With the new Environmental, Social, and Governance (ESG) principles in federal government procurement, suppliers are now required to disclose their greenhouse gas emissions and set targets to reduce them. The Code of Conduct for Procurement now makes it mandatory to require all suppliers and their sub-contractors to follow ethical and sustainability standards. Because of the push to choose sustainable companies to partner with and reach the Net-Zero Challenge, there are procurement clauses that allow cancellation of the contract, without penalty, for lack of compliance.
What is ESG?
ESG is an initiative to improve sustainability not only for environmental factors but also governance and human rights factors in business relations and across all supply chains. Some examples are:
- Environmental Factors: reduce pollution, energy, water use, and waste sent to landfills.
- Social factors: diversity and equity, employee treatment and satisfaction, working conditions, safety, and data protection.
- Governance factors: shareholder and stakeholder responsibilities and rights, management structure, company policies and values, auditing, and how success is measured.
With the push for working with sustainable companies that are compliant with ESG factors comes positive financial outcomes and a variety of new market opportunities for Canadian companies. It represents an opportunity for Canadians to secure and create jobs, grow industries, and lead the world with resources and technologies needed for many generations. Companies currently participating in the Net-Zero challenge gain support in the planning process and benefit from technical guidance, best practices, and an opportunity to highlight their commitment to winning more government contracts.
There are many positive aspects of ESG regulations to look forward to, but these regulations also bring exposure to liabilities. Buyers such as government entities are seeking “green” products and services and are willing to pay more, which unfortunately increases greenwashing.
What is Greenwashing?
It is important to understand what “greenwashing” is, so your business does not expose itself to liability as the federal government updates its procurement processes to include ESG factors. Greenwashing refers to exaggerated or misleading claims about your company’s sustainability. Provisions to the Competition Act, Subsection 52(1) and Section 74.01 (1)(a), make this a criminal offense and enforce prohibitions against false or misleading representations and deceptive marketing practices.
A high-profile example of greenwashing is Keurig Canada, Inc. with their misleading claim about the recyclability of their pods. This resulted in an agreement for Keurig to pay a $3 million penalty and donate $800,000 to Canadian charitable organizations focused on environmental causes last year.
It’s Not Easy Being Green.
Even though businesses have all intentions to comply with ESG standards, without proof of meaningful action that supports their claims, they can still run into the risk of greenwashing. While the Canadian federal government is still tweaking its framework to incorporate these updated environmental and human rights standards, all Canadian Corporations are required to report at least annually on their management diversity and climate-related risks. Federal procurements and tenders of $25 million or more are required to disclose their greenhouse gas (GHG) emissions and set targets to reduce them. Be prepared for increased scrutiny relating to your ESG practices and supply chains.
To remain compliant with ESG reporting requirements, it is suggested to:
- Make ESG data collection a priority, especially if your business generates a large percentage of revenue from government contracts.
- Compose a materiality assessment to determine your top ESG issues and what to prioritize.
- Invest in sustainability reporting and ESG data management software – you must know all your GHG emissions, targets, and climate reporting risks with a high degree of accuracy.
- Understand Canadian Securities laws in depth.
With time, these practices will become the norm while Canada becomes a leader in creating sustainable jobs, resources, and new technologies for generations to come.
Driving ESG Initiatives
In 2023, ESG initiatives will play an important role in reshaping business strategies and decisions. ESG priorities are no longer optional but essential to working with Canada’s federal government. To begin setting your business up for long-term success and resilience and to highlight your ESG initiatives, start by searching for tenders with Merx. Businesses that make ESG themes a priority will position themselves as responsible corporate citizens and valuable contractual partners for federal government tenders while contributing to a more sustainable and equitable future.
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