SME sustainability strategy: What Canadian SMEs Need to Know for Business Success in 2025

Tom Toro

Despite the growing global consensus that sustainability must be integrated into core business strategies, the road to 2025 presents significant challenges. On one hand, corporate net-zero pledges are at an all-time high, and climate risk disclosures are accelerating. On the other, shifting political landscapes—especially in North America—create uncertainty about ESG mandates. However, Canada and Quebec continue to strengthen regulatory frameworks, pushing businesses to adapt.

For SMEs, the impact is increasingly tangible. ESG considerations are becoming embedded in supply chains, financial requirements, and operational decision-making. This article explores five key ESG trends shaping 2025 and their concrete implications for SMEs in Canada.

1. Your Corporate Clients Demand ESG(a) Reporting

Convergence of ESG Standards Meets Regional Patchwork

Impact on SMEs

SMEs supplying large corporations will face increased compliance pressures, especially from clients bound by CSRD (Corporate Sustainability Reporting Directive), ISSB (International Sustainability Standards Board), and emerging Canadian frameworks. While no single ESG standard exists, overlapping requirements mean SMEs must prepare for evolving reporting expectations.

Short-Term Actions:

• Engage with your stakeholders (clients, suppliers, employees) to understand their ESG expectations and concerns.

• With the help of an expert, conduct a materiality assessment to identify what impacts your business and what your business impacts.

• Start tracking ESG-relevant metrics that are already accessible, even if formal reporting isn't yet mandatory.

• Engage with large clients to understand their specific ESG reporting requirements.

Medium-Term Actions:

• Develop a comprehensive CSR (Corporate and Social Responsibility) strategy with the help of an expert that aligns with industry best practices.

• Establish governance structures to oversee ESG implementation within your company.

• Integrate ESG considerations into financing and investor discussions.

• Create a roadmap for continuous improvement with specific targets and timelines.

  
  

Available Help (Canada/Quebec):

• Government funding for ESG readiness, such as Fonds Écoleader in Quebec.

• Industry associations offering ESG compliance support.

  
  

Behind the Scenes: Large companies are scrutinizing their entire supply chains as they face their own reporting requirements. Your corporate clients need your ESG data to complete their own compliance obligations. This isn't just paperwork—it directly affects contract renewal decisions as large businesses must demonstrate sustainable supply chains to their investors and regulators.

2. Your Client Requires Scope 1 & 2 Emissions Data (b)

Climate Commitments Go Deep: Scope 1 & 2 and Adaptation

Impact on SMEs:

SMEs within major supply chains will increasingly need to assess and disclose Scope 1 & 2 emissions. Additionally, climate adaptation costs may rise for businesses in vulnerable sectors, such as agriculture and manufacturing.

Short-Term Actions:

1. Map your value chain to identify where carbon emissions occur in your business operations.

2. Conduct a basic carbon footprint assessment focusing on your direct operations (Scope 1 & 2).

3. Collect energy consumption data and establish baseline measurements for key operations.

4. Identify "quick win" opportunities to reduce emissions through energy efficiency and supplier collaboration.

Medium-Term Actions:

• Expand your emissions assessment to include Scope 3 (supply chain) activities.

• Collaborate with industry groups to share best practices on emissions reduction.

• Explore funding for climate adaptation projects and integrate climate risk into business planning.

Available Help (Canada/Quebec):

• Grants for energy efficiency and carbon reduction (federal and provincial initiatives).

• Innocentre greenhouse gas (GHG) emissions estimation tool

  
  

Behind the Scenes: Scope 3 emissions (indirect emissions in a company's value chain) typically represent 70-90% of a company's total carbon footprint. Major corporations can't meet their climate targets without addressing their supply chain. Your operations are part of their calculations, which is why even small suppliers are now receiving emissions questionnaires that directly impact vendor relationships.

3. You face challenges in your supply chain linked to Biodiversity risks

Biodiversity & Natural Capital Gain Traction

Impact on SMEs:

Industries dependent on natural resources (e.g., agriculture, forestry, fisheries) will face increased scrutiny on sustainability, including biodiversity protection and water conservation. New standards may affect sourcing practices.

Short-Term Actions:

1. Identify your business's dependencies and impacts on natural resources and ecosystems.

2. Conduct a baseline assessment of how your operations affect local biodiversity.

3. Review your supply chain for potential biodiversity risks (e.g., deforestation, water stress).

4. Assess dependencies on natural resources and map potential business risks (e.g., reliance on water-intensive processes).

Medium-Term Actions:

• Develop a formal biodiversity action plan with measurable targets and outcomes.

• Implement responsible sourcing policies and engage with stakeholders on ecosystem impact.

• Integrate nature-based solutions into your business model where applicable.

• Position sustainability as a competitive advantage in marketing and operations.

• Partner with conservation organizations to enhance biodiversity initiatives.

Available Help (Canada/Quebec):

• Conservation incentives, sustainable supply chain programs, and biodiversity-focused funding for SMEs.

  
  

Behind the Scenes: Biodiversity loss presents major risks for businesses, leading to raw material shortages, supply chain disruptions, and rising costs, as seen recently with cocoa and olive oil. These pressures weaken entire industries and can threaten the very survival of companies. In response, the Kunming-Montreal Global Biodiversity Framework is driving new regulations, while financial institutions are beginning to assess biodiversity-related risks, which could impact access to financing. Industry associations are working to help businesses adapt and avoid market exclusion.

4. Investors and Clients Will Scrutinize Your Labor Practices

Social Metrics and the 'Just Transition' Imperative

https://www.walkfree.org/what-is-modern-slavery/

Impact on SMEs:

Diversity, equity, and fair labor practices are becoming critical factors in securing investment and maintaining business relationships. Clients, investors, and financial institutions are assessing social impact alongside environmental sustainability.

Short-Term Actions:

1. Conduct an assessment of your current workforce composition, pay equity, and labor practices.

2. Review and update HR policies to ensure compliance with fair labor practices.

3. Conduct an assessment of your suppliers workforce, pay equity, and labor practices.

4. Create a basic DEI (Diversity, Equity, and Inclusion) framework with clear objectives.

5. Include in your contract a mandatory code of conduct for your supplier, and check regulary its respect.

Medium-Term Actions:

• Develop a comprehensive social impact strategy with measurable KPIs.

• Formalize policies around social responsibility, worker well-being, and community engagement.

Available Help (Canada/Quebec):

• HR and workforce transition programs.

• Inclusion and equity grants for SMEs.

• Explore the global slavery index of Walk free organisation

  
  

Behind the Scenes:

The main challenge for SMEs is ensuring that their suppliers comply with international labor standards, avoiding situations where child labor or forced labor could be present without their knowledge. As scrutiny increases, businesses must take proactive steps to verify ethical sourcing and responsible supply chain practices. In Quebec, the talent shortage allows workers to be selective, with young professionals paying close attention to companies' social and environmental commitments before accepting jobs. At the same time, ESG-focused investment funds are expanding, often requiring documented social responsibility policies before providing capital, making compliance with ethical labor standards a key factor in securing both talent and funding.

5. Your Financial Institution May Request ESG Information

Technology: The Great ESG Enabler—and Challenge

Impact on SMEs:

AI, IoT, and blockchain are revolutionizing ESG data management, allowing for real-time tracking of emissions, resource usage, and compliance. However, the sustainability of digital infrastructure itself is under scrutiny.

Short-Term Actions:

1. Take inventory of your current data collection processes relevant to ESG reporting.

2. Identify gaps between what you're measuring now and what financial institutions may request.

3. Research digital tools that can help automate ESG data collection and reporting.

Medium-Term Actions:

1. Assess AI and digital tools for efficiency gains in resource management and risks.

2. Optimize energy use in IT infrastructure and cloud services to reduce your digital footprint.

3. Develop a roadmap for digital transformation that incorporates ESG data management.

4. Establish data governance protocols to ensure ESG information accuracy and security.

Available Help (Canada/Quebec):

• Technology adoption grants and innovation funding for AI and sustainability applications.

Behind the Scenes:

Financial institutions are under regulatory pressure to assess climate risks in their lending portfolios. Banks are beginning to offer preferential terms for businesses with strong sustainability credentials, while increasing scrutiny of high-carbon sectors. Your ESG performance could directly impact your borrowing costs and access to capital in the near future.

Final Thoughts: SME sustainability strategy and ESG as Competitive Advantages

For Canadian SMEs, ESG is no longer just a Big Companies issue—it is a business imperative. Companies that proactively engage with sustainability measures will be better positioned to secure financing, maintain supplier relationships, and navigate regulatory changes. Access to funding and business opportunities increasingly depends on ESG preparedness, making it a critical priority for 2025 and beyond.

While this article outlines essential steps SMEs can take independently, the complexity of CSR and ESG implementation often requires specialized expertise (to be clear, it's not complicated, it's complex). Engaging with qualified CSR and ESG consultants can significantly accelerate your sustainability journey and provide critical advantages:

• Risk mitigation: Professional consultants can identify industry-specific ESG risks you might overlook.

• Efficiency: Expert guidance helps avoid costly trial-and-error approaches that waste resources.

• Competitive edge: Consultants bring best practices from your industry that can position you ahead of competitors.

• Credibility: Third-party verification adds legitimacy to your ESG claims with clients and investors.

• ROI optimization: Experienced advisors can help prioritize sustainability initiatives with the strongest business returns.

The investment in qualified SME sustainability strategy and ESG consulting services typically pays for itself through operational efficiencies, risk avoidance, and new business opportunities. As reporting requirements become more stringent, having expert guidance will move from beneficial to essential for most small and medium enterprises navigating the evolving sustainability landscape.

Marie Horodecki-Aymes

Do you have questions about ESG and its impact on your SME? Don't hesitate to contact me for an initial consultation

(a)

• ESG is about measuring and reporting sustainability performance, mainly for investors and stakeholders.

• CSR is about implementing responsible business practices in daily operations, supply chains, and company culture.

So, if finance tracks and reports financial success, ESG does the same for sustainability, while CSR drives the on-the-ground actions that contribute to ESG performance.

(b)

• Scope 1 emissions: Direct greenhouse gas (GHG) emissions from sources that a company owns or controls, such as fuel combustion in company vehicles, onsite manufacturing processes, or heating systems.

• Scope 2 emissions: Indirect GHG emissions from the generation of purchased energy (electricity, steam, heating, or cooling) that a company consumes but does not produce itself.