond markets) as an infrastructure credit, Teranet is not your traditional infrastructure company — it has minimal carbon footprint. So while all pillars of ESG are important, we needed to determine a focus — an area in which to concentrate our efforts.

Another challenge is inherent to the size of our company. ESG is a transformative exercise — akin in scope to SOX implementation. But Teranet is not large enough to create a dedicated ESG team. We needed to have engagement at the very top of the organization, as well as a structure and framework to ensure momentum is preserved even as our key leaders continue to perform their existing ‘day jobs.’

Teranet has made good progress in its efforts to develop an ESG profile, and my AFP 2022 session “Developing and Integrating ESG into Corporate Financing” will detail accomplishments the company has made in each of the three pillars — environmental, social and governance. The session will also discuss Teranet’s ambitions for the future — the company has a number of initiatives that it sees on the horizon that have the potential to round out its ESG program.

Teranet is not finished in its journey — there are other challenges and considerations it must consider before it can claim to have crossed the finish line. To begin with, it must decide on a reporting framework — there are a wide variety of sustainability reporting frameworks and the landscape is changing rapidly.

It must also decide what metrics to include and how to set the organizational targets. The targets must be relevant to the company and meaningful to investors. There is a balancing act inherent in target selection: Make the target too lofty or aspirational, and the business runs the risk of backtracking and claiming it cannot meet the target once the program is implemented and periodic measurements begin. Set the target too conservatively and the company will easily meet it, but investors will shrug it off as not being sufficiently meaningful.

Once the metrics are chosen and the target levels determined, it becomes necessary to ensure that reporting can be embedded into Teranet’s regular organizational routine. This involves making sure tracking the metrics is not simply an activity done manually, at the side of someone’s desk, but part of a more robust framework, embedded into established systems and processes.

Teranet must also navigate a capital markets landscape with changing roles of investors and rating agencies. Investors are increasingly using separate teams of dedicated ESG analysts, and they can use both a credit analyst and an ESG analyst in the evaluation of the credit. And not only are rating agencies incorporating some ESG visibility into their credit analysis, separate sustainability ratings businesses have emerged that issue standalone ESG ratings.

Join me at AFP 2022 and get a ‘front row seat’ to Teranet’s journey, from the company’s emergence from the ESG embryo to the challenges and considerations it faces as it develops its full-blown ESG program.

Discover more sessions on ESG and DEI at AFP 2022 and register now.