2020 has left us with many lessons — most still posing more questions than answers. Perhaps one of the easier learnings we now have is a new familiarity with acronyms and terms that previously were unheard of in daily vocabulary. Social distancing, WFH (working from home), non-medical mask, and mRNA vaccine, to name a few.
Although pandemic terminology may have dominated the every day and extraordinary days of our year, another very different acronym also surged to the forefront of general conversation in 2020 — ESG (Environmental, Social and Governance). The communication, discussion, and debate of ESG topics throughout 2020 increased exponentially, with investors and stakeholders placing significant pressure on companies to improve implementation and reporting of related metrics. However, the union of two topics: ESG and Supply Chain Management, is not easily understood or readily addressed.
A Complex Challenge
As North American upstream, midstream and downstream entities are setting ambitious Net Zero targets, challenging emissions reductions goals and hastening to implement ESG strategies, much of the focus is still internal in nature and predominantly on Scope 1 and 2 emissions (Scope 1 emissions being all direct emissions from the activities of an organization and/or under their control, and Scope 2 as indirect emissions from electricity purchased and used by the organization). Apart from a few leading companies who are considering how to incorporate Scope 3 emissions (all other indirect emissions) and other supply chain aspects into their ESG approach, the reasons for not yet doing so are simple in description, albeit complex in practice.
Scope 3 emissions and supply chain impacts are multi-faceted in nature, involving many stakeholders, contractors and service providers of all sizes and broad ranging business values, and unwieldy (or non-existent) data collection and tracking systems. Add onto that the lack of consistency in ESG reporting standards and addressing ESG in the supply chain is a hefty challenge.
Regardless of magnitude, it does require further attention; a recent report by the UN-supported ‘Principles for Responsible Investment (PRI)’ cited that 44-64% of the environmental impacts within the oil and gas sector are in supply chain.1 This will remain an ongoing challenge that will be important to address if those lofty ESG targets are to be met.
The Harvard Law School Forum on Corporate Governance recently published an article titled: “The Other ‘S’ In ESG: Building a Sustainable and Resilient Supply Chain”, in which they stated: “As supply chain issues continue to draw the scrutiny of investors, regulators and consumers, and implicate a range of ESG issues, it will become increasingly important for boards to familiarize themselves with how their companies are managing their supply chains across first-tier and lower-tier participants, including overseeing how supply chain considerations are integrated into operational, strategic and risk management processes.” 2The best way to begin is to focus on partnering with contractors and service providers who share a company’s values and ambitions on ESG performance, and furthermore — are transparent and forthcoming in their own ESG activities.
Integrated ESG Solutions
Although our world has ever increasing optionality for how and when to communicate with each other, good communication in all facets of life will remain a constant challenge of humanity. There is certainly no exception when it comes to corporate objectives translating themselves throughout all levels of a business. Although many companies have bold corporate priorities for ESG, adoption of those priorities by all employees and integration of those views into areas that can affect tangible change is a significant feat.
For those companies that are leading the way in ESG performance, many have ESG expertise and personnel integrated directly into their operations teams and procurement processes — to ensure that the way work happens on the ground is aligned with their ESG vision. Recent discussions have contemplated the potential value of an ESG certification within supply chain — to arm companies with additional certainty that who they are hiring and working with will meet their ESG expectations. The benefits of this are analogous to current safety frameworks (e.g. Certificate of Recognition or ‘COR’), that provides third-party verification that a given management system has been evaluated by a certified auditor and meets jurisdictional or regulatory standards.
Although many aspects of the energy sector are highly competitive in nature, this is not advantageous in the areas of environment, sustainability or ESG. As this is an ever-growing area of practice and expertise with far-reaching global implications, the solutions will not be found in going fast and first, but rather by going far, together.
Leading ESG Performance
Instead of viewing ESG as a marathon with a single winner, it is perhaps, more accurately, an endurance relay event in which the runners are companies across many sectors and industries, the baton is the passage of information, experience and tested strategies, and the goal — for all teams to cross the finish line together. Consistent with this view, Dean Fraser, President and Co-Founder of CDN Controls Ltd. (“CDN”), shares his objective: “We want to be a partner with our clients, not just a commodity. Delivering exceptional value across all three aspects of schedule, quality and cost can only occur when we collaborate on our mutual priorities and challenges and commit to long term relationships.”
CDN recognized the need for supply chain to be more proactive on ESG performance and has responded by taking a transformative approach to our business. Although contractors and service providers are traditionally pushed and pulled by their clients into new policy, regulation, and work approaches, CDN has chosen to lead the way and support our clients’ ESG efforts by taking the initiative to write that narrative ourselves. As a result, we are the only energy sector service provider in Western Canada to be approaching ESG in a robust and tangible manner. This has been solidified with the recent publication of our inaugural 2020 ESG report. As Alexander Fanni, General Manager at Landmark Resources Ltd., who has worked closely with CDN over the past five years in developing our Indigenous Relations and ESG approach, recalls: “When we started doing research on how CDN could integrate ESG into our operations, we quickly realized there were no examples of energy service providers taking our approach in Canada. We viewed this as a positive because it allowed us to be creative, pilot new ideas, and develop something that is truly unique in our industry.” With that ethos in mind, CDN is very proud to have launched down the trail of leading the way for ESG in the energy services sector.
Starting with a foundation of meaningful relationships with our three Indigenous partners — Halfway River First Nation, Kelly Lake Cree Nation and Aseniwuche Winewak Nation — CDN has focused on creating long-term shared value that extends well beyond the revenue component or simply a “writing of a cheque” exercise.
One example is the creation of Halfway River CDN Controls Ltd — a majority Aboriginal owned joint-venture company based in Fort St. John, B.C. Brad Bonner, President and CEO of Halfway River Group of Companies has recognized that: “Halfway River CDN Controls Ltd. is a business with a focus on community engagement. Through this focus, they provide opportunities to the Halfway River First Nation community that may not otherwise be available and are able to effect meaningful change.” This change is created well beyond direct business opportunities to include meaningful work experience, job creation, targeted training for both youth and adult demographics, and ongoing support of community events and initiatives — all applied with the lens of a partnership model.
The Answer is in Collaboration
As CDN continues to evolve our ESG strategy, we are driven to be an integral aspect of supply chain by aligning our objectives and programming with that of our clients and customers. By doing this, we are removing some of their burden of defining supply chain ESG performance by modelling it ourselves. We are doing this by pursuing two parallel paths, simultaneously.
Firstly, designing our internal ESG program to be consistent with that of our clients. For example, detailed cataloguing of our own emissions and other environmental factors, such that we can readily report these numbers up as part of a company’s supply chain footprint — when that time comes. Furthermore, aspiring to publish future ESG reports in alignment with guidance set out by organizations such as the Sustainability Accounting Standards Board (SASB) and/or the Task Force on Climate Related Disclosure (TCFD), so that the metrics we are tracking, and reporting are analogous and can be readily incorporated into clients’ Scope 3 disclosures.
Secondly, calibrating our service offerings with a focus on our core instrumentation skill sets to support our clients with their pressing emissions reductions objectives. This includes in-house capabilities to conduct leak detection surveys with an Optical Gas Imaging (OGI) camera, with our Instrumentation technicians efficiently completing the necessary repairs at the same time, along with upgrades or retrofits to achieve lower or zero emissions operations.
A significant driver for improved ESG performance and disclosure in recent years has come directly from institutional investors — working to increase this priority for publicly held companies. However, given privately owned companies do not have these same external drivers to pursue an ESG agenda, those who are doing so are showing great fortitude. Although many have asked: “Why are you focusing on ESG when you really don’t have to?” For CDN, the answer is quite simple: the future in ESG will be found in collaboration, and we want to be a part of that — with you.
CDN Controls Ltd. is a privately-held, fully integrated, one stop-shop for Electrical & Instrumentation services in Western Canada. We have led the industry since 2011, also specializing in automation, communication, controls, measurement and meter proving, combustion and emissions services. With seven offices across Alberta and British Columbia we have a focus on hiring and working locally and engaging directly within the local and Indigenous communities that we operate. We will continue with the relentless pursuit of solving challenges through impactful relationships and partnerships, and look forward to doing so, together. www.cdncontrols.ca
1 Greg Chant-Hall, Square Gain. Managing ESG Risks in the Supply Chains of Private Companies and Assets. Principles for Responsible Investment. 2017.
2 David M. Silk, Sabastian V. Niles, Carmen X.W.Lu, Wachtell, Lipton, Rose & Katz. The Other “S” in ESG: Building a Sustainable and Resilient Supply Chain. Harvard Law School Forum on Corporate Governance. August 14, 2020