Canadian Franchise

We all need to consider ESG

In today’s world, Environmental, Social, and Governance (ESG) frameworks are key elements and considerations the business community needs to take to assist in addressing and positively contribute towards climate change.   We learn about corporate responsibilities and their sustainability efforts through a variety of ways; product advertising, consumer advocacy, and in both traditional and social media engagement.  It can be a challenge to contextualize all the messaging and it make it relevant in our daily lives.  Because franchising is such a formidable force in Canada, it’s highly likely your local restaurant, pet store, home improvement centre, or auto shop are interacting with society in similar ways.  Many franchise brands acknowledge the ESG appeal to consumers and potential investors, but how does ESG and franchising connect?  

Since franchisees have so much choice as to where and how to invest their money. This may now include showcasing the brand’s ESG values and how it supports related initiatives.  As with any investment, franchisees should research and investigate the concept, not only to ensure there is a need for the product in the desired market, but to ensure there is a personal or cultural value alignment with the brand.  As with all franchise validation and due diligence, a crucial exercise is to speak with the current franchise community.  Prospective franchisees may want to ask additional questions of the brand and franchisees to ensure their investment aligns with the growing societal sentiment:

  • Do the company values align with mine?
  • Is there an ESG policy?
  • Does the franchisor have ESG strategies to put into practise and support?
  • How does the brand incorporate environmental protection into their decision making?
  • How does the franchisor treat its employees and suppliers?
  • Would you encourage a family member to invest in this franchise?

The same way companies are intentionally focusing on ESG to attract and retain employees, franchise brands may also need employ the same strategies.  Make no mistake, franchises are looking for investors the same way the labour force is being targeted.  So those brands who can identify their ESG strengths may be better at recruiting the top franchise candidates.

It’s also important for franchisees, as an ambassador of the brand, to understand their role in Environmental, Social, and Governance policies.  Keep in mind, one of the most important fundamentals of ESG, is that it is not a ‘set it and forget it’ policy.  ESG is evolving, meaning franchise systems and franchisees must evolve with it.  

And while ESG is relatively new terminology, some brands have made it a deliberate focus for some time.  Other networks are beginning to ramp up their efforts and some are incorporating ESG guidelines without having an official policy in place.  In the absence of a formal policy or to begin your company’s journey, there are some things to consider.

To achieve the goal of zero plastic waste by 2030, the Canadian government has legislated a phased out ban on the manufacture and import for sale of single-use plastics.   Many restaurant brands have already made the switch to paper straws and retail outlets have replaced plastic check-out bags, but there are other plastic items to consider; cutlery, stir sticks, and foodservice ware, to name a few.  Franchise networks will need to review their current product list to ensure compliance and also appeal to the franchisees who are the direct link to the customer. A best practice to reduce costs and waste is for restaurant brands to ask customers during the ordering process, whether cutlery and condiments are required at all.   

Many bulk food and product stores (grocery, beauty, pet, etc.) allow customers to bring their own reusable containers and are well positioned to appeal to the customer base who have packaging (or lack thereof) as a driver to choose their shopping destinations.  And it’s quite possible your favourite beverage franchise will offer a discount when you refill your own reusable cup.  Even one step further, some larger franchise brands across North America are testing returnable/reusable packaging (ie. pizza boxes and hot drink beverage cups). 

There have been some trendy local diet ideas regularly talked about not long ago which saw increased popularity during the food supply scares during the early days of the COVID-19 pandemic.  While the idea of strictly feeding your family with products sourced within 100 KM of your home has received less attention lately, the sentiment still lingers.  Customers are realizing the environmental value of local product sourcing.  Not only does it provide fresher food and reduces its carbon footprint, but also supports local businesses.  

Going beyond the supply chain, franchise networks are also investigating and testing how the physical locations can be improved upon.  In the never-ending struggle to find the ideal footprint, brands are also encouraged to discover different ways to reduce energy and use greener materials.  Marketing LEED (Leadership in Energy and Environmental Design) buildings and adding upcycled/repurposed elements are great ways to highlight your brand’s commitment to ESG.  Retrofitting to LED lights with motion sensors, replacing gas-fired with high-efficiency electric appliances and the installation of on-site renewable energy generation (i.e. solar panels) are more environmentally friendly options to improve your brand’s carbon footprint.  

Another frequently discussed option for brands and franchisees, is to invest in electric vehicles to replace their fleet and delivery vehicles.  Depending on the circumstances, there may be an option to improve the return on investment through monetizing the carbon off-set.

Post COVID-19 labour shortages have highlighted the news at every corner.  Brands should consider how they appeal to franchisees, of course, but also how they may appeal to corporate staff and local franchisee staff.  Studies are indicating a higher percentage of consumers are more trusting of companies that support social and environmental issues.  Furthermore, that same study suggests a majority of employees would choose to work for a socially responsible company, even if the salary offered was lower.  A Chief Sustainability Officer or similar role is becoming increasingly popular to tie all the pieces together, but it is still recommended to consider all the network stakeholders when deciding how to approach the direction of brand.  

A critical element to be aware of, is greenwashing.  Greenwashing involves making an unsubstantiated claim to deceive customers into believing that a company’s products are environmentally friendly or have a greater positive impact than they do.  Current litigation examples in the United States are a cautionary tale for Canadian companies.

So now what; how will you tell your brand’s ESG story?  Typically, what gets measured, gets done.  Setting quantifiable goals and results to measure the impact of what you’re doing will determine whether your network is following through on its commitments and recognizing potential opportunities at both the corporate and unit level.  Similar to the primary tenet of franchising – being in business for yourself, not by yourself – there are many resources to assist as your brand pivots and adapts throughout it’s ESG journey.  Seeking support from the experts is a great starting point.  For more information on how BMO is addressing sustainability, visit Our approach – Our Impact (bmo.com).

 

Andrew Carter

Andrew Carter, Regional Market Leader for BMO, has been working with franchisees his entire career. His career has spanned from the Franchise side to the Finance side.  His strong operational background complements his financing knowledge, providing holistic advice to all franchising situations.