ESG: A Journey to Strategic Advantage

Mary Larson: The imperative is all about financial materiality and business success. We’re seeing
widespread acceptance that ESG matters financially to companies of almost
any size in any industry. This gets right to the core values that underlie many cannabis companies around wellbeing and making a difference.

Governance is becoming more sophisticated: people are paying more attention to the management and board levels. Banks and other financial institutions are also paying a lot of attention to ESG.

Chantel Popoff: The first foundational pillar for ESG at Valens was trust. We were one of the only companies that focused on B2B versus B2C early on. We were a toll processor primarily, and we needed to ensure partners could trust us. This led to our second ESG pillar, which was accountability. We wanted to ensure expectations were clear and that we were being accountable to our staff, the partners we were doing business with, and the customer. Last but not least, we focused on the importance of consistency — ensuring our partners could rely on us to deliver the exact same product time and time again.

Tamara MacGregor: This is a rapidly evolving industry. We’ve been focused on pushing companies forward. Now we have an opportunity to take a step back and prioritize ESG. For us, it’s looking at establishing those foundational elements Chantel talked about. Governance is extremely important: everyone is looking at how we can make strides to do better.

Packaging is something that’s critical to this industry; it touches on a number of things, most importantly climate change. Investors are taking a closer look at the cannabis industry; I don’t think we have a free pass anymore. When you have companies like BlackRock issuing letters to CEOs saying, “Take stock and see that you’re making progress, otherwise we’re not going to invest in you,” we have to listen.

Deborah Rosati: A critical element or imperative is to build trust with investors, and that trust begins with good governance structures. As companies grow, and as this industry evolves, it’s important to build those foundational governance structures. And one of the things that is key is ensuring you have independence on your board. I think there’s going to be a lot more expectation, as the industry evolves, to have good governance.

Chantel Popoff: I think the cannabis industry, more than any other, has taken this “expedited” path to accountability. This has sort of catapulted us into the importance of ESG and taking on ESG initiatives for the right reasons and from the top down.

From a company standpoint, I think we’ve done a very good job of focusing on accrediting bodies and initiatives that were more streamlined or parallel to the pharma space. We had a lot of folks coming out of pharma and that’s really helped us because we had the right thinking and appreciation for those different controls, which made it a lot easier for us to implement them.

We’re really focused, from a lab and manufacturing standpoint, on being third-party organic certified and making sure we are accredited to the ISO/IEC17025 standards.

Tamara MacGregor: It is a large undertaking and very daunting. When we set out, we looked for examples — other cannabis companies in North America that had issued CSR reports so there was something for us to benchmark against. There was nothing. So we had to look at adjacent organizations. The great thing is that everybody in the industry recognizes the importance of doing more and doing better.

I believe there is this amazing opportunity for Canada to be a leader when it comes to ESG and CSR: to set that benchmark and to set a precedent for North American and global companies as things progress and the industry grows.

Deborah Rosati: I think the industry is attracting professionals from other sectors to bring in good practices, and those are foundational. Globally, we can be leaders. I think one of the areas where we can have a great impact is diversity…there are lots of different ways to build in diversity.

 Mary Larson: You need to think about the aspects of ESG that are important and not just binary yes or no choices. If you decide you’re going to do something important around supply chain integrity or making sure your manufacturing processes are using less energy, and you’re making real progress along those lines, people will start to pay attention. I would like to see more undertaking of big things like this going forward.

Chantel Popoff: I think there’s a huge opportunity to have [ESG] become part of your culture. That’s one of the things we’ve really focused on at Valens: making sure we’re hiring people who share our beliefs around ESG perspectives and the fundamentals behind then. Because at the end of the day, we then know our employees will be aligned with our strategy and support the decisions we make. We know that shareholders and investors will be able to see the passion behind what we do.

More importantly, this has enabled us to build a culture where the employees trust us enough to stick with use through change. The industry moves so fast, while regulators are just trying to keep up. If you really build a culture behind it, your employees will not only provide feedback, but support you through pivot and turn movements.

Tamara MacGregor: A company can do and say a lot of things as it relates to ESG, but if your employees don’t buy in, you’re not going to be successful. We implemented values and try to use them as guiding principles from a business perspective. Consumers are incredibly important to us, and we now they’re more likely to purchase a product from a purpose-drive company. You shouldn’t be doing it just because you want to sell more product, but because it’s the right thing to do. If it’s not coming from the top down, you’re not going to be successful.

Deborah Rosati: There are three Ps: purpose, passion, and presence. As a tone at the top, how do you set that purpose? What’s your culture? What’s your imperative?

We’ve talked about trust and accountability, codes of ethics, and independence: those are your DNA as a company — your purpose — and this leads to your strategic advantage and your differentiation. Passion is how you are in the marketplace. If you’re passionate about being a leader, it’s going to come through and people are going to come to you because they believe in you and trust you. Presence is your position in the marketplace. Are you a leader or a follower? It’s how you show up and keep moving forward.

Deborah Rosati: ESG isn’t just about mitigating risk; there are lots of opportunities. From a board perspective, you have an oversight role and you’re going to look at material ESG factors. But you also want to look at strategic opportunities that can be differentiators for the company.

What are the company’s basic governance practices compared to others in the industry? How are the company’s material ESG risks and opportunities explored, identified, and integrated? Do you have someone responsible for ESG from an executive perspective?

Where does the board put ESG from a committee perspective? The audit committee? The strategy committee? I think ESG is evolving, and we may in time have an ESG committee.

Mary Larson: We did some research last year, supported by the Institute for Corporate Directors, Governance Professionals of Canada and the Rotman School [of Management]. We talked to 55 board members across the country. There’s a real shift in how board members are thinking about their responsibilities. They really want to know what’s going on with respect to how employees are being treated: Why is turnover going up? Do we have any problems that could affect the safety of our customers or our employees? And they want measurement of this on a regular basis.

They really care about this and about the sense of purpose and culture. Where do you put the responsibility at the board level? Those directors said it goes to the whole board and all the committees.

Tamara MacGregor: Governance is probably top of the list for the cannabis industry, and there’s been a lot of progress. Diversity is something that we looked at a while ago. We set a goal of reaching 30 percent gender diversity on our board and in our C-suite, and we’ve reached and maintained that. But diversity is more than just gender and our company is looking at the composition of our board and executive team to ensure that the company as a whole is reflective of the world.

Pay equity is also something that the board looked at, making it a priority to bring in a third party to make sure we were being fair across all our workforce. It’s difficult. You want to address everything. The board and executive team need to make that decision in terms of what’s the priority and where can we make the biggest impact right now.

Chantel Popoff: Our board has done a phenomenal job of not only holding us accountable, but taking two different approaches. One is looking at everything from a risk assessment basis: Let’s do a full risk analysis, not just from our own narrow lens, but [bringing in] a diverse group of third-party eyes to dig into some of the gaps.

I think the board’s done a really great job of holding us accountable — to take that step back, see the forest for the trees, see what’s actually happening here in the day-to-day and the opportunities to do better. Our board has been very good at encouraging us to lean on them.

Chantel Popoff: There’s two imperatives: make sure your employees are part of your strategy, and make sure your strategy is sustainable long-term. Instead of having flash in the pan ideas, make sure those ideas can be rolled out throughout different functions, in different verticals, within your organization.

Tamara MacGregor: It can be daunting, but you just have to start. Once you start the process and work through it, that’s when you’re able to identify the things that differentiate you from your competitors.

From a people perspective, [the panel] has talked about accountability, and that’s so important. We’ve established a leadership council [with members] from each of our subsidiaries, operational facilities, and business units. They’re responsible for ensuring any goals we set are met [and] any risks that come through are identified.

Deborah Rosati: I’ve been an advocate for good governance in the cannabis industry, and I’ve had such pushback from people who say, “It’s not mainstream. What will my kids think? I can’t cross the border.”

There are so many good people out there that can bring good governance to [the industry]. I really hope they see how they can have an impact, how we can be leading from a global perspective.

Mary Larson: Think about the things that are most important now to your business. You don’t have to be perfect. But if you start somewhere, and you start [with] what’s important from an ESG standpoint, then you can say, “let’s just get on the road and see where we can go from there.”

As you’re doing this, and biting off more, and thinking about how you’re going to report on things, and engage stakeholders, and the governance model you’ll need, you can invest as you go along.