Investors, clients and governments are increasingly demanding: businesses must place sustainability at the heart of their business model.

A recent study sheds some light on businesses’ concerns with regard to the environment and sustainable development. What are the benefits and what concrete actions can businesses take to adopt a more environmentally responsible approach?

Over the course of the past decade, the importance of sustainability has increased significantly all over the world – not only in terms of how individuals live their lives, but also how governments frame policy as well as how businesses develop operating models and plan for the future.

The ongoing pandemic, meanwhile, has produced a paradoxical challenge for mid-market businesses. And despite COVID-19, the need for action on sustainability has never been more urgent.

Emilio B. Imbriglio, President and CEO of Raymond Chabot Grant Thornton said: “A consensus is emerging on the importance of acting to preserve our environment. Integrating sustainability into an organization’s business strategy has become a must for the continuity of organizations and to maintain our economy’s vitality. It is a responsibility of business leaders to influence all stakeholders. It is also an opportunity for local businesses to develop new markets.”

Linda Mannerby, Head of Sustainability at Grant Thornton Sweden, explains, “Companies that understand global challenges and risks, adapt their business models, and manage their business impact – both positive and negative – have a greater opportunity to survive long-term.”

Sustainability in the mid-market

It is clear that sustainability has become a strategic focus for blue-chip businesses. In line with the UN’s Sustainable Development Goals, the likes of Shell, Unilever, Microsoft, Apple and American Airlines – to name just a handful – have all recently announced plans to reduce their net carbon dioxide emissions to zero within the next few decades. Grant Thornton’s IBR research has focused on the extent to which mid-market companies are embracing sustainability.

The findings show that a significant proportion of mid-market businesses are attuned to its importance: just under half (48%) believe sustainability will have a net positive financial impact on their business, while a similar number (47%) expect a sustainable approach to lead to improved operational efficiency and lower costs. Meanwhile, 43% say financial success and sustainability are of equal importance.

The mid-market is clearly attuned to the growing importance of sustainable businesses, but the data also suggests that many mid-market firms are unsure of how to put any commitment to sustainability into practice. 48% agree that most companies of their size don’t know where to start when it comes to sustainability measurement.

Another notable finding is that businesses in emerging markets are prioritising sustainability issues to a greater extent than their counterparts in developed economies, and also expect a greater positive financial impact from integrating sustainability.

Why embrace sustainability?

One of the key motivating factors for mid-market businesses to make sustainability a guiding strategic principle is the growth opportunities this kind of approach can create.

One of the number one motivations for integrating sustainability into strategy is to obtain investment, as year on year there more capital in the world is allocated in accordance with sustainability parameters. Many investors and banks also use sustainability as a proxy for a company’s approach to risk management.

And this may be one factor underpinning the fact that businesses in emerging economies are more likely to prioritise sustainability.

The Quebec government is reportedly being drafted a bill with the objective of introducing ecological criteria in future calls for tenders, according to the Chair of the Conseil du trésor, Sonia LeBel. These criteria have yet to be defined, but this is another indicator that the environment is an issue that companies must take into account now in their growth strategy. This becoming an essential consideration for an organization in order to remain competitive.

The government’s initiative echoes the 2030 Plan for A Green Economy presented in March 2021, which confirms a consensus on the importance of taking action to preserve our environment and, by extension, maintain a viable economy.

Integrating sustainability into core business strategy also drives innovation and ultimate business growth, explains Katerina Katsouli, ESG & Sustainability Director at Grant Thornton Greece. “Increased innovation results in a boost to sales, contributing strongly to business growth. Sustainable and socially responsible companies can establish a clear point of brand differentiation, helping shield them from lower-cost competitors.

“These businesses also stand to gain great value when it comes to reputation. They are better able to build trust with stakeholders, gain willing recommendations from clients, and protect themselves from scandals, regulatory challenges and other reputation-busters.”

The impact of taking a sustainable approach

As the trend towards sustainability gathers pace, says Emma Verheijke, Partner Sustainability & Impact Advisory at Grant Thornton Netherlands, mid-market businesses simply cannot afford to be left behind.

“What we see in the Netherlands and across Europe, is that there are more and more drivers accelerating this transition, from finance and employees to customer sentiment and even public-tender rules. So if you are not going to make this transition and embrace sustainability, is your business going to be future-proof? Are you going to be around in five years?”

Emma Verheijke adds: “I’m not sure this concept has really landed yet – and I think a lot of companies will start to feel the pain of not making this transition quite soon. Sustainability is no longer a nice project on the side: it is part of your core strategy. It affects your risks, your opportunities, your long-term planning, how you deal with your people, your resources and your suppliers, as well as consumer demand. Companies that see that and anticipate these issues will be the ones that have the most value in the future.”

Indeed, the IBR found that almost two-thirds (61%) of mid-market businesses think that global sustainability trends will demand fundamental changes to operating models in their industry.

Valentina Yakhnina, Sustainability Manager at Grant Thornton Israel, adds: “A side effect of becoming more sustainable in terms of your resource management is that you can increase efficiency and reduce costs – for example, if you make the effort to reduce the amount of materials you use, or find new ways to reduce waste.”

The obstacles to becoming more sustainable

For many businesses in the mid-market, the financial outlay required to implement a sustainability programme is a major hurdle to overcome – and one which has become even more of a problem as a result of the financial pressures around COVID-19.

Julia Höglund, Sustainability Advisor at Grant Thornton Sweden, says: “The biggest challenge is short-termism. Even if we don’t want to be, we are still in a system where we are pushed to deliver on quarterly financial targets, and this is still driving the change within companies. The question we usually get from clients is, ‘What is the return on this investment?’ This is sometimes difficult to answer in financial terms because it is dependent on so many global and consumer factors. What we can measure however is the return on investment across ESG (environmental, social and governance) activities, which may have an impact on overall financial performance.”

Identifying value

Sue Almond, Global Head of Assurance at Grant Thornton, says that the IBR’s findings, which found many firms draw a strong link between sustainability and financial performance, were particularly encouraging. She explains: “Financial performance of the business underpins its own sustainability. So if there is a clear line of sight from sustainability actions to overall financial performance of the business, then you have that business imperative: this is how you win hearts and minds.”

Markus Hakansson, Head of Sustainability Business Advisory at Grant Thornton Sweden, adds: “Your ability to create value as a company is not dependent only on financial factors. Non-financial factors – social and environmental – are connected to 80% of the company’s ability to create value and in the end, value is money. But this value – which can be the knowledge of the employees, or structural capital – can be held in the company for many years before it becomes cash. Understanding this concept of sustainability can be a problem for the board and owners.”

First steps in sustainability

Julia Höglund says that the key to working out what a business’s sustainability goals is opening up a dialogue with stakeholders. “This is all about finding out what stakeholders really demand,” she explains. “These stakeholders range from investors and lenders to customers, employees and the wider public.”

According to the IBR, 49% of mid-market businesses expect to face more pressure from existing and future talent to become more sustainable in the year ahead, while 55% expect to face more pressure from their customers.

According to Linda Mannerby, businesses need to assess their current position in terms of the environment and society. “You need to understand where the positive and negative impacts are,” she explains. “One of the simplest ways of doing this is by mapping your value chain: this kind of impact analysis can help you reach out to board members, raising awareness and identifying risks.”

Businesses need to be clear from the outset as to what they are trying to achieve through becoming more sustainable, Emma Verheijke says. “Is it compliance? Communication? Financing? Attracting and retaining talent – or all of the above? Because that is going to dictate the direction you are going to take.”

Once goals and material impact areas have been established, businesses can decide which reporting and assessment frameworks fit best, she adds, rather than starting with a particular framework or methodology and working backwards.

Placing sustainability at the centre of strategy

Ultimately, Markus Hakansson says, sustainability concerns should be placed at the centre of all decision-making within the company. “It is not just about putting sustainability into the business model: it also needs to feed into the strategy, tactics and operations,” he explains.

“In the perfect situation, every decision on the tactical, operative and strategic level should be made on the triple-bottom-line basis, taking into account its environmental, social and financial impact.”

Next article

This first budget from the Canada’s Finance Minister of the Liberal minority government is part of an economic stimulus… and green plan!

With a general election potentially looming, the Minister of Finance, the Honourable Chrystia Freeland, is keeping the floodgates of economic aid open with a three-year, $100 billion stimulus plan, but without any short-term measures to put public finances in order.

This translates into several important investments to the benefit of numerous taxpayers, especially SMEs, the country’s economic driving force.

Recovery stimulus: A few key measures

Emergency Business Support

Measures for businesses include extending the Canada Emergency Wage Subsidy, Canada Emergency Rent Subsidy and Lockdown Support to September 25, 2021. In addition to the previously announced extension of the Canada Emergency Business Account, these extensions represent $12.1B in additional support.

Recovery Hiring Program

Furthermore, the government is creating a Recovery Hiring Program which will run from June to November 2021 and provide $595M to make it easier for businesses to hire back laid-off workers or to bring on new ones.

Canada Digital Adoption Program

The federal government is injecting $4B to help some 160,000 Canadian SMEs invest in new technologies and innovation. The Canada Digital Adoption Program will also provide businesses with the advice and help they need to get the most out of these new technologies. The program will make it possible to train 28,000 Canadians – a Canadian technology corps – and send them out to work with SMEs.

Zero Net Accelerator

In terms of green recovery, the budget is proposing an unprecedented $5G investment over seven years, starting in 2021-2022, in Net Zero Accelerator. This support is on top of the $3B announced by the government to encourage even more businesses to invest in reducing their greenhouse gas emissions.

Some tax measures

With respect to the capital cost allowance, the budget is authorizing the immediate expensing of up to $1.5M of eligible investments by Canadian-controlled private corporations for each of the next three years. These significant deductions will help 325,000 businesses make essential investments and achieve overall savings of $2.2B in the next five years.

Tax on digital services and luxury goods

The budget is also proposing to introduce a Digital Services Tax to ensure the services pay their fair share. This 3% tax would apply on revenue from digital services that rely on Canadian data and content. This measure would make it possible to raise $3.4B in revenue over five years beginning this year.

A new luxury tax is introduced. The tax would apply to the purchase of automobiles and private aircraft worth more than $100,000 and pleasure boats worth more than $250,000. This should bring in tax revenue of $604M over the next five years.

Public finances: Situation and prospects

The 2020-2021 deficit is now $354.6B, whereas it was expected to be $154.7B by the end of 2021-2022. The budget is not expected to be balanced in the medium term and the deficit for fiscal 2025-2026 could be $30.7B, that is slightly less than the pre-pandemic deficit of $39.4B in March 2020. The federal debt would rise from $1,079B to $1,411B by 2026.

Raymond Chabot Grant Thornton had recommended in its pre-budget recommendations, bold tax measures that would apply temporarily to increase the collection of unrealized taxes at a lower rate, thereby enabling the government to collect additional income on the near future, without increasing Canadian taxpayers’ taxes. The funds could be allocated to reducing the pandemic debt.

For more information on the tax measures announced in the 2021 federal budget, please read our Tax bulletin.

Next article

Michel St-Arnaud
Partner | CPA, CA | Assurance

They warned the pandemic could be a catastrophe for auto dealers. The reality couldn’t be any more different.

In the early days of the pandemic, many observers predicted that Quebec’s auto dealers would run into financial difficulties. Despite this, several dealers have posted surprisingly strong results, even when excluding the emergency wage subsidy. Even the dealers that experienced a slowdown at the beginning of the pandemic have returned to positive performance.

These strong financial results reveal a major shift in consumer trends over the course of the pandemic. Remote work, concerns about social distancing on public transit and online sales all appear to have influenced consumer purchase patterns in Quebec. In turn, these changes in consumer behaviour have forced auto dealers to realign their strategies in order to seize new business opportunities.

Online shopping and the digital transformation

One problem that dealers have had to face is supply chain challenges. In Quebec and across Canada, auto dealerships have reported drops in new vehicle sales. Despite this, sales of used vehicles saw major growth in the past year, fuelled by online sales.

Auto dealers have recorded a significant increase in e-commerce sales over the past several years. Online sales rose by 168% between 2016 and 2019, totalling $161.3 million. Soon, consumers in Quebec will be able to purchase a car entirely online, once the government authorizes the use of e-signatures for car sales.

Today’s consumers increasingly shop on the internet, even when it comes to making large purchases like a car. Dealerships have responded by moving new and used vehicle sales online.

This, in turn, has accentuated their digital transformation needs. The preference for online shopping is probably here to stay, even in the post-pandemic world.

To ensure the long-term viability of their business, managers of auto dealers need to prioritize solutions that incorporate strategic innovation and technology. Nowadays, they need to offer consumers tools that save them time and facilitate their purchase experience. Auto dealers must identify their unique selling point and anticipate their customers’ needs. By adopting flexible planning, they’ll be able to adjust to the shifting preferences of consumers.

Opportunities for sales and acquisitions

Before the pandemic, some dealership owners who planned to sell their business to an external buyer weren’t sure if it was the right time to sell. Since then, the strong financial performance by many of Quebec’s auto dealers in the past year has fuelled a number of acquisitions. There is now a range of opportunities on the market.

And despite the pandemic, there has been an increase in the number of transactions between auto dealers in Quebec: 22 were recorded between September 2019 and September 2020, compared to 16 in the previous annual period.

If your plans include selling your dealership, it’s important to plan adequately for this important step. The sales process is complex and requires a carefully thought out approach. Significant time and effort must be invested to ensure a successful transaction, for the best possible sales price, that ensures the longevity of the business. Do you know what the value of your business is? What about taxes?

The same considerations apply when you acquire a business. Do you have the capital to finance one or more acquisitions? Do you have legal and accounting partners who can guide you with your transactions and help you set up a growth plan?

The pandemic has created new opportunities for auto dealers, and you too can benefit. Effective preparation will help you get through all the steps with peace of mind.

The pandemic has forced auto dealers to improve the ways they manage their expenses. This partly explains their strong performance in the past year, following previous years of positive results. Now is an excellent time to review your corporate, organizational and tax structure so you too can seize the new opportunities that arise.

15 Apr 2021  |  Written by :

Michel St-Arnaud is an assurance expert at Raymond Chabot Grant Thornton.

See the profile

Next article

Jean-François Boudreault
Partner | Human resources consulting

Many workers are nearing retirement age. In order to thrive, businesses will need to find ways to retain these workers’ valuable skills and knowledge.

A major shift is occurring in Quebec’s labour market. For the first time in Canada’s history, people over 65 outnumber those under 15. Baby boomers currently account for 27% of the population, an increase of 9% from 2019. And in 10 years, it is estimated that more than 20% of Canadians will have reached retirement age.

With many skilled workers leaving the job market, businesses will struggle with even more acute labour shortages in the years to come. But if organizations start planning now, they can mitigate some of these losses. Besides passing on key skills and knowledge, a successful transfer strategy should contribute to employee motivation and retention.

Plan ahead to prevent a drop in productivity

The more prepared you are, the better your organization will be able to cope with the departure of your most experienced employees. To avoid a drop in productivity—and a slowdown in growth—you’ll need to plan how your business will pass on critical knowledge and expertise.

By adopting the right strategies, you’ll be able to retain the knowledge acquired within the organization and stay competitive in your market.

Creating a knowledge transfer strategy

We recommend implementing a simple and effective knowledge transfer strategy focused on maintaining a strong level of performance within your organization.

The first step is to identify, classify and model the areas of expertise that you consider to be essential to the long-term success of the business.

Without restricting the autonomy and initiative of new hires, your knowledge transfer strategy should specify the skills and abilities required for each position and the risks associated with losing this valuable expertise.

Include these key actions in your strategy :

  • Identify critical roles where a loss of knowledge could become a major challenge for your business;
  • Clearly define your knowledge transfer objectives and strategies (competency map, risk management, loss of productivity, scarcity of skilled labour, etc.);
  • Develop and encourage a culture of learning and knowledge sharing (coaching, mentoring, reverse mentoring, etc.);
  • Invest in relevant technology or resources (virtual platform, publications, community of practice, etc.);
  • Praise good actions and encourage your managers to support knowledge transfer initiatives;
  • Create a culture of recognition in the workplace that rewards motivation and engagement.

When viewed as a strategic imperative, recognition can have a positive impact on team mobilization and help the organization achieve its business objectives. It’s also an important factor in the success of a knowledge transfer strategy.

Finally, offer training on knowledge transfer to your managers and HR staff and educate them about the importance and challenges of this strategy.

Passing on the organization’s culture

Besides transferring knowledge from your most experienced employees to your newest hires, it’s also important to pass on your organization’s culture: in other words, an understanding of its history, values, mission and clients. Employees who acquire this understanding are more likely to stay with your organization in the long term.

An effective knowledge transfer strategy is a powerful driver of growth and essential for preserving an organization’s culture and knowledge. This knowledge is a strategic asset, and underestimating the importance of the knowledge transfer strategy can have serious consequences. Fortunately, an experienced external advisor can help guide you through this process and recommend best practices tailored to your business model to ensure a successful transition.

Skilled labour is an increasingly rare commodity. Demographic trends and the departure of key employees will only increase the pressure on businesses facing a shortage of skilled workers.

By encouraging your teams and managers to develop skills sharing practices, you’ll be helping your employees thrive and feel valued while improving the agility and performance of your organization in the future.

14 Apr 2021  |  Written by :

Jean-François Boudreault is a partner at Raymond Chabot Grant Thornton. He is your expert in human...

See the profile