Balancing an export equation: doing well while doing good
November 16, 2022
Exporters must become more environmentally and socially responsible as Canada struggles to remain globally competitive in the face of climate change, says the president and CEO of Export Development Canada (EDC).
By accepting “the imperative” of a low-carbon future, Canadian exporters can help Canada’s economy transition towards it, boost their bottom lines and fight climate change, Mairead Lavery told a Greater Vancouver Board of Trade luncheon in late September
“It’s essential for business [to embrace environmental and social governance] because that’s what consumers are interested in today,” she told Research Money following the event at a downtown Vancouver hotel. “They’re interested in products and services that have more to them — a purpose behind them — and that have the right values in how [products] were produced or manufactured.”
Canada must grow its exports and expand its economy, “but not at all costs”, said Lavery, noting that growth must be sustainable and benefit all communities. She added that worker rights and rule of law give Canada a “value proposition” that exceeds that of other energy producers, although the country is challenged to get such products to market.
Federally owned, EDC serves as the nation’s export credit agency, with a mandate to boost international trade and Canada’s global competitiveness.
Inflection point reached
As of 2018, Canada’s share of global exports had dropped to 2.3 percent — last among OECD countries — from about four percent in 2000. That drop represents a loss of $150 billion in economic potential each year.
Bridging that gap has become EDC’s top strategic priority, albeit a long-term one. The organization has adopted a strategy designed to help Canada regain its standing as an international trade leader and build a stronger economic future for all Canadians.
But over the past four years, other crises have emerged — including a reckoning of Canada’s historical relationship with Indigenous peoples, issues surrounding the Black Lives Matter movement, and the COVID-19 pandemic — and addressing climate change has emerged as a primary policy objective.
According to Lavery, as of 2021, EDC now does more business — $6.3 billion — in clean technologies than in the traditional oil and gas sector ($4.4 billion). The group is aiming to facilitate more than $10 billion in clean-tech deals by 2025.
“We truly are at an inflection point,” she said. “The economy and the climate have become opposite sides of the same coin. The catch is, we do not have the luxury of tossing a coin to decide which challenge we will manage first. All business decisions truly are climate choices.”
“We do have to use our resources”
While trying to boost clean-tech exports, EDC has adopted a sustainable-finance strategy. The agency has tied its loans and financing agreements with specific climate-related performance conditions, based on Task Force on Climate-Related Financial Disclosures (TCFD) and Partnership for Carbon Accounting Financials (PCAF) guidelines.
The TCFD is an offshoot of the Financial Stability Board, an international body that monitors the global financial system and makes recommendations related to it. The PCAF is a global financial-industry partnership that promotes the harmonious assessment and disclosure of greenhouse-gas emissions associated with loans and investments.
Since 2018, EDC has issued more than $2 billion in green bonds designed to mitigate climate change. Earlier this year, Lavery said, the agency pledged to reduce its support of upstream oil and gas production by 15 percent by 2030 and shift three per cent of its support for oil production to natural gas. EDC has also partnered with the Bank of Montreal to deliver $500 million in loans to help carbon-intensive industries transition to “more sustainable businesses.”
But Lavery said fossil fuels, which account for 20 percent of Canadian exports, will play an “incredibly important role” in the global energy transition. And Canada has a role to play in it.
“We do have to use our resources,” Lavery told the audience.
The country must get its liquefied natural gas (LNG) into global markets to replace coal, she contended. She also called for more exports of metallurgical and thermal coal, which the country has in abundance, for use in a sustainable way.
Although Canada cannot immediately export fuels to offset an energy shortage linked to Russia’s invasion of Ukraine, this country’s resources “can play a role in a different future in Europe and in different parts of the world.”
She said EDC is working with its oil and gas customers to help them reduce their emissions and improve their environmental performance. Oil and gas companies are required to sign up for TCFD reporting.
Lavery told Research Money that “there could be a marriage” whereby EDC’s clean-tech clients support its oil and gas customers. During the luncheon and the interview with Research Money, she indicated that EDC also wants to support Canadian critical-mineral mining companies operating at home and abroad, as well as help Indigenous communities benefit from critical-mineral mining on their lands.
“Some [Canadian exporters] are looking to build facilities abroad,” she said. “We will help them financially with that.”
Mixed reviews and tacit support
Luncheon attendee Brad Liski, CEO and co-founder of Tru Earth, a Vancouver-area zero-waste household cleaning company, welcomed EDC’s plan to reduce financial support for the oil and gas sector.
“To hear EDC understand that there needs to be money put towards [dealing with the climate emergency], and taken away from others, the fossil fuel industry, is what we need as inhabitants of this planet,” he said.
But Liski, whose firm received a capital investment from EDC, wanted to underscore and build on Lavery's comments about how environmental and social good deeds can boost an exporter’s bottom line. He said his company has demonstrated that an environmental firm can indeed be profitable.
“We’re living proof that corporate responsibility, environmentalism, and capitalism can co-exist,” he insisted.
Founded in 2018, Tru Earth produces laundry, toilet, and other cleaners, consisting of sheets in envelopes rather than liquids in jugs. Lisky said Tru Earth generated about $50 million in revenue in 2021, and now markets its products in 78 countries. The company has also rejected a buyout offer from a larger U.S. player.
“The more you believe in the good, the better and faster you will grow,” he said.
For her part, Lavery observed that EDC has received a mixed reaction to its sustainability efforts.
Some companies are fully invested in the energy transition and changing their business models. But others are not convinced that they have a role to play, and some are concerned about how and when to begin.
“There's always going to be some companies that only go on to adopt [environmentally sustainable practices] based on regulations,” she told Research Money. “And then, as I said, there’s the first movers — who are actually going to go there because it's the right thing to do.”