Thank you very much for the opportunity to appear before the committee.

My name is Bryce Tingle. I'm the N. Murray Edwards chair in business law at the University of Calgary's faculty of law. My research and writing are largely in the area of corporate governance. I'm a member of the Alberta Securities Commission and of the national special advisory board to the RCMP's integrated market enforcement teams, which investigate financial crimes. I sit on numerous boards and I've spent my career advising boards, investors and managers on issues relating to corporate governance.

All opinions are my own and should not be attributed to any institution that I'm part of.

I'm appearing before you as someone who has spent his professional life working in and studying corporate governance and corporate finance.

For the record, I accept the consensus about the science of global warming contained in the most recent reports from the United Nations' Intergovernmental Panel on Climate Change.

The bottom line from all my research is that there are thousands of empirical studies, and these studies generally show that corporate governance interventions of the sort produced by the financial markets do not produce their intended outcomes. This includes the long-time goals of corporate governance of producing better financial returns for investors and reducing executive pay.

The failures of corporate governance as a channel for producing desired outcomes are a function of, first, the fact that corporations are generally embedded in competitive markets and that these markets constrain the range of behaviours a corporation can undertake if it wishes to remain solvent. The average company doesn't make much over its total expenses.

Second, markets produce incentive structures for managers and shareholders, and these systems of incentives militate against certain desired non-financial outcomes.

Third, corporations, their people, strategies, research programs, opportunities, business partners and competitive situations all vary so much that one-size-fits-all interventions affect them in different and unexpected ways and occasionally in counterproductive ways.

Fourth, the most prominent tools used by corporate governance reformers—disclosure requirements and investor pressure—are not suited to the task, for various reasons.

Given the limited amount of time I have, I'll talk about three examples of governance failures that are relevant to ESG.

The first is disclosure. Most investors do not have the knowledge or the incentives to read or accurately process most of the disclosure we provide, and this is particularly true of rather complex environmental disclosure. As a result, investors tend to rely on third parties to produce ESG ratings or rankings. There are over a dozen empirical studies that find these ratings are invalid.

Different ESG companies rate the same company in very different ways. The disagreements among these companies about the environmental merits of companies appear to be increasing over time. There are several studies that show that ESG ratings are very poor predictors of future environmental or social performance.

Studies also show that disclosure discourages innovation, since it provides competitors with the ability to replicate successful initiatives and avoid failures. As a result, companies stop innovating. They will wait for others in a version of the free rider problem. Disclosure requirements also cause companies to behave defensively in an area. ESG activities, if required to be disclosed, can become less ambitious in order to avoid lawsuits or subsequent criticisms for failures.

A second example is financial divestment, which doesn't work. The value of a company's shares is a function of the company's future cash flows. For this reason, divestment does not affect share value. We know this from multiple studies. Several studies find no evidence of the cost of capital increasing for bad ESG performers. There's also no sign, at least in public markets, of lower costs of capital for good ESG companies.

Another problem is that divestment is too crude. A recent study found that the majority of environmental progressive green patents are produced by low-ESG-rated companies. Usually these are old-economy energy companies. This is particularly true of blockbuster environmental patents that are cited by many other patents. The researchers note that this research and development is being performed by companies that are actually excluded from ESG portfolios.

The third example I'll give is about the nature of investors. They don't focus on ESG. Investor behaviour is produced by strong financial incentives to keep their costs low and to maximize fund returns. ESG investors in companies with ESG profiles are generally no better off than non-ESG investors. Some studies find that ESG-branded funds hold worse-performing companies. Studies that look at what happens when an ESG fund buys a stake in a company find no sign of improvement in that company's environmental or social performance.

My time is up.

I will answer any of your questions when the time comes.