Driven in part by socially conscious investors, the push for sustainable business practices has led to a dramatic increase in the adoption of environmental, social, and governance (ESG) investment standards and sustainable measures for corporate performance. Introduced by the United Nations in 2006, global ESG assets are on track to reach US$53 trillion by 2025. In Canada alone, sustainable assets averaged CA$26 billion at the end of Q2 2021, illustrating a year-over-year growth rate of 130 percent.

The adoption of ESG standards is becoming a basic requirement for most of Canada’s large companies and investment managers and could offer Indigenous communities an unprecedented opportunity to have their input and perspectives factored into corporate decision making and strategies. While we have seen some progress over the last few years, a lot of work still needs to be done to fully incorporate “Indigenous” aspects into ESG investing and ensure that ESG is not just a superficial term but is indeed socially responsible investing that supports economic reconciliation with Indigenous peoples.

This article discusses some of the gaps in Indigenous investing and delves into why it is important to Indigenize ESG. It draws on the findings from the First Nations Major Projects Coalition’s (FNMPC) Indigenous Sustainable Investment Conference, which was held in March 2021 and was attended by 1,500 participants, including Indigenous peoples, institutional investors, and government workers.

ESG minus the “I”

The ESG standards adopted by Canadian companies and investors were developed outside of Canada without considering the rights, interests, and inputs of Indigenous peoples. The leading ESG standards in use today include those developed by the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures, and the Climate Disclosure Standards Board. Of these, only GRI and SASB make cursory references to Indigenous issues. Even then, GRI considers Indigenous peoples and their rights to be of importance only if Indigenous peoples launch a legal challenge. SASB refers to the United Nations Declaration on the Rights of Indigenous Peoples but does not provide advice for how to factor Indigenous rights into company operations and decision making.

These standards were created by the private sector, for the private sector, and have little to do with Indigenous territories, lands, and waters; Indigenous constitutional and treaty rights; or even Indigenous knowledge, cultural heritage, principles, and traditions. To quote Chief Willie Sellars from the FNMPC Conference, Indigenous peoples should be “involved not just in discussions with the mine [or any other project] but [bring] our own consultants [to the table] so that we feel comfortable about the decisions that are being made.”

Gaps in Indigenous investments

Concurrent with the ESG movement, Indigenous peoples in Canada and around the world are accessing and deploying an increasing amount of capital in major infrastructure and other investment projects that are reflective of each Indigenous community’s values and goals.

A case in point is the Cascade Power Plant Project in Alberta, a 900-megawatt combined cycle power station that will deliver electricity to Alberta’s power grid. Sanctioned in August 2020, the project was funded by a consortium of six First Nations and other investors. In this case, the six First Nations became co-proponents of the project because of their equity stake in it, and the project was able to ensure free, prior, and informed consent of Indigenous peoples.

This, however, is the exception rather than the rule, as few First Nations have the resources for such an investment project. The problem is compounded by Indian Act rules that prevent First Nations from using their assets as collateral, making it difficult for First Nations to borrow, due to the consequent high interest rates charged by lenders. The conference summary highlights how third-party vendors—including Raven Indigenous Capital Partners, Alberta Indigenous Opportunities Corporation, and Ontario Financing Authority’s Aboriginal Loan Guarantee Program—have been key players in garnering Indigenous equity stakes in particular projects. While these are important strides, there is still room for improvement, such as, for example, an Indigenous Infrastructure Bank that could be Indigenous-led and provide debt to projects, and/or a Canada loan guarantee for Indigenous groups to purchase equity in major projects within their territories.

Indigenizing ESG

As the climate crisis threatens the planet, the “E” in ESG is garnering the most attention. One of the primary solutions for addressing climate change is investment in clean energy infrastructure. This can be a win–win situation for everyone—not only is a reduction in greenhouse gas emissions and increased use of renewable energy necessary, but it also aligns with the values of many Indigenous communities. 

As Canada strives to reach the goal of net-zero carbon emissions by 2050, several companies will find it necessary to use carbon credits to offset the greenhouse gas emissions that they cannot avoid by other means. The Taskforce on Scaling Voluntary Carbon Markets, sponsored by the Institute of International Finance with knowledge support from McKinsey, estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the global market for carbon credits could be worth upward of US$50 billion in 2030. There is tremendous potential in leveraging Indigenous communities toward meeting Canada’s target and realizing the economic value of meeting that target by facilitating their early engagement and designing a system that works for all.

Up until now, Indigenous peoples and Indigenous rights have been part of the “S” in ESG measurement. We need to Indigenize the “S” in ESG so that Indigenous peoples can be equal partners in project development. Engaging Indigenous communities early on—even before project formulation—and aligning projects with Indigenous values and goals is not only the right thing to do, morally and ethically, but it is also important to retaining the “social license” that allows projects and business to operate and expand with less risk of controversy and resulting delays due to blockades, lawsuits, and boycotts. “When ESG factors are mismanaged, that social license can be suddenly withdrawn, damaging relationships with communities, customers, employees, and suppliers, destroying reputation and financial value, potentially terminally,” noted Mark Carney, Vice Chair, Brookfield Asset Management, at the FNMPC Conference.

 For Indigenous values, protocols, and principles to be respected, Indigenous representation at the board level is crucial. In its sixth annual Diversity Disclosure Practices report, Osler Hoskin and Harcourt LLP noted that, of the 2,023 board positions at the 270 Canada Business Corporations Act companies that provided full or partial disclosure on their practices before July 31, 2020, only seven positions were held by Indigenous board members. Meaningful and commonplace Indigenous representation at the board level represents the beginning of Indigenizing the “G” in ESG.

In May 2021, shareholders of TMX Group Ltd. voted to support a resolution on Indigenous inclusion and reconciliation at the company’s annual and special meeting of shareholders. The vote requires that TMX Group’s board of directors report to shareholders on its work to develop internal programs and policies on equity, diversity, and inclusion, including those relating to current and prospective Indigenous employees, and review procurement from Indigenous-owned businesses, among other efforts to promote Indigenous inclusion and reconciliation. It is expected that the decision will have positive knock-on effects across Canadian capital markets.

Conclusion

Canada is in well positioned to realize meaningful industry engagement and participation of Indigenous communities. The good news is that the idea of “Indigenous-informed investment” is slowly but surely becoming a reality. The conference summary highlights that “Indigenous-led investment” and “Indigenous-owned capital investment” should be the goals for the future of Indigenous investment. Indigenous peoples have used innovation and ingenuity to survive with or without outside support for generations. An inclusive mindset that is open to doing things differently and providing Indigenous communities with a level-playing field could be the game changer for corporate Canada.