In 2023, the Office of the Superintendent of Financial Institutions (OSFI), Canada’s financial regulator, introduced climate reporting requirements for Canadian banks. This regulatory shift has significant implications not only for financial institutions but also for the businesses they serve.
These changes will be a new horizon for most small and medium-sized enterprises, especially food and beverage processors. According to Chris Bunio, founder of TheoryMesh, food-based SME’s need to start preparing now for the evolving landscape of Environmental, Social, and Governance (ESG) reporting.
1. The What and Why of ESG Reporting for Banks:
In response to the new OSFI requirements, Canadian banks are now mandated to report their Scope 1, 2, and 3 emissions and assess any risks stemming from companies they lend to. Bunio explains, “Banks will have to report their Scope 1, 2 and 3 emissions and any risks they face from companies they lend to.”
Scope 1 emissions encompass direct emissions from a company’s operations, Scope 2 deals with indirect emissions from purchased electricity, while Scope 3 includes indirect emissions from the supply chain and customer usage.
Moreover, banks are expected to reduce their emissions year-over-year, with a strong emphasis on Scope 3 emissions, which are emissions from their customers. This requirement implies that banks will play a pivotal role in supporting emissions reductions for the companies they lend to.
2. The Impact on Small and Medium-Sized Members:
The question of how this new ESG reporting landscape will affect smaller and medium-sized businesses looms large. According to Bunio, “Small and medium businesses should expect to see their banks asking more questions about their sustainability strategy and emissions.” This means that SMEs need to be prepared to provide detailed information regarding their environmental impact and sustainability practices.
The key takeaway for smaller and medium-sized enterprises is to be proactive in their approach to ESG reporting. By getting ahead of the reporting requirements, these businesses can position themselves to take advantage of sustainability-linked lending programs when they become available. This proactive stance could potentially open up new avenues for funding and partnerships for SMEs committed to sustainability.
3. The Timeline for Implementation:
Understanding when these changes will come into play is crucial for businesses.
Bunio said, “The regulations are in effect now, and the big six banks will need to report on their full Scope 1, 2, and 3 emissions by 2025.”
The big six banks in Canada, including Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank, are already gearing up for these reporting requirements.
Moreover, banks are increasingly making net-zero commitments to the market, which will necessitate their borrowers to take concrete actions to reduce emissions. Therefore, the clock is ticking for businesses to align with these new expectations.
4. Preparing for the Future:
The question that remains is, what can businesses, especially those within the food and beverage industry, do to prepare for this evolving landscape of ESG reporting? Bunio offers a comprehensive plan of action for food & beverage processors:
• Learn About Sustainability: Businesses should educate themselves about sustainability and gain a clear understanding of what Scope 1, 2, and 3 emissions mean for their company.
• Create an Actionable Sustainability Plan: It’s essential for companies to develop a sustainability plan that identifies, measures, and sets targets for emissions reduction.
• Use Tools for Reporting: Implement tools that streamline the process of ESG reporting, making it more manageable and efficient.
• Take Targeted Action: Companies must actively work towards reducing their emissions through specific and targeted efforts.
Implementing a sustainability plan with measurement and action is not only good for the environment but also for business resilience and readiness.
According to Mike Mikulak, executive director of Food & Beverage Manitoba, “It is crucial for companies of every size to start the process of mapping their supply chain and understanding the environmental impact of their manufacturing and supply chain. This is not something you can do overnight and can seem very overwhelming.
As an association, we are committed to supporting our members during this transition, and in addition to events like our Cultivate Sustainability Conference, we are working on toolkits and targeted training that will help your business thrive in this new regulatory environment.”
As we navigate this changing terrain, Bunio remains hopeful, “Implementing a sustainability plan with measurement and action is good business and will prepare small and medium companies for new requirements coming from banks, retail, and consumers.”