As someone who runs a mid-sized Canadian company, Lina Bowden says that while perhaps it’s not easy being green, these days it’s absolutely necessary.
“We did a huge pivot when the pandemic started,” says Ms. Bowden, chief financial officer and partner at CY Health, a division of Carmina de Young in London, Ont.
“Before the pandemic we were a design house specializing in sustainable fashion, selling high-end clothing in about 30 stores and boutiques across Canada. Within a couple of weeks after it started [in March, 2020] we switched to manufacturing isolation gowns for front-line workers,” she says.
The gowns ordered by government agencies and health care providers were disposable, but CY Health aspires to more stringent environmental standards. “So we pitched to NGen, an industry-led non-profit funding group, and we received funding so we can recycle used gowns and make new ones out of the same material – to be part of the zero-waste, circular economy.”
CY Health’s eco moves may be among the more bold and deliberate steps taken by Canadian mid-size firms to be greener and more socially aware, but the company is far from alone. Small- and medium-sized enterprises (SMEs) are learning that they face the same imperatives as large corporations to meet increasingly stringent expectations about their environmental, social and governance (ESG) policies.
“There’s increased pressure from stakeholders to be more transparent and accountable on ESG performance no matter what the size of the company is,” says Roopa Davé, partner for sustainability services at KPMG in Canada.
“Our latest global CEO survey found that the leaders of 78 per cent of SMEs in Canada said that the pandemic has increased their companies’ commitment to make a difference on social and environmental issues,” Ms. Davé says.
The pressure comes from all sides, according to the KPMG 2021 Global CEO Outlook Survey, released in September. “Customers, employees, investors and other stakeholders are increasingly expecting companies to make more socially and environmentally responsible decisions,” it says.
To some extent, tougher regulations are pushing mid-sized firms on ESG policies, says Brad Pilgrim, co-founder and chief executive officer of Parity Inc., a Toronto-based mid-sized firm that provides energy management service software for residential landlords.
“In New York City, for example, a new law [which took effect last year] requires building owners to post their building’s energy efficiency rating. It applies to all buildings over 25,000 square feet,” Mr. Pilgrim says. Low-graded buildings that don’t improve their energy use will eventually be fined, he explains.
These kinds of regulations not only show residents how environmentally sound their building is – as well as the landlord’s company – they also signal to investors whether companies are paying attention to ESG principles. “In the real estate sector there are several scoring systems now being used to measure how companies are doing on ESG,” Mr. Pilgrim says.
The social and governance aspects of performance are also increasingly important to mid-sized firms, Ms. Bowden says. Banks, venture capital firms and other private lenders all want to see where companies stand on issues such as gender parity in the workplace, board diversity and transparent governance, she says.
“Board representation is a rubber stamp issue now. When you go to banks or credit unions to look for funds they look for gender representation and diversity and have checklists to measure performance,” she says.
“All lenders ask questions about ESG now, because better ESG is perceived as less risk,” says Francisca Quinn, president of Quinn and Partners, a Toronto-based management consultancy that specializes in advising companies on ESG practices. Sustainability linked loans tied to ESG performance are on the rise; since the first linked loan was made in 2017, US$122 billion has been issued globally.
Climate and environmental risks are only part of the threat to companies that lag, Ms. Quinn adds. There’s greater scrutiny of policies across the board, making it more important than ever for mid-sized companies to put their best foot forward.
“There’s a generational shift toward demanding stronger ESG performance, for example, in family offices that look at investment opportunities. Younger family members and their boards are concerned about their own legacy,” she says.
Business-to-business customers also now want to know about how green their suppliers’ supply chains are, Ms. Quinn adds. “Retail customers are big drivers of ESG too. Consumers are looking for progressive companies with sustainability-labelled products. ESG is a differentiation opportunity for businesses.”
The steps that mid-sized firms can take to boost their ESG credentials are relatively straightforward, Ms. Quinn says.
For a start, they can focus on quick wins such as making their business practices more energy efficient. Some of these savings can be achieved easily, for example, by cutting waste and retrofitting factories and offices.
Medium-term ESG moves can include focusing on employee well-being, especially since work patterns have shifted during the pandemic. Employee-focused moves don’t have to be super costly; they can include programs that encourage and support volunteering in the community, for example.
In the longer term, Ms. Quinn says companies should look at ESG steps that will be lasting and also improve the company’s brand. Reviewing packaging to reduce waste, switching to electric vehicle fleets, and seeking peer and industry recognition for good ESG practices can all help the bottom line over time.
“It’s always a challenge for small and medium-sized businesses, so you have to truly believe that by making these ESG decisions, ultimately you’re going to sustain your company,” Ms. Bowden says.