While politicians argue over corporate climate action, Canadian companies are recognizing the risks of climate change and are taking steps to address them—but their progress is being slowed by a lack of investor leadership.

Companies that delay on addressing the risk stand to suffer significant losses from climate change—to the tune of 7% of corporate earnings annually by 2035, “an impact akin to COVID-19-level disruptions every two years”—finds a recent report by the World Economic Forum (WEF). Telecommunications, utilities, and energy sectors face the highest risk of fixed asset losses from climate hazards like extreme heat, which are becoming more severe as natural systems approach “tipping points.”

“Consider factories losing their water supply, data centres which struggle to cool, offices under water or fields hit by floods and drought,” writes [pdf] the WEF, describing the potential fallout.

Already, losses from climate change have mounted to US$3.6 trillion since 2000 and stand to become much worse, especially if companies don’t plan for it, the WEF adds [pdf] in a separate report. “Climate inaction could cost far more than global action” as avoided losses pay back transition costs five or six times over. While many companies recognize these risks, “most are insufficiently prepared.” They must embed climate risks into their strategies and “ramp up scenario thinking” to prepare for a 3°C world.

But skirting the corporate world, politicians question whether environmental, social, and governance (ESG) standards have a place in driving company decisions. Conservative politicians in the United States have argued that ESG standards distort the “free market,” prompting some companies to roll back their climate commitments under political pressure.

Similar rhetoric is surfacing in Canada, where Conservative Party leader Pierre Poilievre dismissed ESG ideologies as “garbage.” Poilievre—who is no fan of the WEF—said he instead supports “free enterprise economics where businesses get ahead by having the best product, not by having the best lobbyists,” wrote alt-right newsletter True North.

The arguments about corporate climate accountability come as companies await new sustainability and climate reporting guidelines, expected this month from the Canadian Sustainability Standards Board (CSSB).

Some research indicates that companies are onboard with ESG policies and are concerned about climate risks to their bottom lines—even if, as WEF writes, they “seem to underestimate these financial losses and overestimate the cost of action.”

Lawyer Rima Ramchandani, co-head of Torys LLP’s capital markets practice, told the Globe and Mail that anti-ESG sentiments will not likely cause companies to change their approach on “how they prudently and responsibly manage and oversee risks.” She added, however, that “because of the politicization, some companies are choosing to be more cautious about what they say.”

A recent report by Torys found that 95% of companies publish reports connected to their sustainability, ESG, climate action, or transition goals. Among them, 69% say they are reporting in accordance with the international benchmark—the Taskforce on Climate-related Financial Disclosures—that is the expected basis for the upcoming CSSB rules.

Also published recently was the Globe’s “Board Games” ranking of corporate governance practices at Canada’s largest companies. Of 215 companies considered, only 15 received zero points for climate policies. At the same time, only 21 got a full score.

But the Board Games are neither universal nor a signal of real climate action. RBC received full marks for its climate criteria for the ranking, but a lineup of critics like Environmental Defence Canada take issue with RBC being the “largest financier of fossil fuels in Canada.” The bank is also the focus of an inquiry by the federal Competition Bureau for misleading advertising about its climate commitments.

Still, the data show a disconnect between the politicization of climate and ESG policies, and the attitude of companies themselves, that—at least on paper—are less conflicted about taking steps to avoid climate losses.

Yet, companies continue to drag their feet, Transition Accelerator CEO Dan Wicklum told last month’s Sustainable Finance Forum in Ottawa. He attributed the slow progress to a lack of investor leadership on climate action.

“Companies do what boards tell them to,” said Wicklum, “and boards do what shareholders tell them to.”