Integrating ESG: A Key Ingredient to Long-Term SuccessBy Jorge Rave | Tue, 05/18/2021 - 13:00
While the COVID-19 pandemic revealed new areas of risk and opportunity for businesses around the world, it also accelerated trends that were shaping the global economy before the crisis started. Attention to environmental, social and governance (ESG) performance, in particular, has increased as companies face more scrutiny than ever around their treatment of issues like climate change, human rights, and corruption.
This trend is sure to carry through to the recovery, and will play a major role in building back more inclusive, sustainable, and resilient economies and societies.
So, what does this mean for businesses? Quite a bit, because strong ESG is quickly evolving from a nice-to-have into a core requirement of business. Increasingly, now you’re seeing lenders, customers, and stakeholders assess ESG as part of their due diligence on a company they plan to do business with.
ESG and Your Bottom Line
Export Development Canada (EDC), the company I work for, offers a prime example of how financial institutions are increasing their emphasis on ESG performance when making lending decisions. In recent years, EDC has increasingly placed sound ESG principles and practices at the forefront of its business decisions. It even went so far as to make ESG a central enabler of its new 10-year corporate strategy, which was launched earlier this year. This major step was taken in recognition of the fact that EDC’s success is directly tied to the effect of its business decisions; that it’s not just about doing more business, but doing more business in the right way. Ultimately, we believe that strong ESG is a catalyst for long-term business growth, and we’re advising companies we work with to think of it in the same way.
EDC is uniquely positioned to help Canadian exporters leverage emerging global opportunities and strengthen their ESG performance. We know first-hand the difference that strong ESG practices can make in opening doors, mitigating risks and achieving long-term success. Our goal is to offer ESG knowledge products, provide specific technical support to companies, and evolve our portfolio so that it consists of more businesses that exemplify strong ESG principles.
Like EDC, lenders, and institutional investors are increasingly demanding ESG data to support their decision-making. Companies are being analyzed in areas such as the strength of their ESG policies and reporting, their alignment with international standards and frameworks, and their commitment to climate-related disclosures. These must be consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and will provide information on the company’s climate-related risks and opportunities related to its business.
With more than 1,800 official supporters from all regions and sectors of the global economy, the TCFD is emerging as the leading framework for disclosing climate-related information. EDC announced its support for the TCFD recommendations in 2018, and 2021 will be the third year in which we will aim to align with the recommendations in our own disclosures.
One recommendation for companies looking to improve their ESG performance is to follow and benchmark their business practices against widely accepted and authoritative international standards. Examples of such include the Global Reporting Initiative (GRI), the U.N. Global Compact’s Sustainable Development Goals, the International Finance Corporation’s Performance Standards on Environmental and Social Sustainability, and the United Nations Guiding Principles on Business and Human Rights.
Following these standards can help mitigate against reputational risks, which arise out of misalignment with public or customer values. Reputational damage can significantly impact corporate growth and as such, should be taken seriously. Similarly, poor relations with communities impacted by a company’s operations can lead to expensive operational disruptions and permitting issues.
Innovation Key to Improvements
Climate change is one of the most important issues of our time – one that presents risks and opportunities for all aspects of the global economy. Never has there been more demand on business leaders to do their part to reduce emissions.
To meet the moment and respond accordingly requires innovation. Companies should consider adjusting their systems, products, and processes to help achieve sustainability goals. Recognizing that not all sustainable innovation can be achieved in-house, it’s recommended that companies outsource the technologies and services they need to strengthen their sustainability practices.
When it comes to clean technology, Canada possesses a large pool of both established and emerging expertise, as evidenced by the presence of 11 Canadian companies on the 2021 Global Cleantech 100 list of the most innovative and promising clean technologies. Aligned with our 2030 strategy, EDC’s focus is on building our portfolio in high-growth sectors including agri-food, clean technologies, advanced manufacturing, and digital industries. We’ll also continue to focus on resources of the future, connecting global companies with advanced and clean technologies developed in Canada that are integral in supporting the transition to lower carbon operations. More information on Canadian capabilities can be found here.
No Better Time to Prioritize ESG
In today’s business climate, long-term success is tied to how well a company can integrate ESG into its operations and culture. It begins with improving awareness of and implementing strong ESG practices that align with international expectations. To play its part, EDC is making a meaningful contribution by working and supporting companies that match its values and strive for a more equitable and cleaner economy.