For SMEs, ESG criteria are more than just a way to clear their conscience. While they enable companies to be more in tune with their environment, they also represent a key strategy to develop business opportunities and pave the way for more sustainable growth.

In the future, the summer of 2023 will likely be remembered for its unequivocal demonstration of climate change. In Canada, forest fires caused more damage in a single season than in the previous ten years combined, a phenomenon repeated elsewhere on the planet with an intensity never seen before.

Meanwhile, employee-employer relations are being revisited as labour shortages take hold, with the public demanding ever greater transparency in corporate governance.

Although the pressure seems to come from everywhere, integrating ESG criteria is more within the grasp of SMEs than one might think. Sometimes, without even realizing it, companies are already taking concrete action that can make a significant difference.

Governments focusing on labour and the environment

Evidence that good ESG practices are becoming increasingly important is that the various levels of government are each acting in their own way to bring about change. In Quebec, this has taken various forms such as contributions and grants to reduce greenhouse gases (GHGs).

For example, last spring, the ministère de l'Agriculture, des Pêcheries et de l'Alimentation and ministère de l'Environnement, de la Lutte contre les changements climatiques, de la Faune et des Parcs awarded Inno-centre a $17 million grant to promote sustainable growth and greater productivity among food processing companies, particularly through the integration of ESG criteria into business practices and planning.

More specifically, Inno-centre’s mandate is to help SMEs boost their business performance, reduce the GHGs generated by their processing operations, respond to labour shortage issues, and support them in adapting to new bottle deposit requirements.

A voluntary social obligation

The term “ESG” was coined by the financial community to designate the inclusion of extra-financial criteria in investment decisions. It combines factors that have a long-term financial impact on the SME and its investments with those that respect certain norms and standards in terms of environmental and social management and good governance. “Our role is to make this concrete and to marry these criteria to business performance,” says Éric Waterman, Vice-President, Agri-Food, at Inno-centre. “The aim is not to engage in environmental activism, but to raise awareness among SMEs and identify business opportunities emanating from the integration of ESG criteria into business practices.”

UQAM professor Marie-France Turcotte, an expert in social and environmental responsibility who is involved with the International Reference Center for Life Cycle Assessment and Sustainable Transition, an Inno-centre partner, says that ethical standards are nothing new. For roughly a hundred years, groups have been trying to implement criteria based on social or environmental responsibility.

ESG criteria emerged due to the failure to establish an international consensus on environmental, social and governance issues. The private sphere and lobbies have led effective campaigns where it hurts, namely the reputation and profitability of international corporations such as Walmart and Nike. For example, their environmental or employer shortcomings were highlighted by calls for consumer boycotts. The companies responded by rectifying their practices and asking their suppliers to do the same. As a result, today’s project specifications include questions about environmental impact and the ways in which companies are trying to address these issues.

Éric Waterman explains that this approach is now the norm and may determine whether or not agreements between ordering parties and suppliers get signed. “Large companies are increasingly incorporating ESG criteria into negotiations with their suppliers because if they want to meet extra-financial requirements, they need to surround themselves with suppliers and business partners who share the same concerns.”

To stay a step ahead of the competition, it’s in the interest of SMEs to quickly integrate ESG criteria into their business practices, which will undoubtedly lead to more business opportunities down the road.

Photo Credits: Café William Spartivento

SMEs can be both responsible and profitable

For some companies, acting more responsibly toward the environment and being aware of their impact on the social fabric are an integral part of their operations. Café William Spartivento has long been committed to fair trade and organic coffee. For the Quebec-based coffee roaster and distributor, this stance isn’t only self-evident, but also sets it apart from big players such as Starbucks and Nescafé. The same goes for Morehouse Foods Canada, which has taken its own path after breaking away from its parent company to better adapt to the local market and adopting better practices at the same time.

The two Quebec SMEs also have in common the fact that they had to overcome a phenomenal number of challenges when building plants in the midst of a pandemic. They also relied on the services of Inno-centre, but for different reasons.

Rémi Tremblay, President and CEO of Café William Spartivento, says that he heard about Inno-centre through a contact. The company’s new plant was at an advanced stage of construction and included Canada’s first electric roaster. The consultation focused on how to expand into the rest of Canada and the United States while reducing GHGs. Travel and carbon neutrality were key issues. From experience, he explains that the various aspects are often in place within the company, but that everything needs to be organized. “Generally speaking, there are financial savings in all this. It means buying better while having a positive impact at the same time.”

Morehouse Foods Canada and Inno-centre have already worked together on two occasions. The third focused on the life cycle of the entire food processing cycle; in the company’s case, its flagship dressings. The SME wanted to better manage its waste, improve operational efficiency and review the type of packaging used.

Photos Credits: Morehouse Foods Canada

Rethinking strategic planning

George Sabbagh, Vice-President, Technology Solutions, at Inno-centre, explains that “working with the organization will not be limited to analyzing operations and business practices where this is required.” To illustrate, Inno-centre will recommend a measurement and assessment of a company’s carbon footprint as well as an evaluation of its GHG reduction potential if it anticipates that access to this data could help it optimize its supply chain. This type of information is then used to draw up a customized action plan, prioritizing actions that yield the greatest benefits quantitatively and qualitatively. “In other words, Inno-centre helps SMEs identify, measure and plan their efforts in relation to the investments they need to make,” he says.

Sabbagh adds that ESG criteria involve so many different aspects that SMEs have no shortage of options on how to act, whether through procurement strategy, environmental impact, or employee and community relations. What’s important is that they prioritize their actions where they’ll have the greatest impact, while improving their business performance.

The motivation inherent in these companies is really what drives their adherence to ESG criteria. They sometimes make it a mission, and this enthusiasm has the potential to become attractive. According to Dany Mercier-Bouchard, R&D Director at Morehouse Foods Canada, the company doesn’t need to recruit. It has a steady stream of people knocking on its door, attracted by its vision. The same applies to Café William Spartivento. “We get attractive applications, which is a real plus during times of labour shortages. We have highly motivated people within the company. It’s a collective project that nurtures new ideas.”

Adapting for the long term

Professor Turcotte points out that social norms are evolving. What used to be acceptable is no longer, and vice versa. She also emphasizes that there are many arguments in favour of adhering to ESG criteria which, while voluntary and not legally binding, have proven to be effective. They will also become a must for SMEs that not only wish to remain in business, but also flourish in the long term. “It’s no longer just a competitive advantage. It’s a key skill to survive in a business environment.”

George Sabbagh would like to see SMEs integrate environmental, social and governance concerns into business operations so that they become a reflex at every stage of decision-making. “We really believe in our social responsibility. We’re convinced that SMEs can have an impact, and we can show them how.”

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