As RBCx’s Managing Director, Banking, Anne No Delaide wants to empower start-ups and scale-ups at the intersection of technology and sustainable finance.
In the hyperactive, growth-at-all-costs world of tech start-ups, incorporating policies and practices for environmental, social, and governance (ESG) matters is often seen as something reserved for later-stage companies—or worse, an afterthought. Anne No Delaide challenges that notion. As a Managing Director on the RBCx Banking team, Anne actively engages with tech entrepreneurs and investors and believes in the value of sustainable finance as not just a moral imperative for start-ups, but also an important pillar of a sound business model.
The topic of ESG, of course, has rapidly gained attention as the C-suite subject of discussion in recent years. In simple terms, it refers to three key areas that businesses and investors use to make decisions, ranging from a company’s carbon emissions approach to its policies on data privacy, ethical conduct, and diversity among its board and management. That said, while an estimated $3 trillion of assets are in responsible investing in Canada and, according to RBC’s latest annual report on responsible investment, 81% of Canadian investors have adopted ESG principles, the tech and innovation sector needs support in applying them.
The issue is tackled in a 2022 report Anne contributed to as a member of the steering committee for the Human Technology Foundation (HTF), based in France. “Responsible Investment in Technology” highlights the pivotal role investors can play in shaping the future of ESG practices by providing a practical ESG framework to evaluate tech companies.
This report addressed a demand for investors to have more defined parameters in evaluating the nuanced impact of tech companies, built on a collaboration between European and North American stakeholders.
In this sit-down, Anne shares her insights on the current state of ESG in Canada, the importance of an ESG framework for Canadian tech companies and where RBCx may play a role in supporting emerging ventures to build a solid foundation for sustainable success.
You’ve been with RBC for over 20 years. How did you come to focus on ESG, especially in the tech sector?
Each element of ESG is so personal to me and something I feel I’ve been trained on practically from the beginning. I grew up on a farm in France, so the environmental piece around protecting the land is very important. My parents were also entrepreneurs and very involved in several organizations, so that taught me the social importance of being part of the community. I took that outlook with me in my career, especially early on, when I joined the boards of many non-profits and started working with clients in commercial banking. It was then that I came to realize I was always the only woman at the table. I could both see and feel the gender bias in our interactions, which was hugely disappointing. That experience was hard for me to navigate, and since then, I’ve been very focused on supporting other women in the workplace and industry, and fostering inclusion and good governance so that we don’t leave behind great ideas and valuable voices that can lead to the next breakthrough innovation or solution to a problem.
That personal commitment and passion extended into my work with clients. While we hear of many larger organizations embedding ESG into their business strategies, it’s not always the first – or even last thing – a smaller start-up thinks about. I’ve been working in the tech ecosystem for more than a decade across RBC, including at RBCx, and I realized there was a huge opportunity to have informative ESG conversations with tech companies because it’s helping them understand what ESG is, and working with them to build that framework can have such a big impact on their long-term profitability, purpose, culture and brand value.
Why hasn’t ESG been more widely adopted by the tech and innovation ecosystem?
Firstly, there is much room for improvement across the private sector in defining a comprehensive, regulated process for evaluating ESG matters. The heightened focus on ESG in Canada is quite recent. While it might not be necessary to have the same regulatory and reporting approaches they do in Europe, where HTF is based, it’s currently not standardized in Canada and as a result, businesses have varying approaches to building their ESG strategy. Although key players such as the Business Development Bank of Canada (BDC) and Canadian Development Investment Corporation (CDEV) are involved in developing an approach, adoption has been slow across companies. There needs to be more of a collaborative effort between stakeholders in the public and private sector in establishing an ESG framework for Canada.
Secondly, ESG is seen as something for more traditional industries, such as banking and energy – the frameworks and reports that exist omit the unique nuances of the tech sector. Tech companies tend to think of ESG reporting as something only big corporations like RBC do, and even for RBC, we are constantly evaluating and improving our approach. RBCx’s clients, many of which are at medium maturity, are at varying stages of understanding and implementation of ESG practices. It’s a learning experience for us, just as it is for them – but RBCx has the benefit of leveraging RBC’s established resources, education and partnerships to support our clients.
In general, start-ups – especially in the tech and innovation sector – need to be equipped with the right tools. Across the tech and innovation ecosystem, every stakeholder could be more intentional in our collaboration and knowledge-sharing with other businesses and regulators to support start-ups in simplifying the implementation of ESG solutions, ensuring the Canadian business landscape can have a competitive edge and a positive impact by reaching its ESG goals. This is why the HTF report is so important, because it offers both the tools to help investors assess their portfolios and guides tech start-up founders in asking the right questions.
Why don’t a lot of tech start-up founders have ESG practices embedded from the start?
In short, start-ups have limited resources. During the growth stages, most of a founder’s time is occupied with proving the value of their concept. On the investor side, venture capital (VC) firms – which are a key funding source for start-ups –measure ESG differently from each other, despite ESG becoming a more common consideration. We’ve had a client say that they needed a reason to make ESG a day-to-day business consideration, rather than simply accepting the inherent value of ESG alone. Even when clients are incentivized to care about ESG, their resources are fragmented, so their implementation is varied and inconsistent. From what RBCx has seen with our clients, they need specialized advice and solutions that are reasonable for their segment and maturity level to implement ESG practices.
I also think it’s cultural. Entrepreneurs are focused on being disruptors in their areas of business. They want to revolutionize the world, but they don’t think enough about how they will do it—or the implications. If they want to align their purpose with ESG, we must help them train those muscles and evaluate the risks related to ESG from the outset. Integrating ESG factors at the onset of a company’s decision-making process can direct resources towards growth rather than doing damage control for any negative effects or lack of oversight.
What are the key risks for entrepreneurs and founders who don’t prioritize ESG?
In general, risks would involve penalties for not complying with certain statutory or regulatory requirements (e.g. Canada Labour Code, Canadian Environmental Protection Act (1999)), financial losses from an increase in costs incurred, and a loss of revenue. These risks have a cyclical impact on the business. For example, from an environmental standpoint, this could manifest in supply chain impacts or losses from not meeting government-mandated requirements. From a social standpoint, there might be reduction in productivity and sales due to a lack of health and safety standards. From a governance standpoint, the lack of proper data protection might lead to customer data loss or theft.
While ESG is all about positive impact, it’s also about maintaining a positive reputation and mitigating risk. Businesses need to hold themselves accountable to their stakeholders, including consumers, investors, and the general public. The last thing RBCx wants is for our clients and partners to end up facing issues because they didn’t have a clear ESG strategy in place.
At a high level, what are some areas start-ups could consider for positive ESG policies?
The HTF report talks about this in more detail for the tech industry, and it’s a starting point for clients to ask themselves the right questions. But take the environmental part of it, for one. For every business, there is an entire network to support product development, or even administrative services. Too often, tech start-ups and VCs don’t consider their net-zero strategy, because for many of them, the core business of software development doesn’t pose a significant risk. Software is on the intangible side, so there is no direct impact on the climate. But companies forget that they also have to account for their suppliers, so they need to think about how they’re evaluating their suppliers’ climate impact.
On top of that, women are largely underrepresented in Canada’s tech sector. The E in ESG is in the spotlight right now, so we don’t think about the impact on the social and governance pieces as much. For example, tech companies can only benefit from diverse perspectives, so companies need to set a tone by being intentional about diversity in their leadership and board of directors.
Internally, at RBCx, we’re combining our tech expertise and our resources as a large financial institution to work towards a more calculated approach in advising our clients to think about their ESG strategy. This is an in-demand area for our clients, and we want to address that as part of their growth strategy.
What are some other innovative ways you’ve seen ESG integrated on the investment side?
Given that VCs are commonly focused on disruptive technologies and rapidly evolving products, they have a role to play in reinforcing the importance of ESG. As of 2022, only 5% of VC firms actively consider ESG metrics regardless of whether they invest in tech or other sectors. Within that 5%, the interest in environmental metrics far outweighs social and governance – and rapid growth tends to lead to a neglect of social impact and governance. But there are VC firms that are looking to change that.
For the first time this year, I heard from an investor who had a mandate to return their limited partners’ investment if they don’t meet their ESG commitments. That willingness and acceptance to not be rewarded is an impressive commitment for them, and it’s something that I think we’ll see more of in the future.
But ESG isn’t always top-of-mind for investors. Why is that?
In general, I think it’s because investors know they’ll get a return on investment regardless of whether rigid ESG criteria are in place. Money talks, right? And as I mentioned before, VC firms can be limited in their capacity. However, when companies have ESG strategies in place, they generally have better returns.
I’m a big believer in baby steps. If there’s too much pressure on the investors to change their current ways of working, it can impact their willingness to accept guidance on ESG from institutions like RBCx. There needs to be an awareness around the connection to the business impact, so that they can also play a role in pushing companies to implement ESG.
This interview has been edited for length and clarity.
RBCx backs some of Canada’s most daring tech companies and idea generators. From our stable of start-ups and corporate ventures to partnering with trailblazing VCs across the country, we turn our experience, networks, and capital into your competitive advantage to help drive lasting change. Speak with a RBCx Technology Advisor to learn more about how we can help your business grow.
References:
https://www.benefitscanada.com/canadian-investment-review/strategies/canadian-responsible-investments-holding-steady-at-3-trillion-aum-survey/
https://www.rbcgam.com/documents/en/other/2022-ri-annual-report.pdf
https://www.human-technology-foundation.org/news/responsible-investment-in-technology
https://www.unpri.org/download?ac=15607
