Despite the controversy surrounding its president Isabelle Hudon and the firm McKinsey, the Business Development Bank of Canada (BDC) wants to impose more transparency in Canadian venture capital. The Crown corporation will provide other funds and companies it does business with with a new ESG (environmental, social and governance) disclosure tool which it hopes will influence the adoption of best practices in the entire venture capital industry.
This tool takes the form of a rather robust questionnaire allowing to detail the environmental and social impact of a company and the state of its own governance. For example, it addresses issues related to its direct and indirect environmental footprint. He asks questions about the security of his computer systems and his level of preparation in the face of a possible cyber threat. It questions the values of the company, the level of satisfaction of its employees and its ability to react to their requests.
It will be given to all venture capital and development capital funds in which BDC has an interest. Companies, large and small, that are financed by the institution and by these funds will also receive it.
BDC plays a more than central role in the Canadian start-up sector. It has interests in 124 private funds across the country. To date, it has also invested directly in over 400 companies. In short, for every dollar held by private venture capital funds in Canada, 62 cents comes from the BDC.
A first in Canada
The impact that this measure will have on the entire Canadian venture capital industry and, by extension, on technologies and innovation, is therefore likely to be major. “This is a first in the industry,” says BDC Capital Executive Vice President Jérôme Nycz. BDC Capital is the BDC’s investment subsidiary responsible for this new tool, which is inspired by a similar measure attempted last year more specifically targeting inclusion and diversity criteria within the companies with which BDC does business.
“There is a lot of work being done by large companies to adopt ESG best practices. Start-ups don’t have the accounting army necessary to calculate these things. So we equip them so that they draw up a report themselves and so that they can report on these criteria. »
By sharing its own questionnaire template, BDC also hopes it will help harmonize the way different players in the investment and innovation ecosystem in Canada define and then calculate ESG impact, adds Jérôme Nycz.
“It is important for our companies because large multinationals must increasingly report their ESG activities as well as those of their partners, including in their supply chain, and ensure that there is a policy of commitment throughout the chain. Whether we like it or not, these companies are doing business with companies all over the world and with that we can help Canadian start-ups to do business with them. »
More transparency
This new tool for disclosing ESG factors was created after consulting recognized specialists in the field, including Investissement Québec and the Québec funds Cycle Capital and iNovia. BDC Capital hopes it will be as well received as its previous survey on inclusion and diversity in 2021, in which more than 80% of its partners participated, says Jérôme Nycz.
BDC spokespersons declined to comment on the controversy surrounding the institution’s closer relationship with the consulting firm McKinsey since the arrival at its head of Isabelle Hudon. Current and former BDC employees shared their concerns with the CBC a few days ago about the awarding of new contracts and the increase in administrative expenses since Ms. Hudon took office in 2021.
The ESG disclosure tool was created entirely in-house, it says. As to whether the news of the last few days will affect its reception, Jérôme Nycz replied, indirectly, that he hoped that it would not change anything.
“We hope it will be well received,” he said. “We want it to help drive wider adoption of ESG best practices. There is a common interest in having a unified approach in the market. We have made this approach available. »
“It meets a real need,” he concludes.