The new federal and provincial budgets are ESG-oriented. Since 2016, Invest in Canada continues to promote spending initiatives for clean technology following key objectives such as:
- Creation of long-term economic growth
- Supporting the resilience of communities and transition to a clean-growth economy
- Building social inclusion and socio-economic outcomes for all Canadians
Mexico, with its active participation in COP 15, has paved the way for new programs. Initiatives such as tax benefits and financing programs encouraging the use of renewable energy technologies, participation in research and technological development projects, and a focus on employability and social inclusion have recently been adopted and are now part of Mexican income tax law and programs.
In the United States, on July 14, 2023, as part of a US$20 billion program, the Biden administration launched the $14 billion National Clean Investment Fund (NCIF) competition, which will provide grants to support nationwide clean initiatives through financing.
The Canadian government, regulatory bodies, and businesses have been increasingly prioritizing ESG factors to address sustainability, social responsibility, and good governance practices. In fact, the Canadian federal government has implemented regulations and policies to promote ESG considerations. For example, the Pan-Canadian Framework on Clean Growth and Climate Change outlines Canada’s commitment to reduce greenhouse gas emissions and transition to a low-carbon economy. Additionally, the Canadian government has introduced mandatory climate-related financial disclosure requirements for organizations.
The Canadian government, regulatory bodies, and businesses have been increasingly prioritizing ESG factors to address sustainability, social responsibility, and good governance practices. Available Credits in Response to ESG Considerations
The new measures focus heavily on offering refundable tax credits, a form of assistance that can be the equivalent of a grant in the right circumstances. Importantly, the new policies focus on capitalized investments in production itself rather than research and development efforts. What does this mean for manufacturers?
An example of how this priority shift can benefit manufacturers is through the Clean Technology Manufacturing Tax Credit. This tax credit allows manufacturers to deduct 30 percent of their investments in the manufacturing of green technologies such as EVs and energy-generation equipment. This also applies to processing and extracting activities in the mining industry, as long as the minerals being mined are strategic critical minerals.
Clean hydrogen production projects are eligible for a refundable tax credit equivalent to between 15 percent to 40 percent of the investment. As this technology is still embryonic, this should help higher-risk projects to take shape and attract innovative projects.
The Clean Electricity Investment Tax Credit, originally announced in 2022, is a refundable credit worth 15 percent of an investment in clean energy generation, which includes nuclear power. This credit is also available to provincial crown corporations, which produce large amounts of power in Canada, sometimes as monopolies.
While actively promoting sustainable finance initiatives, Infrastructure Canada has also emphasized the importance of ESG factors in corporate development strategies. For example, in Quebec, a recent partnership between Hydro-Québec and Investissement Québec has streamlined the electricity demand for expansion projects and business attraction. Any consumption greater than 5MW needs to be analyzed by Hydro-Quebec as to the connection capabilities and then approved by the Minister of Economy, Innovation and Energy. This new application, along with the requested project information, focuses on detailed pieces of information regarding ESG, hydrogen consumption levels, and greenhouse gas emissions as well.
How Does This Priority Shift Affect Companies?
Most large companies have established ESG programs and have reported their success. Small- to medium-sized businesses, however, have more difficulty adapting to the new requirements and acclimating their operations and tactics. Canadian companies are increasingly recognizing the importance of ESG reporting and disclosure. Some Canadian associations have put together guidelines to increase transparency of information on their climate-related information. This commitment and corporate accountability are based on the Principals for Responsible Investment from the United Nations committing to incorporating ESG factors into their investment processes.
In Canada, corporate stakeholders’ ESG priorities are inclining toward climate, nature and biodiversity, inclusion and diversity, and Indigenous reconciliation. According to PwC’s Canadian ESG Reporting insights, there is a serious shift of attention toward ESG consideration. Numerous Canadian companies have implemented sustainability initiatives to address ESG factors with a focus on reducing environmental impacts, enhancing social responsibility, and improving corporate governance practices. Many companies have set specific targets related to greenhouse gas emissions reductions, renewable energy use, waste management, diversity and inclusion, and community engagement.
Canada has been investing in green technologies and fostering innovation to support the transition to a low-carbon economy. In the recent years, concrete actions have been put forward, and Canada has been investing in green technologies and fostering innovation to support the transition to a low-carbon economy. There are initiatives and funding programs to support research and development of clean technologies, renewable energy, and sustainable practices across various sectors. However, companies remain unprepared and limited in their capabilities to effectively integrate ESG across their organizations. In addition, unaware of the important funding opportunities offered at the federal and provincial levels, Canadian companies do not take full advantage of the support available through incentives and support services.
ESG’s Importance in the Location Process
As site selectors, the trend that we have witnessed as it pertains to ESG and government programs in Canada and elsewhere is the emphasis and accountability of ESG within the application process for government programs, which plays an important role in the approval process. One recent example is the federal support to Volkswagen in their project to build a battery manufacturing plant in Ontario. This contribution falls within Canada’s new ESG-driven priorities and its strategy to attract new projects, and clearly competes with the United States’ aggressive programs. Over and above incentives, within the site selection process, companies are doing a deeper dive into ESG in their location choices/ Indeed, ESG is driving far more than government programs.
Canada’s fiscal policies play a key role to assist companies and jurisdictions in actively working toward integrating ESG factors into their operations, policies, and decision-making processes. From a community perspective, this ESG priority shift has greatly impacted local policies and has trickled down to local initiatives such as the restructuring of business parks with ESG and sustainable development objectives and considerations. By encouraging industrial densification and meeting energy-efficiency criteria, industrial parks are developing new ways to implement ESG considerations in their industrial and commercial development projects. These new parks include bicycle paths, day-care centers, wetlands preservation, and follow strict environmental regulations such as carbon-neutral buildings. The real estate industry is also focused on ESG and the effect on location decisions by the private sector.
ESG is a growing priority among governments and corporations. It plays an important role in the investment attraction dynamic. However, one of the main challenges facing companies revolves around the disclosure of ESG data. Businesses in Canada need to consider innovative financial structures and how economic incentives can help defray the implementation costs as they make large investments in ESG throughout their portfolios. Transparency and corporate accountability will shed light on a company’s ESG activities and help further develop a more ESG-driven culture.
Overall, Canada has recognized the significance of ESG considerations in driving sustainable development, investment attraction, and ensuring long-term economic stability. Its fiscal policies play a key role to assist companies and jurisdictions in actively working toward integrating ESG factors into their operations, policies, and decision-making processes. Through ESG, Canada is working to position itself as an attractive investment destination for companies and investors seeking sustainable, responsible, and long-term investment opportunities.