ESG in Canada: What the data tells us

Environmental, social and governance (ESG) practices are increasingly important for businesses that want to attract and sell to large organizations in Canada

11-minute read

Reducing your environmental impact, supporting your local community and employees, and bringing high standards to how you run your company are proving to be increasingly important to business success, according to a BDC study we released in March 2023.

We surveyed over 100 major buying organizations in the public and private sectors, and 1,251 small and medium-sized enterprises that supply large private- or public-sector companies in Canada.

They revealed that large buyers of goods and services increasingly want to work with sustainable organizations. This makes the shift to sustainability a must for businesses of any size.

The good news is that businesses that adopt ESG practices will reap the benefits. Not only will they see new business opportunities open up, but they will also find it easier to recruit and retain employees, and their access to financing and investment will likely improve.

What is sustainable procurement?

Investors and other stakeholders are increasingly requiring large companies to produce reports on their ESG performance. Across the world, the ESG reporting rate for large companies has increased from 18% in 2002 to 79% in 2022.

These new reporting requirements are encouraging large companies to include supply chains in their ESG performance reports. These companies will in turn pass on these ESG performance requirements to their suppliers, a practice called sustainable procurement (or responsible procurement).

Sustainable procurement is a process for acquiring goods and services that, in addition to reflecting quality and cost, also takes ESG criteria into account. This often takes the form of buyers asking suppliers to report on their ESG practices.

Sustainable procurement helps build a circular economy by reducing the negative environmental and social impacts of purchased goods and services throughout their life. It considers how a product’s lifecycle can have the least negative impact, from sourcing to after-use.

Examples of ESG criteria related to supply chains

Environmental	Social	Governance
Greenhouse gas (GHG) emissions reduction practices (energy and transportation efficiency, clean energy sources) Waste and water reduction Ecodesign/lifecycle analysis Biodiversity improvement	Diversity, equity and inclusion practices Community investments and employee volunteer program Social integration initiatives	Sustainable development policy Environmental and social risk management Sustainable development training

What ESG reporting are buyers asking for?

In Canada, 82% of major buyers now require their suppliers to meet at least one ESG criterion. Of those 18% of buyers with no ESG requirements for their suppliers, more than half (56%) were planning to start making requests within the two years following the November 2022 survey. The proportion of major buyers that will have ESG requirements for their suppliers is therefore expected to rise to 92% by 2024.

Our survey asked buyers what criteria they were asking their suppliers to report.

On the environment, reduced energy consumption was the most common reporting requirement. Other areas include packaging choices, improved waste management, reduced greenhouse gas emissions in shipping and the use of clean energy sources.

On the diversity, equity and inclusion (DEI) front, buyers overwhelmingly want to see reporting on diversity in their suppliers’ workforce. They have also been asking for information on their suppliers’ community investments and their support for employee volunteering.

As for governance, the majority of buyers told us that they requested information about procedures to manage environmental risks. Support for the mental and physical health of employees as well as procedures to manage social risks were among other governance criteria for which information was commonly requested from their suppliers.

Top 3 ESG reporting requests from major Canadian buyers

Percentage of major buyers requesting information on ESG criteria

Procedures to manage environmental risks

70%

Managers or employees from diverse backgrounds

69%

Reduced energy consumption

68%

ESG requirements should benefit Canadian suppliers

The use of ESG criteria in procurement should have a positive impact on the proportion of SMEs supplying large organizations in Canada. In fact, 41% of the major buyers surveyed indicated that the application of social standards to their procurement practices will increase the use of Canadian suppliers, compared to 25% who believe the opposite. This positive effect can also be observed for governance and environmental standards.

For example, large companies looking to reduce their carbon footprint will surely be interested in sourcing more locally to reduce the distance it takes to transport certain goods, one of the largest sources of GHG emissions.

Entrepreneurs welcome ESG requirements

ESG is being welcomed by a majority of Canadian business owners. In our survey, three-quarters of Canadian suppliers told us that they believe adopting ESG practices will benefit their business.

This is particularly true for entrepreneurs from diverse backgrounds. Members of the LGBTQ2+ community, people living with a disability, people under 45 years old, members of a visible minority, immigrants and Indigenous people were more likely to say that adopting ESG practices will benefit their business.

Proportion of suppliers that consider it beneficial to adopt ESG practices

Entrepreneurs who consider it beneficial to adopt ESG practices

Source: BDC, Sustainability survey of SME suppliers in Canada, November 2022; n=1,251.

Adopting ESG practices has tangible benefits

Suppliers that have implemented ESG practices tend to be more profitable compared to those who have not, albeit by a small margin This confirms the findings of a previous study showing that the most environmentally proactive SMEs generate higher profit margins and experience greater sales growth than those that are less proactive.

Proportion of companies who are profitable at different levels of ESG adoption

Source: BDC, Sustainability survey of SME suppliers in Canada, November 2022; n=1,251.

Overall, the adoption of ESG standards has a positive effect. It is likely to generate new business opportunities and allow companies to eventually grow their business volume. The impact is also positive for their employees, who generally view these changes positively, which promotes a sense of belonging. These businesses also find it easier to access financing and investment.

Implementing ESG practices also has a cost

While there are many benefits to adopting ESG practices, there is a concern about the increased administrative burden and operating costs of having to meet new standards.

Implementing ESG practices can require obtaining new certifications, documenting delivery processes and submitting proof that your business is meeting its obligations. This consumes staff time and sometimes results in external consulting fees.

Among the measures taken to meet ESG requirements, 31% of businesses have hired a specialist and 27% have consulted with external experts. One-quarter of suppliers have also hired external auditors to demonstrate that their practices meet the standards.

SMEs are answering the call

For Dionne Laslo-Baker, the owner of snack-maker DeeBee’s Organics, ESGs have been baked into her business. Her company has been moving toward plastic-free packaging and carbon-neutral status, giving back to the community with investments in female mentorship and female-led businesses, and spreading the word about ESG to inspire other business leaders.

She has created an initiative called DreamLauncher, which donates money to charities proposed by her team. Employees also get several paid days off a year for volunteering. Through DreamLauncher, the company has supported salmon restoration in B.C., LGBTQ+ organizations and an orphanage in Honduras.

“We’re not just a food company. There’s so much more about what we’re doing, why we’re doing it and how we’re doing it,” Laslo-Baker says.

Other ESG initiatives include using 100% solar-powered factories, composting food waste, reusing rainwater, offering employees stock options so they can participate in the company’s financial success and a strong commitment to employee diversity and inclusion.

Their ESG credentials have been recognized and were key to the company securing business with larger retailers such as Walmart and Costco.

NATIONS Translation Group has made adopting ESG criteria key to its recent restructuring and rebranding.

Their goals include promoting economic opportunities for Canada’s Indigenous communities, prioritizing contracts with Indigenous vendors and building an inclusive and diverse team. The firm also supports Indigenous organizations with sponsorships and donations, particularly those involving youth, and has been pursuing a zero-waste strategy in the office.

NATIONS has seen sales jump and says their new customers frequently mention ESG as the main reason for wanting to work with them. CEO André Palaguine cites as examples two contracts, one with a manufacturing company that was seeking an Indigenous-owned supplier with a solid ESG program and, the other, which translated into 34 Indigenous languages the address of a prominent international figure visiting Canada.

Their procurement successes have even led to a new business line, with NATION offering consultation services on how to plan and implement ESG.

Palaguine is happy to have made sustainable procurement part of his rebranding efforts. “Our employees are more engaged. And diversifying vendors has opened new possibilities for business.”

How to improve your ESG performance

For those who have yet to implement ESG practices, we offer a five-point action plan, below, and some important resources to get you started.

1. Set up a governance structure

Identify your key people, find out customer requirements and identify resources to support your efforts.

2. Evaluate your company’s biggest sustainability issues

Evaluate the most important ESG impacts of your business. The B Corp assessment is a good place to start measuring your environmental and social impact. And ask stakeholders what issues matter most to them.

3. Explore the range of actions you can take to improve

Examine how all your business functions could be improved for their social and environmental performance, ideally while also improving your company’s economic performance. Survey your staff, look at your competitors and see how suppliers might help.

4. Create your plan and act

Set simple and measurable objectives, know who will be responsible and what resources you will allocate, and identify key performance indicators to measure your performance.

Most important of all, list specific actions or projects needed to achieve your sustainability objectives. Determine who will be responsible and what resources you will need to allocate so that your plan is set in motion.

5. Perfect your approach

Review your progress and continue to identify new projects. Communicate your aspirations and achievements externally, and in job postings. Be authentic, accurate and transparent in your communication so as not to risk being accused of greenwashing.

Certification resources:

The edge you need to land large contracts

ESGs are taking their seat at more and more business meetings. They help close sales with large corporations and public-sector organizations, and give your employees something to get behind. Take a true stand on the environmental, social and governance aspects of your business and start putting forward your ideas.

Adopting ESG practices is also forward looking and an important step that will benefit not just your bottom line but also Canada’s environment and sense of social cohesion.

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