Summary of Proceedings - EDC s Advisory Council on Corporate Social Responsibility Wednesday, May 28, 2014 EDC Head Office, Canada Room Ottawa, Ontario Twice per year, Export Development Canada (EDC) brings together its Advisory Council on Corporate Social Responsibility (CSR). The Council is comprised of leaders from business, civil society and academia to share insights with EDC s executive management, and to serve as a sounding board for EDC s own CSR journey. The following is a summary of the proceedings of the May 28 th meeting. The list of participants is at the end of this summary. Terms of reference and members biographies can be found on edc.ca/csr. 1. Introductions and Welcome Maureen O Neil, CSR Advisory Council Chair The Council chair welcomed members and reviewed an earlier discussion with members on the future of the Council. Recommendations include establishing a fixed term for Council membership, developing a future outlook on CSR/sustainability issues, fill vacant Council seats, recruit Council members with different backgrounds, consider candidates not based in Canada, and provide an orientation to EDC s business for new Council members. 2. President s Update and CSR@EDC Key Issues Update Benoit Daignault, President and CEO Update from the leadership The new President and CEO of EDC provided insight into his recruitment process and the desired skill set for the position. He outlined his key priorities in the next five years as: (a) the upcoming review of EDC s enabling legislation (due in 2018) for which preparations have already begun; (b) promoting trade diversification and encouraging more Canadian companies to export; data indicate Canada is lagging its peers, and without more exporters, the Canadian economy will suffer; in addition, there is a clear correlation between international business engagement and the quality of companies relative to innovation and competitiveness; and (c) integrating small and medium-size entreprises (SMEs) into the global supply chains of larger companies, both Canadian and non-canadian; this integrator model is indirect and requires an influencing role for EDC.
Discussion The President undertook to respond to questions from Council members on a variety of topics, including US Export Import Bank s (USEXim) struggles to secure a Congressional renewal of its mandate, payment of EDC s dividend; EDC s role in foreign policy development, the impact of the merger of the Department of Foreign Affairs, Trade and Development (DFATD) with the Canadian International Development Agency (CIDA), regional trends across Canada for exporting, EDC s domestic mandate, and the influence of the anti-capitalism movement. The President commented as follows on the questions raised. US EXim has a different mandate than EDC and issues in the US are approached differently than in Canada. USEXim s mandate is focused on US content and may be outstripped by evolutionary economic changes. For example, EDC moved from rules concentrated on domestic content requirements to those focused on domestic benefits. In addition since the economic crisis of 2008, EDC faces fewer restrictions on its existing powers and can provide financial services for domestic business provided that business is trade-related and EDC s services do not displace private financial services. The EDC dividend paid to its shareholder, the Government of Canada (GOC), is based on a formula established with the Department of Finance. The formula is calibrated to allow EDC to retain sufficient earnings to invest back into its operations, with the excess paid to the GOC as a dividend. The dividend was high because EDC released more provisions leading to greater profitability and lower levels of write-offs for bad debts. This level of dividend may not continue in future. EDC does not contribute to foreign policy, but is well-positioned to convey messages such as the importance of exporting to the Canadian economy and the need to create more Canadian exporters, which are foreign policy goals. The current GOC is seeking greater linkages between the aid program and trade. The Global Markets Action Plan (GMAP) outlines the GOC s strategy and EDC will support that strategy. EDC is available and has competencies to offer for coordinated actions involving DFATD and CIDA. Regional export trends in Canada indicate western Canada is especially strong in natural resources with Ontario and Quebec dominant in the manufacturing sector via sales by the foreign affiliates of Canadian companies. The influence of the anti-capitalism movement can result in higher geopolitical risk which perhaps reflects social inequality. EDC Advisory Council on Corporate Social Responsibility 2
3. Open Roundtable Exchange Council Members Council members provided perspectives on emerging societal, economic and political trends they observe that have potential relevance for EDC. Council members noted that perceptions of youth toward the financial services sector posteconomic crisis may make it challenging for financial institutions to access this segment of the market, or attract human resources talent. Youth pessimism will likely be reflected in an economic transition to a lower carbon economy and debates about how to create pools of capital to invest in cleaner energy and technology. Those companies that survive as exporters will need to address climaterelated issues. If the world economy shifts away from fossil fuels, Canada will be in crisis, whether in adjusting the strategies of large oil companies, or having the skill sets to manage in a lower carbon economic environment. Forward thinking on the topic has been done by Jeremy Oppenheimer (McKinsey) and Rachel Kyte (International Finance Corporation) where they have examined issues related to new financial structures in a new international economy. Other thinkers discussing the role of financial sector and climate include Simon Zadek and Nick Robbins, co-directors of the United Nations Environment Program s Inquiry into the Design of a Sustainable Financial System. The question is whether capital is being directed to the right places. Discussions are also ongoing in other international fora such as the Organization for Economic Cooperation and Development (OECD). The social utility of the financial services sector is also under scrutiny. One Council member suggested there are immediate, practical things EDC can consider to address social and environmental challenges, e.g. address a perceived emerging demand for insurance products that address climate volatility and pricing these climate-related financial services in the absence of regulation. EDC could play a useful role in stimulating a conversation on these matters. Another member predicted that in the next 5-10 years, security will become acute issues in North and West Africa where there is a population of 500 million, mostly under 20 years old. This will generate extraordinary pressure on Europe. The connection between aid-tradedevelopment will be important. This region of the world could benefit from a more coordinated approach. EDC Advisory Council on Corporate Social Responsibility 3
4. What is the Economic Forecast for Emerging Markets? Peter Hall, Chief Economist, Economics and Political Intelligence Centre (EPIC) This presentation will focus on markets where EDC is increasingly doing more business. A presentation was made on EDC s semi-annual economic outlook with a focus on markets where EDC is increasingly doing more business. Economic stimulus has created a weather effect, an illusion of strong economic growth. The global economy is beating expectations; there is pent-up demand as evidenced by housing data; business wants to spend and are in the normal confidence zone; jobs are beginning to reflect levels extant before the economic crisis; austerity has brought healing to the economy; and international trade is coming back. Details are available in EDC s Global Export Forecast for Spring 2014, Ready for White Water?. Discussion The Council briefly discussed the implications of these trends for EDC s business. 5. Innovative Financing Nancy Kyte, Senior Portfolio Manager, Treasury, EDC Darren Poole, Senior Advisor, Environmental Advisory Services Adam Spence, Founder, Social Venture Exchange (SVX) and Associate Director, Venture and Capital Programs, MaRS Centre for Impact Investing Julius Tapper, Manager, Social Finance, TD Bank Group The old structures for raising capital are being disrupted by new and more innovative forms of raising financing. Green bonds, social impact lending, and crowd funding are a few examples. Adam Spence outlined trends in social innovation in capital markets, defining social finance and its drivers. Canada has $4-5 billion of assets in impact investing, and is expected to grow to $30 billion in 10 years. Combining social outcomes with business activities will result in better economic outcomes. He provided examples of investments MaRS has made: Lucky Iron Fish (solutions for anemia), OLiberté Shoes (shoe manufacturing in Africa) and Local Buttons (solutions to transform into sustainable goods used clothing shipped to Haiti). Julius Tapper presented TD Bank s experience in social finance, a landscape characterized as emerging, but fragmented. After studying what TD could offer (market need, corporate competencies), they launched a three-year, $500 million green bond offering in March 2014 with proceeds directed to renewable energy, energy efficiency, sustainable land use. TD also contributes to financing of the Catapult Program, a microenterprise loan fund in Ontario. EDC Advisory Council on Corporate Social Responsibility 4
Both external presenters outlined potential areas for EDC involvement in innovative finance beyond EDC s current green bond. Recommendations included creation of a data platform to match impact ventures with EDC clients, to explore co-investment or collaborative opportunities with philanthropists, impact venture funds, responsible institutional investors and other private sector actors, e.g. tranched financing etc.. EDC was encouraged to identify the time and opportunity for different types of investments and collaborative partnerships. EDC explained its reasons for entering the green bond market as: (a) cleantech is a strategic priority for EDC, the sector shows high growth potential for cleantech sector, and is dominated by SMEs (a priority focus for EDC); (b) EDC s environmentally sustainable loans portfolio is expected to grow; and (c) investors had expressed demand for fixed income products to meet their own environmental objectives. The process involved considerable research, promotion to the investment community and certification by an independent third party. EDC s green bond program continues to evolve, e.g. the current focus is on reporting to meet investors needs for transparency regarding use of bond proceeds. Discussion Council members posed a number of questions for greater clarity around these new financial instruments: use of proceeds for money raised, market standards, pricing, and reporting and transparency. EDC s green bond proceeds reflect two-thirds new commitments and one-third refinancings. As EDC s pipeline of green transactions grows, this is expected to be new net financings. The pricing was a flat 2% interest ( vanilla bond). Transparency is a key concern for investors who are conscious to avoid greenwashing. An unanticipated advantage for EDC was attraction of new investors, contributing to diversification of EDC s investor base. Adjournment The fall meeting is scheduled for October 28 and 29. EDC Advisory Council on Corporate Social Responsibility 5
Participants From the CSR Advisory Council: Maureen O Neil, President and CEO, Canadian Foundation for Healthcare Improvement CSR Advisory Council Chair Jean-Claude Villiard, Associate Professor, École nationale d administration publique (Université du Québec) Ed Waitzer, Partner, Stikeman Elliott LLP David Runnalls, Senior Fellow, Sustainable Prosperity Jean-Louis Roy, President, Partenariat International Deanna Rosenswig, Partner, Vantage Concepts David Zussman, Jarislowsky Chair in Public Sector Management, University of Ottawa, and part-time Commissioner, Public Service Commission of Canada Absent Herbert M. Clarke, Director, EDC Board of Directors Guests: Adam Spence, Founder, Social Venture Exchange (SVX) and Associate Director, Venture and Capital Programs, MaRS Centre for Impact Investing Julius Tapper, Manager, Social Finance, TD Bank Group From Export Development Canada (EDC): Benoit Daignault, President & CEO Jim McArdle, Senior Vice-President, Corporate Affairs & Secretary Signi Schneider, Vice-President, CSR Peter Hall, Chief Economist, Economics and Political Intelligence Centre Nancy Kyte, Senior Portfolio Manager, Treasury, EDC Darren Poole, Senior Advisor, Environmental Advisory Services Yolanda Banks, Senior Advisor, Corporate Responsibility EDC Advisory Council on Corporate Social Responsibility 6