BENEFIT VERSUS BURDEN
BY TREVOR BACQUE • PHOTOS: SHUTTERSTOCK AND ALBERTA GRAINS
Conversation about ESG continues to increase in volume as these three letters bleed into many facets of life. An acronym for “environmental, social and governance,” the idiom was coined in a 2004 report by the United Nations titled Who Cares Wins. This slightly fluid term delineates the notion that people in any given business sector need to show their work when it comes to taking care of the planet, treating people well and operating in a sustainable, that is, socially acceptable, fashion.
Agriculture has mostly plodded along for years, able to tune the movement out, but this is becoming an untenable course. Many players within the industry now shift toward ESG-based policies and procedures. At the farm level, this has changed nothing. Yet. While some believe farm life in the ESG era will continue uninterrupted, others posit a large-scale disruption that will eventually require data to be shared to secure basic financing, crop insurance or simply conduct business with a preferred supplier. While the EU leads ESG’s global siege, Canada is a distant, but curious trailer. The implications for the country’s ag sector continue to unfold.
THE CANADIAN CONVERSATION
The National Index on Agri-Food Performance was launched in early 2020 to little fanfare. The organization had a slightly vague mandate to generally talk about sustainability in agriculture. Its creation was mainly driven by the need to play catch-up. Many countries and regions of the world had begun to adopt sustainability standards, but Canada had roughly nothing to contribute. Further, it was a timely necessity to tell the story of Canadian ag before someone else did.
The organization’s namesake signature document, Index 1.0 was launched in spring 2023. The contents of the pilot document felt somewhat theoretical. A level of uncertainty surrounded what would be done with the paper, but it has been slowly retooled, and updates will come soon under the leadership of new executive director Tarra Drevet.
First, its four key agrifood sustainability blocks, economic, environment, food integrity and societal well-being, drive the work of the Index’s staff. Within these focus areas are 20 specific indicators, which break down further into nuanced metrics, to be fleshed out by the Canadian agriculture and agrifood industry.
The indicators each have their own working group populated by more than 155 organizational partners. Priority groups are biodiversity, food waste and food loss, food security, greenhouse gas emissions, nutritional information and soil health.
Drevet is buoyant about the prospect of round two, dubbed Index 2024-2025, as her staff work with industry, including Alberta Grains, on its next iteration.
Progress is slow, but methodical, and ostensibly unstoppable. “It’s moving quite rapidly,” she said of Canada’s changing ESG landscape. “Something that used to be voluntary is becoming more mandatory in terms of these disclosures.” Disclosures today are voluntary, but they are lengthy, driven by influential organizations such as the Canadian Sustainability Standards Board.
Currently, the Office for Superintendent of Financial Institutions has introduced climate-related financial disclosures, which would require financial institutions and pension plans to publish climate related financial findings.
Drevet also points out that the Canadian Securities Administrators is working to create national standards regarding climate-related disclosures as evidence that ESG is on the move. Publicly traded Canadian companies, insurance providers, banks and more continue to face mounting pressure to adopt various ESG measures. As well, increasing scrutiny is appearing around input transportation practices, agrifood distribution, packaging and even questions surrounding food storage and spoilage.
Data-wise, though, Drevet said nobody is interested in information that ties back to individual farms, companies or governments. “This is not a competition about saying who’s more sustainable than the other, but we are interested in good data and those aggregated data sets,” she said. “We are not talking about the level of farmer practices and what they do on the farm. What I like to talk about is responsible innovation. That means we leave it open for producers to do what they do best and innovate. It’s not telling someone the way it is or how they should do things; it’s more saying, ‘Here’s the data to support your decision-making. Now what do you want to do?’”
And that’s where things stand at the Index: data collection. The next phase in its strategic plan runs until 2027. In addition, Index staff are conducting a project with the Standards Council of Canada this year to define its protocol to source data and how best to integrate aggregated datasets into the Index.
And although the Index could be construed as a scorecard, Drevet insists that’s not the case. “I don’t think scoring makes sense,” she said. “We’re looking to really support clear transparent data and metrics that create alignment. If we’re going to do sustainable procurement and sourcing, we need that kind of alignment around the language and the data we’re using.”
“It’s not telling someone
the way it is or how they should do
things; it’s more saying, ‘Here’s the data
to support your decision-making. Now
what do you want to do?’”
Canada increasingly requires this kind of shareable, provable data to attract future investment and to demonstrate credibility. It’s why Drevet is pleased to see so many industry players on board, providing grassroots recommendations to identify opportunities. She suggested the Index will never be complete because sustainability is a continuum, not an endpoint. Farmers should provide an active voice to guide the discussion via their agricultural advocacy groups, added Drevet.
The Index is supported by the Centre for Agri-Food Benchmarking, which is part of the Canadian Agri-Food Policy Institute, an ag sector thinktank headed by managing director Tyler McCann. McCann noted the ESG movement has been primarily driven by consumers, private companies and investors, not governments. He fingers Maple Leaf Foods, led by its outspoken ESG proponent president Michael McCain as a strong example of a company that has a pronounced focus on sustainability from production to packaging to people.
McCann echoes Drevet’s sentiment about the EU leading the charge and adds Australia to the list. He is realistic with his local evaluation. “We’re a little behind here,” he said. “We struggle; it’s not as good as it could be. We still have issues where across the sector emissions continue to trend upward.”
While not massive, the rise is steady. According to the federal government, in 2005, ag accounted for 8.6 per cent, or 66 megatonnes of all greenhouse gas emissions in Canada. In 2022, that number jumped to 9.8 per cent, or 70 megatonnes. Most other industries have either slightly gone down or generally maintained their percentage between 2005 and 2022. The exceptions are oil and gas, which noticeably climbed from 25.6 per cent to 30.6 per cent, and electricity, which dramatically decreased from 15.3 per cent to just 6.6 per cent over that same time period.
He added that the real challenge, however, is data and its management. People and organizations in the value chain must be able to produce meaningful data, but it cannot be so burdensome or expensive to produce that it destroys any extra value that may be created via market premiums. A high-level focus as a country doesn’t cut it anymore either. To say Canada is a leader in emissions reduction sounds lovely, but means nothing, and isn’t even relevant, as he sees it.
“That often is not good enough for ESG compliance because investors and consumers don’t want to know how a country is doing,” he explained. “They want to know how a company is doing, or how a specific product is doing. That means you need a much better understanding of the emissions the entire way along that value chain.”
Nothing will change in the immediate future, yet McCann believes a level of change will come sooner than later. Such changes may occur at the bank, which may offer discounts on interest rates or insurance if you have a good ESG story to tell about the farm. He does believe a day will come when a farmer will not be financed unless they prove their farm is sustainable according to multiple metrics.
Today, he encourages farmers who are part of value chains with ESG goals to really know what is required of them now and in the future. “The reality that ESG, or sustainability disclosure, is coming is important,” he said. “This is a pendulum that’s swinging back and forth, and it seems like we are at a moment where we’re swinging back from the really strong, pro-ESG agenda to a more business focused approach. I don’t think the pendulum swings back to where this is never going to be important. It may mean rather than this being important in two years, it becomes important in 10 years.”
It is certain, he said, that everyone in the value chain must continue to understand the importance of data and how to leverage it for maximum gain. He acknowledged the main point of scrutiny around ESG is why do this at all? And, to what end? He points out that farmers change when it makes sense and a benefit is present. There is a real opposition to ESG by many, and he believes it’s due to a poorly defined pitch.
“Maybe it’s not clear what the benefit is when there is limited understanding of the value proposition. That’s where you get legitimate reluctance around what that change could mean or be,” he said. “We all need to do a better job coming up with the answers and explain what’s in it for the farmer
and why.”
McCann believes this is where data will ultimately prove a benefit to farmers. “We want to be able to produce the data so people can see, look and understand the progress Canadian agriculture has made. The data can then be used by governments to help them make better decisions with trading partners when it comes to negotiations and the sector can use it to better position itself.”
The critiques of ESG appear just as familiar as its hallmarks. A common refrain is that these three letters are repackaged corporate socialism, also called stakeholder capitalism or woke capitalism. In a series of essays for the Fraser Institute, University of Queen’s law professor Bruce Pardy outlines the pitfalls of ESG. He writes that it assesses corporate value by measuring corporate commitment to political objectives instead of a primary focus on profitability, which leads to threats made against companies that object or disagree with such mandates.
These mandates often now include climate action, DEI programs and other social goals. Pardy suggests stakeholder governance, “turns companies into social welfare institutions and gives business leaders licence to pursue ‘social good’ at their discretion with other peoples’ money.”
Profit is the usual determinant of a company’s worth, but not on the playing field of ESG. The worth is gradually being replaced with an ESG rating given out by an agency to determine a company’s relative sustainability. Pardy says this amounts to social credit scoring for corporations.
His essay also issues a stern warning to his audience. “As ESG reporting becomes standard and increasingly mandatory, so must ideological compliance. Along with digital currency and digital identification, both presently in development, ESG represents centralized, political supervision of the economy.”
He cites Maple Leaf’s McCain to illustrate the nefarious nature of it all. The company president said capitalism has produced terrible, inexcusable consequences and that its trade-offs are far too great to still be accepted. Purdy says McCain has proposed a “new Charter for Capitalism,” in which he states the first element is to: “recognize multi-stakeholders equally, rejecting the primacy of shareholders, by including the environment, natural life and society as equally critical stakeholders.”
Pardy finishes by stating that ESG threatens the end of apolitical commerce, establishing instead a collectivist, illiberal, manipulated economy.
LOCALIZED SUSTAINABILITY
Alberta Grains, director of policy, government and markets Shannon Sereda said ESG work has been carried out for years, which is to say the good work of farmers in their fields. What hasn’t been done at scale, however, is the collation and distribution of datasets to quantify the fact such work occurred.
“We are still at a deficit with how we measure and report these practices,” she said. “You’re dealing with a very fragmented industry.” Sereda used the example of regenerative agriculture and said if you put 10 people in a room and ask them what it means, you get 10 different answers. That’s a problem. Who has the best agreed upon definition of a given practice?
Requirements are coming, but not immediately, she said. In Canada the delay is in part due to the limitations of the country’s bulk handling system. Still, she pointed out that ESG-style disclosures and practices have long been in place. Rules that concern herbicide usage, waterways, vegetative filter strips, buffer zones and more, attest to ESG. The list will only grow, she believes.
What’s more, the stripe of Canadian politicians will largely be irrelevant to ESG progress. “Farmers are focused on a change in government and think it will go away with that change, but the pressure is coming from the market, which will have an even more significant impact. It’s not just based on government. The market drive is much stronger than in the past. There’s a drive from industry.”
Variability across Canada’s vast agriculture sector further complicates fair and balanced reporting and data collection. Some countries have the luxury of being so small they enjoy a single soil type and climate. Most Canadian provinces have multiple of both.
On the bright side, Sereda noted Canada carries a positive narrative, and changes to sustainability obligations likely won’t be all that consequential. “We know Canadian grain is grown using techniques that are superior to other countries. How do we tell that story? That is always the question that gets asked at these industry discussions. How do we capture that and show the markets and world we can demonstrate that?”
To a degree, the true nature of ESG is relative. No different than how a maltster prefers the highest quality barley but settles for less in years when the crop is of lower than usual calibre. The same could be true country-to-country, or company-to-company, with ESG.
“We have to be conscious of how that differentiates our products and who we are competing against,” said Sereda. She added that Canada absolutely has the upper hand on trade relative to other countries. “That’s because for decades farmers have voluntarily adopted practices that make sense for their farms. We are already doing the right things that achieve the outcomes ESG criteria is looking for. That puts Canada at an advantage.”
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