CIBC Innovation Banking Podcast

Andrew Waitman [00:00:00] If you abuse or misuse, you will eventually lose and you need to get ahead of where those risks are. 

Michael Hainsworth [00:00:09] Hello, I'm Michael Hainsworth. The CIBC Innovation Banking Podcast explores the world of startups, growth stage companies and late stage companies that have made a big splash in their industries around the world. ESG isn't a new topic for the C-suite, but it's got a new name and a renewed sense of value for startups and those investing in them. But how should a company define what environmental, social and governance issues are priority issues for them? And how should a company's ESG value system be monitored to ensure it's meeting those key performance indicators that investors insist are met before opening their wallets? Andrew Waitman is the CEO of Assent, an Ottawa based supply chain transparency company that Andrew boasts is the world's fastest growing firm in the space. And because ESG means something different to different people, we began our conversation by defining the term on his terms. 

Andrew Waitman [00:01:16] So, Michael, ESG is a framework for business risk analysis on topics related to environmental and ethical or social topics. So it's a new methodology or framework to help companies evaluate what we'll call non-financial metrics. 

Michael Hainsworth [00:01:38] You've been with Assent for almost a decade. What have you learned about the importance of ESG to a company since 2014? 

Andrew Waitman [00:01:44] So ESG is a very, very important topic for more and more of the stakeholders. It always has been for a while, I would say the population writ large, who cares about climate issues, pollution issues and social issues. But this is becoming more urgent. And look, we're seeing a hurricane out of Florida that's more intense. We're seeing fires. The carbon issue, one often says that the most important letter in ESG was C for carbon. That is not going away. It's an immediate, it's an urgent and it needs attention. So what I am finding in interacting with customers is they are taking it seriously. It's not just a moral argument, it's an economic argument. And we need to have metrics and means of measuring and improving not just our carbon footprint, but we need means of measuring improved social commitments. 

Michael Hainsworth [00:02:41] And it seems like ESG initiatives have evolved over the last decade. 

Andrew Waitman [00:02:45] So legislation has been evolving, and the stakeholders, the investors, the customers, the population writ large is putting more and more attention to the abuses. Just let me give you a small anecdote. PFAS, if you Google it, did not show up a year or two ago. They're toxic. They're cumulatively toxic and the United States and in Europe are banning these substances. So new topics are arising all the time and they are being attended to because of legal liability, reputational risk. And the more and more obvious harm as science improves. 

Michael Hainsworth [00:03:31] Andrew has seen that over the last decade as customers began to include environmental, social and corporate governance issues in their buying decisions, their views were not limited to the checkout counter. They were extended into the workplace, making decisions about employment based on a company's carbon footprint, approach to work life balance and management. And that's when investors started to see a connection between a company's ESG record and its success in the marketplace. He points out that it was then that they started deciding that ESG, alongside KPIs like revenue, growth and churn rates, helped decide who to fund. 

Andrew Waitman [00:04:10] Investors care about risk. They care about financial risk, but they care about cybersecurity risk. They care about environmental risk. They do not want to see their companies being surprised by liability risks or by reputational risks impacting their, not only their business, but their stock price if they're public and if they're private, associated economics. So ESG is a methodology of moving towards more quantitative analysis of the various topics and risks. And so all of these topics are requiring standards. They're requiring the accounting firms to establish best practices. And you are going to see, Michael, non-financial reporting become a legislated requirement both in Europe and North America. 

Michael Hainsworth [00:04:58] When building that robust ESG program, I suppose it's critical to engage with your stakeholders, and that's your customers, your investors, your employees. How do we establish what the priorities ought to be? 

Andrew Waitman [00:05:09] That's an excellent question, Michael. Every company is in a different context, and that context must look at where the priorities and where the pressures are. So if you are in manufacturing and you are attentive to your carbon footprint, you may not realize that most of your carbon issues are in your supply chain called Scope 3. Each company needs to go through an analysis with their stakeholders. We call it a maturity model. This is what we help companies with: is Where are you? What are the major issues? You know, it could be labour standards, it could be anti-bribery, anti-corruption, it could be code of conduct. But depending on what business you're in and where you operate and where your supply chain operates, you have different levels of risk that you haven't necessarily been attending to, and you need to get engaged with your supply chain. If you abuse or misuse, you will eventually lose and you need to get ahead of where those risks are in your company internally. But where most of the risk is for many companies, particularly in manufacturing, is in their supply chain. 

Michael Hainsworth [00:06:18] So each company has to choose what their consequential business risks are, establish what their value system is, and present that to the world. And once they do that, it's your argument that you get sustainable revenue growth if you have that effective and robust ESG program in place within the organization. But there are some who might see an ESG program as a cost center. So how does a startup's value system create sustainable revenue growth? 

Andrew Waitman [00:06:44] Absolutely. So disruption is anathema to business growth. And disruption can come from different aspects. And just to give you an example, when COVID occurred, we all learned about supply chain disruption and a great deal of attention at the C-level went to how to build more resilient supply chains, be less dependent on single source suppliers, be less dependent on certain countries which protected their own supply. That was clearly a disruptive business risk which impacted businesses. Responsible supply chains have a similar issue of potential risk of disruption. 

Michael Hainsworth [00:07:28] If you abuse or misuse, you will eventually lose. What a simple formula for a complex topic. That there is no one size fits all approach to ESG may complicate the development of an effective ESG program, but it ensures the company reflects the value system of its founders and employees. That so-called maturity model that brings the stakeholders together is what helps mitigate risk. But Andrew points out that an ESG program requires participation from the entire supply chain, and the weakest link risks breaking down trust between the enterprise and its customers and employees. 

Michael Hainsworth [00:08:05] So what are the critical steps toward building an effective ESG supply chain program? 

Andrew Waitman [00:08:10] There's an education level, Michael, on all of this, because many of these topics are relatively new. PFAS was not on anybody's radar writ large a year or two ago. It is now on everybody's radar. But what does that mean? Where is it in your supply chain? So education is the first. But as we talked about earlier, you have to scope where your major environmental and ethical risks are. You then have to start on a journey of engagement with your supply chain and explain to them which topics are most relevant. So I want to know about your carbon footprint and here's how we need you to do these calculations. So it's an engagement with the supply chain. It's an education. We are in the business of assembling data to present where you're at on certain parameters and metrics, and then you establish with your suppliers where you want them to get to. Nobody really wants to fire their supplier. They want to work with their suppliers. They want to improve their suppliers. The customers get a closer relationship with their suppliers, and they find their suppliers are on this sustainability journey as much as they are. And so the suppliers have suppliers. And so there is a supply chain. This term is really important because everybody starts working towards equitable pay. So it's a lot about establishing a supply chain due diligence and having what I would call a compliance program partner, which is what Assent is, alongside whatever your core business is, a partner to help you engage with suppliers, educate those suppliers and start to improve the performance of whether it's carbon usage, PFAS reduction or whatever topic. 

Michael Hainsworth [00:09:55] Let's talk about Scope 3 emissions. Emissions that aren't produced by the company itself. They're not the result of activities from the assets owned or controlled by that startup, but are indirectly responsible for them. You raised a very interesting and important point about the term supply chain and the analogy of the chain in that you as an organization are just one link in that overall environmental chain and you may have people supplying you, but if your house is in order and theirs is not, that's the weakest link in that environmental chain. We need to break down that Scope 3, attempt to build a better world. 

Andrew Waitman [00:10:31] Yes. And this is where complexity does rise because, you know, yes, we are following these policies and practices with regards to, you know, diversity, equity and inclusion or human rights best practices. We need to know, are their suppliers doing that as well because we are enabling that supply chain. Value chains are the equivalent of supply chains, have to be transparent. And that transparency is because in the West we have recognized that a number of externalities or costs, what I was calling abuse or misuse will eventually come back as either reputational impact or economic costs. It does require you to engage with your direct suppliers, for them to engage with their suppliers. And this ripple benefit to the world following better best practices. 

Michael Hainsworth [00:11:27] Tell me about advancing those best practices, because once you've taken ownership of ESG as an issue, you need to put the resources into it, you need to set goals, you need to have priorities, as we've discussed. But then what's the next step after that? Because it seems to me the ESG is not a product you buy, put on a shelf and walk away. 

Andrew Waitman [00:11:45] The best practice in cybersecurity is that you never have an incident. So you may then say, Well, why am I putting all this, you know, resource, people, money, tools into cybersecurity to never have a disruption in your business, No ransomware. There is an analogy here. Good practices in business mean you have a healthy growing business with no incidents, with a balanced treatment of people, with a balanced treatment of the environment. To your question of what's the ongoing? It's always measure, it's always have metrics that show where you are and how you want to improve and make sure that you then leverage. 

Michael Hainsworth [00:12:29] And I can imagine for startup founders, entrepreneurs and right up into the growth stage companies, you're basing the priorities in your ESG program on the value system you bring to the table as an organization. How do you establish what your value system is? 

Andrew Waitman [00:12:45] Well, that's an excellent question. And I think much like companies publish what their mission and their vision is and their goals, their strategic goals in an annual report, I think the values are idiosyncratic to every organization. They're often set by a founder. We as a B Corp take our ESG responsibilities very seriously. So a lot of this has to do, Michael, with disclosure. And so the world has for, you know, 200 years been really tuned in on financial disclosure. The world is now going to get much more. And you see this. Deglobalization at its heart, Michael, is values. But as you know, this is not a simple formula. And so I think companies should publish explicitly how they operate. And then people will make judgments of whether the company does truly act in that way. 

Michael Hainsworth [00:13:40] So for the listener who recognizes that when it comes to investors and customers and employees, an ESG system is a critical component to success for the organization, growth for the organization, investment into the organization, what's the key takeaway that you want the listener to go away with at the end of this conversation? 

Andrew Waitman [00:14:03] Every stakeholder does care about these issues and every organization needs to begin. Part of beginning is educating in your context, whether you're a manufacturing company, whether you're an apparel company, whether you're a services business. You need to understand where you can have the most impact on improving environmental and ethical topics. And then I would say have a sustainability program or a compliance program that is transparent, that is published. And then I would say use that as a competitive differentiation. 

Michael Hainsworth [00:14:42] It's helping companies establish that competitive differentiation that leads Assent to be such a fast growing authority in supply chain transparency today. And Andrew will continue to guide founders and the C-suite in establishing what ESG means to them by encouraging them to reach out to their stakeholders, their customers and their employees to build an ESG program that can be quantified so that when investors enter the data room, they know they'll be funding a company that understands all three letters of the acronym and why all three are critical to success today. 

Michael Hainsworth [00:15:23] This has been the CIBC Innovation Banking Podcast, where we learn the secrets to innovation economy success from the entrepreneurs who are paving the way for the future. I'm Michael Hainsworth. Thanks for listening.