Fireside Chat: ESG and the Board – EDC’s ESG journey

EDC is a crown corporation with the mandate to help Canadian companies succeed in international trade by providing various services, including knowledge, financing and insurance. ESG has been part of the vernacular at EDC since the early 90s and the organization has had an ESG Advisory Board for over 20 years.

In 2014, EDC was the first financial institution in Canada to release a green bond. It was one of the first export credit agencies and financial institutions in Canada to sign up for the Task Force on Climate-Related Financial Disclosures, which has developed a framework to help public companies and other organizations disclose climate-related risks and opportunities. EDC was also the first export credit agency in the world to announce a net-zero target.

Justine explained that the ESG journey is one of stepping from stone to stone. “You have those building blocks, and you continue adding to those building blocks. At one point you turn around and you say wow.”

EDC’s board and executive leadership team are committed to ESG, across all of its dimensions. Justine explained that she discovered that working in the ESG world is like learning a new language. Once board members, leaders, and management understand that language, integrating ESG principles into your day-to-day work becomes much easier. EDC now uses an environmental and social risk management framework to assess ESG risk for itself and its clients, and the board uses it to ensure that its decisions make sense for the sustainability of the organization and those it serves. This year, all board members and some leadership members took the Competent Boards ESG course, an intensive, globally-focused undertaking.

Strategy and ESG

I brought up the fact that there is still a mystery around how to link strategy to ESG. Leaders ask whether ESG is going to be important to their business. They want to know if ESG is going to give them a competitive advantage—or involve serious risk to their business. EDC strongly believes that helping companies address ESG matters will make a big difference in ensuring resilience and success.

An example of how EDC incorporates ESG into its work with clients can be found in the renewable energy sector. Justine cited the fact that there is a huge opportunity to export solar panels. However, 85 percent of the raw material in the panels comes from a region in China known for forced labour.

If a company came to EDC looking for financing for a great opportunity related to solar panels, EDC would make them aware of the issue and work with them to improve the situation or find a new source. “The likelihood of EDC eradicating forced labour is highly unlikely. Our role is to see how we can improve it,” said Justine.

Innovation and ESG

ESG is making a difference in EDC’s innovation process as well, and Justine works with her service delivery colleagues to ensure that ESG is core to the development of many of its new products. For example, the organization has just launched a new bond framework that has an ESG component as well as a transition financing component. She emphasized that bringing innovation through an ESG lens to products must be done in a way that aligns with the lines of business, as they are the experts.

“You need your expertise, but you need to be open-minded to do it different,” she said. “And the partners that see that are quite willing to collaborate and co-create.”

We at MNP have been supporting her innovation work by examining the value chains of economic sub-sectors from an ESG standpoint: understanding at a more granular level, by sub-sector, the demands of global customers, and pinpointing where potential issues related to emissions, waste, use of chemicals, labour practices, or other factors could limit the ability of companies to export successfully. These insights can help EDC create more innovative and powerful services, often with its partners, and allow them to play a role in increasing the sustainability of entire sectors, rather than tacking sustainability one company at a time. 

Getting the board on board

When Justine took on her sustainability role, she and the board discussed whether it would make sense to have an ESG Committee. This is an issue that has confounded many boards. The EDC board concluded that ESG is a highly strategic matter and was therefore the responsibility of the entire board. At the same time, they updated the terms of reference of every committee to include an ESG component. The principle is that once everybody on the board is fully engaged then you can be specific about which responsibilities fit where.

Keeping a strong connection

A key reason for EDC’s success with ESG is that Justine reports to the chief business officer. “It’s important for me to be plugged in there, working hand in hand with the business,” she explained. She attends every board meeting and the board has separate sessions that focus solely on ESG—learning the language, understanding the science and making sure they’re all on the same page. ESG has become core to EDC’s values and they’ve become a leader in this area.

Justine pointed out that global standards are evolving and focusing on ESG is an opportunity for Canada. It provides a competitive edge for Canadian companies doing business internationally and boosts our already excellent reputation. “If you don’t adjust, you’re going to miss out on those contracts,” she said. “So go get your share of the pie.”