Why it’s time for Canada’s private companies to act on ESG

Many of Canada’s private companies are leaders in creating value for the communities in which they operate. They tend to be purpose-led and are accustomed to embracing philanthropic causes, making environmentally sustainable business decisions and inherently wanting to do the right thing—helping to leave a positive legacy for future generations.

But environmental, social and governance (ESG) is reframing how we conceptualize value. One-off and standalone initiatives are no longer sufficient to meet the rapidly evolving expectations of your customers, employees, investors and other stakeholders. This seismic shift presents a timely opportunity for Canada’s private companies. By drawing on your inherent strengths and sense of purpose, ESG can be integrated into all aspects of your business—including strategy, reporting and transformation plans—and unlock new sources of short- and long-term value.

Looming pressures

Many private companies already recognize this opportunity, particularly when it comes to attracting and engaging customers. But they’re also falling behind in certain areas. Consider the following results from our 25th annual CEO Survey:

• 50% of respondents from Canadian private companies with less than 500 employees said customers choose their products or services because of their company’s values at least some of the time.
  
• But only 7% of those same private companies have made a net-zero carbon emission commitment, compared to one-third of large public companies.
  
• And less than a quarter (23%) said encouraging diverse perspectives in decision-making was an important way of building greater trust with employees, compared to 45% of large public companies.
  

These differences are understandable. Private businesses don’t—yet—face the same level of ESG scrutiny as public companies from regulators, shareholders and investors. This can make it harder for private companies to see the return on their sustainability investments. But that’s starting to change. For example, large organizations are increasingly reviewing the ESG credentials of vendors in their supply chain, leaving sustainability laggards at risk of being shut out. And, elsewhere, investors overwhelmingly say they consider ESG to be an important factor in their investment decision-making.

Where to start

But ESG is about more than just compliance or doing the bare minimum that’s required to remain relevant. The opportunities are much bigger. By acting now, private companies can differentiate their brand and build trust in a way that makes their business more resilient, accountable and offers sustainable impact to all stakeholders.

Private companies’ agility and freedom from the pressures of the quarterly reporting cycle creates a competitive advantage. They can move quickly and experiment while working toward long-term ESG goals. Nevertheless, knowing where to start can still be a challenge. Most companies have multiple opportunities to make an impact on different sustainability metrics. While every business will have their own starting point on their ESG journey, private companies can frame their initial approach around several key steps:

• Assess what you’re already doing. Few companies are actually starting at ground zero. Identifying existing initiatives such as waste reduction policies, supply chain standards and ethics guidelines, for example, can be the first step toward a more comprehensive approach to ESG while also providing your team with a feeling of early momentum.
• Identify threats and opportunities. Undertake an ESG materiality and risk assessment to help recognize where you can make the greatest impact, both for society and your business.
• Talk to your stakeholders. Understand what’s important to your customers, employees and investors, and consult your advisory board. This helps focus your efforts on areas that will create the most value for your specific business.
• Define your ambitions and goals. Once your vision is in place, work backwards to develop a roadmap to get there.
• Set targets. Clear objectives help you measure the impact of your efforts and are an important part of transparently reporting your ESG performance.
  
  

Now’s the time to connect the dots

Private business leaders who develop a credible approach to ESG have an opportunity to create sustained business value on several fronts. You’ll have an edge in recruiting and retaining top talent that’s increasingly looking to work for organizations making a positive contribution to society. You’ll see improved costs of capital as well as a stronger company valuation should you pursue external investments or divest part of your business. And you’ll be better positioned to adapt to future sustainability requirements from regulators and business partners.

ESG can help private companies live their purpose in all aspects of your operations, from delivering products and services to engaging employees to your broader impact on society. You’re likely already doing more than you realize. Now’s the time to combine your initiatives and ambitions into a comprehensive ESG strategy and execution plan that makes sustainability a competitive differentiator and source of long-term value. Demonstrating that you’re doing the right things that matter builds trust among all your stakeholders and creates the enterprise value that will allow you to deliver the sustained outcomes that will form part of your legacy.

To talk about how your business can get started, reach out to start a conversation.