Corporates and investors are navigating an increasingly complex and dynamic landscape of environmental and social factors that are critical to our long-term prosperity.
Geopolitical instability and rising interest rates have created headwinds. However, despite these macro challenges, Lindsay Patrick, Head of Strategy, Marketing, and Sustainability at RBC Capital Markets, opened the Sustainable Business Conference on an optimistic note: 'There continue to be reasons to be positive, as the solutions have never been so close.'
Here are the top takeaways from this year’s conference.
1. A shift in the practice of ESG
With ESG under attack from all sides, academic and sustainability expert, Alex Edmans, Professor of Finance at London Business School, sets out a vision for a fundamental shift in the practice of ESG towards a more rational approach to long-term value creation, as well as a better alignment of corporate sustainability objectives and positive business outcomes.
“Then the rational element describes how you get there, the approach – which is considering the evidence using not only quantitative factors but also qualitative ones, acknowledging the existence of trade-offs and diminishing returns.”
He suggests that companies looking to reset their corporate purpose should ask themselves two questions. The first being how their purpose will change business decisions; the second is whether they would still pursue their purpose if they could not communicate it.
“This makes sure you are doing something for the right reasons – you think it’s going to create long-term value, rather than to get brownie points or tick boxes,” he explained.
2. The quest for sustainability comes with trade-offs
Maple Leaf’s ambition to become the world’s most sustainable protein company didn’t come by chance, but by design. “We realized we were not going to meet our science-based targets without very strategic initiatives,” Michael McCain, Maple Leaf’s Executive Chairman, remarked.
But the quest for holistic sustainability can come with trade-offs. Maple Leaf had to make tough decisions on competing priorities, such as the investment in a temperature-controlled poultry facility that would increase the company’s carbon emissions. McCain noted: “We ultimately came to the conclusion that we’d have to find the emissions reductions someplace else, because we were going to look after the animals in our care.”
He calls for more education for consumers on the value of decarbonization. While customers would pay for certified organic meat or recycled packaging, he reasons: “They won’t pay a nickel for zero carbon. What’s the value proposition? I think it needs to be made clear.”
3. AI design must take into account privacy and security
As AI adoption accelerates, it is crucial to prioritize data privacy and security to safeguard individuals and organizations from potential risks. The conference’s panel discussion on the social and governance implications of AI came hot on the heels of Canadian Prime Minister Justin Trudeau’s announcement of $2.4 billion investment in the sector.
Ann Cavoukian, of Global Privacy and Security By Design, welcomes the news but expresses concern that it does not include privacy measures. Noting the EU’s new AI Act, and the U.S. intention to follow suit, she hopes Canada will also promote AI development in a way that safeguards privacy.
Foteini Agrafioti, Chief Science Officer at RBC and Head of Borealis AI, RBC’s research institute, revealed how its own engineers build in privacy safeguards to each new development. “It doesn’t come as an afterthought; you design that way from the get-go,” she noted.
4. Innovative financing can accelerate real economy decarbonization
A decade ago, Derek Neldner, the CEO and Group Head of RBC Capital Markets, observed a change in his clients’ approach to climate and the energy transition. Instead of questioning the rationale behind achieving net zero, attention had shifted to implementation strategies.
Today, he notes, those long-term sustainability commitments remain intact. However, there is a more nuanced perspective on the energy transition. “People better appreciate the complexity of it, and the balance between sustainability, affordability, and energy security.”
For Deborah Orida, President and CEO of PSP Investments, one of Canada’s largest pension investment managers, macroeconomic factors have triggered a more pragmatic approach to investing in the energy transition. In this more difficult investment environment, understanding the whole economy transition and integrating sustainability considerations can help add value after an investment is made.
Speaking about PSP’s mandate to manage the $15 billion Canada Growth Fund (CGF), Orida notes there is a funding gap in Canada for growth capital. Addressing the capital-intensive nature of the energy transition is a key focus area for CGF.
Since PSP was appointed, three deals have been announced, including a $200m investment in carbon capture company Entropy coupled with a fixed-price carbon credit purchase agreement.
“We weren’t sure when we took the mandate how big the opportunity set was going to be,” Orida admits. “But there’s a lot, so we’re excited about it.”
5. Economic reconciliation rests on the foundation of long-term partnerships
Major energy and infrastructure projects in Canada now routinely feature indigenous communities as equity partners.
These projects are most likely to be successful when there are partnerships built with the relevant Indigenous communities long before there’s an actual project. “We have to ensure we’re not just putting reconciliation in the Indigenous Relations team or the Diversity & Inclusion team – it has to be across the whole organization,” remarked Tabatha Bull, of the Canadian Council for Aboriginal Business.
Ontario Power Generation’s Heather Ferguson agrees. Having traditional knowledge and input from communities can be of great benefit over the lifecycle of a project, from concept building through to land reclamation, because these communities are the ones with the most intimate knowledge of the land, water and animals in the area.
Ferguson outlined the company’s progress in its aim to return $1tn of wealth to indigenous communities over a 10-year period. There are many facets to OPG’s commitment, including equity partnerships, but also procurement from indigenous businesses and employment of Indigenous peoples. Ferguson acknowledges the challenges to achieving this plan, but also the importance of being ambitious.
