EDC: Understanding ESG risks to take on opportunities

Lorraine Audsley, SVP and Chief Sustainablity Officer at Export Development Canada, looks at how ESG is a growing part of EDC’s value proposition to Canadian companies.

There’s a one-liner we like to use to explain to Canadian companies what Export Development Canada (EDC) does: ‘We take on risk so you can take on the world’. I like this way of putting it because it conveys that we can help companies navigate the risky waters of global markets. That we can equip them with the financing, insurance and knowledge needed so they can focus on driving growth, and not the changing economic currents or swirling trade winds around them.

The ascension of environmental, social and governance (ESG) considerations into the global business context has further added to the complex nature of trade. And for good reason. The urgent need to address climate change and worsening social inequities demands this change.

It’s on EDC then, and on me – as EDC’s new Chief Sustainability Officer - to understand those risks and make that expertise part of our value proposition. This is how we can maximise opportunities for Canadian exporters. We will be clear about the types of business we can’t do – the lines we won’t cross; but in areas that we consider to be high potential, we will dedicate resources to understanding the risks present there, along with ways to mitigate them.

Here are three strategic areas where EDC is doing exactly that:

Market: Indo-Pacific region

The Indo-Pacific region will play a critical role in shaping Canada’s economic future. It represents the second-largest trading bloc for Canadian goods and services and is home to six of Canada’s top 13 trading partners, including India, Japan and South Korea. Asian markets offer Canadian companies the greatest net-new growth potential and the best opportunity to increase Canadian trade performance, especially in the agrifood, cleantech, advanced manufacturing and infrastructure sectors.

At the same time, however, we recognise there are ESG challenges to doing business there. We know that the region’s share of global emissions is increasing rapidly, and that coal is a big part of its energy mix. We also know that unemployment is often high and wages low, making for a vulnerable workforce. And, we’re aware that the risk of financial crime is elevated in certain parts of the region.

But instead of avoiding the market, we’re committed to understanding the risks that are present there so that we can help our customers navigate them and furthermore, so we can best use our leverage to drive improvement. To do that, we’re increasing our presence on the ground and hiring locally-engaged ESG experts. We’re also identifying like-minded local partners and international buyers to work alongside and help build Canadian presence in the market.

The goal is a long term, win-win situation. We know that the world – and this region – needs Canada’s innovators. Canadian cleantech can help speed the energy transition, agrifood products and technology can help feed the fast-growing population, and quality Canadian suppliers can help strengthen the supply chains of Indo-Pacific-based buyers. By supporting our exporters to grow in this region, we’re also bringing key benefits that only our exporters can bring while, at the same time, pursuing ESG goals.

Sector: Oil & Gas

EDC has committed to achieve net zero emissions by 2050, a commitment we'd hope to see from all Berne Union members who haven’t yet done so. And while we’ve successfully reduced exposure to our most carbon-intensive sectors over the last few years, our focus now is on enabling Canadian businesses, including those in the oil and gas sector, to position themselves for sustainable growth by investing in their ESG performance.

While the oil and gas sector accounts for a significant portion of Canada’s emissions, it is still critical to Canada’s economy and is expected to remain so during the transition to a low-carbon future. So instead of just withdrawing from the sector, we believe that EDC can play a more impactful role in the energy transition by using our leverage as a financier to influence oil and gas customers to take greater climate action.

We’re taking a proactive approach to helping these customers understand and mitigate ESG risks, seize opportunities and innovate to reduce their emissions and environmental impacts. One example of this is how in 2021, we started requiring that customers in the sector wanting our support had to commit to disclosing climate-related information that is aligned with the Task Force on Climate-Related Financial Disclosures’ (TCFD) recommendations. This increases transparency related to these companies’ emissions and emissions-reduction plans, while also increasing accountability.

EDC is also providing transition-oriented financing and expertise to oil and gas customers as they transform their business models and adopt alternate and lower carbon energy sources (for example, biofuels, hydrogen, renewables).

Segment: Medium-sized companies

One major decision that came out of EDC’s 2030 strategy was that we should focus innovation and resources on serving medium-sized companies – those that bring in between $10 million and $300 million in annual revenue. We believe that by helping more of these companies grow into global champions, we’ll maximise our impact on Canadian trade.

But we know ESG needs to be an integral part of supporting this segment. If we are going to help these companies in a meaningful way, their growth must be based on responsible business principles. With that in mind, we’ve started to experiment with ESG advisory services to directly support medium-sized customers. This isn’t ESG 101 – that’s already available through other service-providers. This is support founded on one of EDC’s specialties – our knowledge of trade and international risk.

We’re helping companies increase their understanding of human rights and financial crime risks in challenging markets, or advising them on how to properly assess ESG risks present in their supply chains, to provide a couple of examples.

Critically, we also explore ways to mitigate these risks, and use EDC’s leverage to influence companies to strengthen their ESG position. The plan going forward is to scale this advisory program so that it can help more customers across different segments.

Risk to opportunity

The key idea I hope to be getting across here is that the more you understand risk, the more you can take. There are lines that absolutely can’t be crossed, and if you look at our latest integrated annual report, you’ll see that in 2022 we turned down 35 transactions due, at least in part, to ESG risk.

But whether it’s a company breaking into the opportunity-rich Indo-Pacific market, an oil and gas company transitioning to cleaner forms of energy production, or a medium-sized company looking to launch from $100 million to $500 million in revenue fuelled by international expansion – ESG risk will factor into their growth.

EDC is doing what it can to ensure those companies can make the most of opportunities and do so in ways that are beneficial for the Canadian economy, but also the planet and its people.

I'd be pleased to engage personally on these matters with other heads of sustainability across the Berne Union membership, and invite you to reach out at officeofthecso@edc.ca.