Reaching for Net Zero with Sustainable Finance

Justine Hendricks:

But I fundamentally believe that if you look at the quantum of capital that is needed for us to achieve net zero, sustainable finance needs to be part of it.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, chief sustainability officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices and our world.

Announcer:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries.

Jonathan Hackett:

Hi. I'm Jonathan Hackett, head of sustainable finance and co-head of BMO's Energy Transition Group, and one of the hosts of Sustainability Leaders. In early November, I was on the ground in Glasgow with other BMO Financial Group leaders participating in COP26 and its surrounding forums. While I was there, I had the pleasure of sitting down with Justine Hendricks, chief corporate sustainability officer of Export Development Canada, to discuss how the organization has evolved in recent years and why sustainable finance has such an essential role in supporting the transition to a low carbon economy. Let's dive into the conversation.

Jonathan Hackett:

Thank you for joining me here in Glasgow where the COP26 Climate Conference is in full swing. What have been your impressions of the conference so far?

Justine Hendricks:

Well, first of all, really pleased to be able to join you here, Jonathan. And it's funny when you think about it, because I think the last time you and I saw each other was actually at the PDA Conference the week before most of us got confined. So it was bittersweet, or extra sweet that we were able to connect for this today. The COP Conference, I think all of us have been anticipating it. It's nice to get on a plane again, come to Glasgow. I don't know about you, but I found the whole logistics of coming to the Conference, the pavilions being pretty impressive. For those back home, they're doing a fantastic job to keep us healthy, with all the testing. You and I are becoming pros at daily testing.

Justine Hendricks:

And also I think what's been nice is with the protests that have been going on, they've all gone on peacefully. So everybody feels like they have a chance to have a voice, whether it's on a panel, whether within the perimeter of the conference, and let's not forget, there's some pretty neat technologies that you and I have a chance to learn a bit more about.

Jonathan Hackett:

Yeah, absolutely. It's been a really engaging time here. And I do have to say, between the green zone, between the handling of the protests and the engagement with them, it's been a really positive experience. But before we get more into COP26, maybe Justine, just to set the stage, can you tell me about your journey and your trajectory that's brought you to the role of a chief corporate sustainability officer?

Justine Hendricks:

Yeah, sure. It's an interesting road, I would say. So, I am at the heart of it, a banker. I was a banker for 10 years and then I joined EDC under business development side. And I did about 10 years in those roles where I went from managing a small business team that covered the Canadian landscape, then I became a vice president and I really had the opportunity to dig into different sectors. So, mining, oil and gas, agriculture, and all sorts of stuff. Went over to the financing world where I started to do some transformation work, and we were trying to reposition our lending business. And from there I ran one of our product lines, the working capital solutions. And then a couple of years ago was appointed as a senior vice president and more recently as well, the chief corporate sustainability officer. So it's been a really diverse role. I've had a chance to touch almost all the business lines at EDC, and that's certainly prepared me well for this challenge, which is not a small one.

Jonathan Hackett:

Fair. And maybe for those not as familiar with EDC, could you tell us a little bit about its mandate and especially how that's changed in the face of climate change and the growing focus on sustainability?

Justine Hendricks:

Yeah, another great question Jonathan, and appreciate the opportunity to set that stage. So Export Development Canada, or the acronym EDC, so we're Canada's export credit agency. EC's been around for about 75 years and our mandate is to grow the success of company through trade, and we try to do that with each and every company. We're actually financially self-sufficient, which many people don't know that fact. And how we support Canadian exporters is through offering services, through financing, we do equity insurance, and we also have knowledge that we share with the exporting community. So we don't actually provide any grants or subsidies to any Canadian company. In order to give a size of magnitude to your audience, I'll give you a few stats maybe to give you a sense from 2020. So if you were to take the total value of exports and investments that we supported in 2020, it would've resulted in the equivalent of about 487,000 jobs that have been created.

Justine Hendricks:

We facilitated about a $102 billion of business, which was done under about 9,800 transactions. So no small feet, certainly not as many transactions as BMO would do, but in terms of the contribution to Canada's economy, that's where it comes from. You asked a question about how our business has changed, given the focus on sustainability? Well, interestingly enough, at EDC, back in 2012, we actually started to take a focus and call out cleantech as a key part of our strategy. And if you bring in that context of environmental, social and governance, we've been embedding that in some of our due diligence as early as the early nineties, where we were looking to adhere ourselves to some of the international principles.

Justine Hendricks:

So ESG, focusing on sustainability has been part of who we are for a long time, but certainly over the more recent years, we've really been trying to identify what are some of those sectors that are important, cleantech being one of them. And in support of that, what are some of the products that we need to be able to accelerate some of the growth of those sectors? So, that's what you've really started to see. And maybe the last thing to share with your audience is this year, we actually kicked off a brand new 10 year strategy, and we've actually made ESG one of the key levers of that strategy, so that not only signals to everyone at EDC but the exporting community that, that is very much going to become even more part of what we do day in, day out.

Jonathan Hackett:

Fantastic. And here we are in Glasgow, we have representatives from government corporations, NGOs sitting down to think about a path towards a low carbon world. Can you speak a little bit about EDC's role here?

Justine Hendricks:

Yeah. So, that's a really interesting question, because export credit agencies, we sometimes feel like we're on an island of our own, but if you consider our role in helping facilitate trade, and if you also agree with the fact that for any given country, there is an importance, or a link towards its trading success to its economic success. So, that is how you bring us to the table in terms of what the role of an ECA is. And then with that in mind, when your Canada's export credit agency, what you try to do is, whether it's in partnership with the Canadian FIs, or if you're doing equity investing, is to help those companies be successful of broad, because that overall helps them, but it'll help Canada.

Justine Hendricks:

There's another part of it though, Jonathan, I would say, ECAs as a group on their own get together and engage to better understand what are the flows that are taking place. Do we need to change some of the standards internationally so we can level the playing field? So that's all so important for Canadian companies to be aware of. A great example of that is when COVID hit, a lot of the ECAs got together and we were comparing notes to see how were your national markets responding? What were some of the programs that they were deploying? And EDC was asking itself, do we need to do the same? Are we ahead of the pack, or what's needed? So, that's one of the areas that we work on.

Justine Hendricks:

And the other thing I would say is we also can play the role of the convener. So we work with the FIs, we stay connected to civil society, because it is important to hear their voice, and it's important to have a dialogue with them. It's important for us, vis-a-vis, how we engage with our shareholder, which is the Canadian government. And then combining those three things to see are there products and solutions we need to bring to the table and to always ultimately for making Canadian companies successful.

Jonathan Hackett:

And maybe just diving in on one piece that I think you mentioned in there, if you think about supporting Canadian exporters, do you think that there's a role, particularly for Canadian exports to help drive the transition to a net zero world globally?

Justine Hendricks:

I'm glad you're asking that because, I'll be a bit of a nationalist, or federalist here. We believe that Canada has a lot to offer, but the world is getting ready for this. So we're all trying to transition, we're all trying to build back better. Everybody has their version of it. So we believe that if Canadian companies don't get ready, they're going to miss their chance, but part of seizing your opportunity is you want to make sure that you embed environmental, social and governance in terms of whether it's the strategy of your business, how you embed it in day-to-day, and fundamentally we think that it can be a huge trigger for innovation.

Justine Hendricks:

So, if we think of the value proposition of looking at ESG, not from, I'll say a regulatory requirement, or I need to do this in order to, but you really start to think it through in terms of how you conduct your business, we actually believe it'll be an accelerator to your growth. So it goes right back to the trade, in terms of the more successful you're going to be, Canadian companies will win contracts internationally and that'll be a win-win for Canada.

Jonathan Hackett:

Very interesting. Maybe building on that, sustainable finance has been a key theme here at COP. Why is sustainable finance such an important part of supporting transition to a low carbon economy?

Justine Hendricks:

It's quite the debate, hey, that we're hearing at COP about sustainable finance, and it gets us eventually to transition. What are the products that you need in order to incentivize, companies to, I think it's beyond doing the right thing. So for years it was all about give them a few bonuses, and they'll start to report more, they'll respond a little bit better to some of the regulatory requirement, but I fundamentally believe that if you look at the quantum of capital that is needed for us to achieve net zero, sustainable finance needs to be part of it. So we, you, myself, we have a huge role to play in that. But I also think though is I think as lenders, or depending on the products and services we offer, I do think we need to stretch our minds a little bit sometimes into how we offer them, and that's where I see sustainable finance being a bit different.

Justine Hendricks:

So if you come to the table with your traditional debt, in this context, given the capital that's required, given the speed at which the regulatory environment is changing, some of the investments in innovation, clean tech that are required. I think all of us financiers, it doesn't take long to realize what got me here, or what made me successful today, I need to think a little bit differently in terms of what will be the requirements for me to know that it's going to be successful tomorrow? But given the trillions that people are quoting in terms of what's required, you can't imagine doing it without having sustainable finance right at the heart of it. And it's to recognize too, I think Jonathan, that there is significant capital investments that are going to be required across all sorts of industries, in terms of that transition to being a lot more efficient.

Jonathan Hackett:

Fair. And maybe that's a good place to ask, what gives you optimism as we think about the opportunity and the need to mitigate climate change? We're here with thousands of people that are working on this problem, what's going to be the piece that you bring with you to keep that optimism there?

Justine Hendricks:

So I would say this COP, COP26, I think is really about momentum. So I don't know about you, but I came here trying to figure out, what would success look like? And I had all sorts of advice, but one piece of advice I thought was in is just seeing go to COP, take in as much as you can, the real work starts after. In terms of, as you come back home and you start to say, okay, what does this all mean? And then for us that are working with customers, it's going to trickle directly to impact to them. So you asked a question, are you optimistic? I am very optimistic because I do think we're starting to tackle what I see as being the pragmatic aspects of when you create a policy, or you do a statement and say, we would love to be here at this point. And now we can take that away and start to make it a lot more practical.

Justine Hendricks:

So if we look at it from a Canadian perspective, because we do have our Canadian reality. We fundamentally believe that our role at EDC is going to be to help Canadian companies transition. So if we can't meet them where they are, whether it's through investing in them, offering some deck products, that's the part that we can play to help them start to make the bridge. And the other thing that brings optimism, Jonathan, is I look back at the track record that we've had since we started with cleantech in 2012, and some of the commitments we've made, whether it's been making a climate policy public in 2019, hitting some of the targets that we doubled our support to cleantech and we keep on going.

Justine Hendricks:

We've been able to, and not on our own, it's done in partnership. We've been able to exceed our targets, or the stretch targets we've given ourselves year after year. So to me, that's what I mean about the momentum, is that I think as more people start to open their eyes to this, the innovation will come to the table to support companies, will come up with the right products and then that momentum will grow and we'll see more and more impact. And that's what we want to try to do right in the market.

Jonathan Hackett:

So Justine, over the summer you made a commitment to achieve net zero by 2050. Can you take me through some of the thinking that led to that announcement and how you got your heads there?

Justine Hendricks:

Yeah. Thank you for asking that question, Jonathan, because some folks come and ask me this all the time to say, how did EDC actually figure out to be the first export credit agency in the world to come out with this announcement? So a couple of facts about the announcement that we put out there. Yes, we committed to the net zero by 2050, we also committed to an interim target for 2030, and we went as far as saying that we would publicize that interim commitment by July of next year. So my teams are under just a little bit of pressure Jonathan these days. But the how we said that we would get there is, we said there was three, it's a three pronged approach. First it was taking a look at our financing book, some of the heavy estimating sectors within that book. And over time, and we've been working at that in terms of doing a bit of a straight line reduction towards a specific target.

Justine Hendricks:

The second one though, which is a first one for us, it is embarking on science based targets. And that to me is the exciting part about it because this is where the scientists and the financiers come together. And to me it's a really cool opportunity in terms of how we're going to engage with companies, understanding what their pathways should be based on their industry. And then it fits in nicely to what can an ECA help them in terms of how they get there along with their bankers. And the third piece, which is really exciting to us, it's around sustainable finance. So we were the first issuer of a green bond in Canada. We've had a couple of more since then.

Justine Hendricks:

So taking a look at some of those instruments that could really bring liquidity to the market, which is prompting us to innovate a lot more, is really where we're going to focus. So, it's not like a, there is no silver bullet, I think to solving this problem. And I think those that are successful to it, you need that balanced approach and you have a few levers and you got to be adjusting them along the way. And I really fundamentally believe that, that's, what's going to get us to the success. And then maybe the last thing I chair in terms of our net zero announcement is the commitment we made to exporters as we said, we recognize that in Canada we have our unique sectors and our unique economy, but the key for us was that we wanted to meet companies where they were.

Justine Hendricks:

So I think earlier we were talking about that momentum, I think it's all of our jobs to come to the table with companies. We all have a role to play, whether it's increasing the awareness, helping companies do the first step, whether it's signing up for the TCFD, or even connecting them to different opportunities to those that are a lot more advanced, but meeting them where they are and supporting them on their progress. So, that's really our commitment overall as we unfold and learn more about the next steps to delivering against our net zero commitment.

Jonathan Hackett:

And just wondering how much did it help, I would say that momentum that we've seen from corporates generally of many of the companies that we work with have already made net zero commitments over the last few years, and seeing where the industries broadly are going?

Justine Hendricks:

I think the net zero 2050, some of the conversations we have internally, we're saying, they're becoming table stakes. And you and I are hearing a little bit about this at COP. Knowing that we need to get to a certain point by 2050, I think most people get it. I think the bigger conversation is around the interim target. We need the right point to know whether or not we're tracking to give ourselves that chance to adjust.

Justine Hendricks:

So I must say, if you would've asked me the question, Justine, what's the thing you're the proudest about the net zero commitment we did? I'd say it was about the interim target and us promising that we're going going to be transparent about it, because if you think some of our mutual stakeholders, that is the call to action is to, don't keep all your conversations internally, be open and transparent about them, but that's what I think really starts to mobilize people, because all of a sudden that horizon is a lot closer to you and you start to realize what you need to do today and tomorrow to be able to get there. So, that to me is really been what's been fascinating to watch.

Jonathan Hackett:

Fantastic. Well, thank you so much for joining us here and hopefully you enjoy the rest of COP while you're here.

Justine Hendricks:

Same here, Jonathan, will see you back home.

Jonathan Hackett:

Thanks for joining us Justine.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode, and to see our other podcasts, visit us at bmo.com/sustainabilityleaders. You can listen and subscribe free to our show on Apple Podcast, or your favorite podcast provider and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.

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The views expressed here are those of the participants and not those OF Bank of Montreal, its affiliates or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy, or security. This presentation may contain forward-looking statements. Investors are cautioned not place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only and does not constitute investment legal or tax advice, and is not intended as an endorsement of any investment product or service. Individual investors should consult with an investment tax and, or legal professional about their personal situation. Past performance is not indicative of future results.