Canada’s semiconductor industry received a boost this week as the Honourable François‑Philippe Champagne, Minister of Innovation, Science and Industry, announced the Semiconductor Challenge Callout, which provides C$150 million through the Strategic Innovation Fund to build Canada’s strengths in the design and manufacture of semiconductors.
The Semiconductor Challenge Callout looks for ambitious, large-scale ideas from industry and other ecosystem players that address how Canada can build on existing R&D and manufacturing strength, contribute to a national network and supply chain and position Canada as a critical global supplier of specialized semiconductors manufacturing. It focuses on products such as sensor and microelectromechanical systems (MEMS) used in everything from video game controllers to automobiles and telecommunications, compound semiconductors that provide power, speed and durability advantages over traditional silicon mass-market components, and advanced packaging to place multiple semiconductor devices in a single unit to improved connectivity and reduce power consumption.
“I know that people at home may question and say, ‘What is $150 million in the great scheme of the production of semiconductors?’,” Champagne said. “But let me remind Canadians that we have a niche capability when it comes to manufacturing. And we have a total ecosystem in Canada of innovators, of entrepreneurs. So this is about consolidating, expanding, scaling what we do best here in Canada.”
Champagne also announced a further C$90 million investment in the National Research Council of Canada’s Canadian Photonics Fabrication Centre (CPFC), which will finance equipment upgrades to increase the centre’s capacity and ability to address the ever-increasing complexity of the technology being brought to market by its clients. The CPFC is the only compound semiconductor foundry in North America that is publicly operated and open to all for use. It delivers photonics device fabrication services to the research and private sectors, helping to grow many Canadian small and medium-sized enterprises in such industries as telecommunications, environmental sensing, automotive, defence and aerospace.
“This $90 million is very much needed; we saw some pieces of equipment that are going to be coming to keep making sure we were state of the art,” Champagne observed. “Because over the last two decades, this center has established itself as a world-class one-stop-shop. People come here, they do research, they do production, proof of concept. And this makes us unique around the world. This investment will help position Canada as a critical global supplier of niche semiconductor technologies. And that’s where I think we can make a difference as Canada.”
The centre is a public asset that allows companies to work on projects, receive support bringing the product to market, and sometimes also receive support once in the market, noted Iain Stewart, president, National Research Council of Canada (NRC), in thanking the government for the funding. “CPFC is a hub, as the minister explained,” he said. “We do advanced research, we do pilot scale manufacturing. We are the only pure-play compound semiconductor fabrication center in North America. It’s special. And it has a long tail that goes all the way back to Nortel. And in fact, some of the stuff we’re blessed to have and some of our colleagues we’re blessed to work with go all the way back to Nortel. We are a unique supplier.”
Hamid Arabzadeh, chairman, president and chief executive officer of Canadian photonics firm Ranovus, which has had a long-time partnership with the NRC, added his thanks and that of the Canadian innovators in the semiconductor and the compound semiconductor industry.
“Today’s announcement sends a clear message to that talent that the Government of Canada understands the importance of intellectual property and global leadership in strategic industries,” he said. “My hope is that the Canadian talent will create new Canadian-owned companies and get Canada back to the podium. To that effect, we’re announcing a $45 million investment in the next generation of optical communication technologies to address the emerging AI and machine learning workloads. We recognize that an ecosystem is more than one company and look forward to continuing our work with other Canadian companies to strengthen the critical mass of intellectual property in Canada.”
Instead, mineral explorers and developers often see substantial projects halted in their tracks by staunch community-level opposition, even when projects had passed regulatory muster, says mining sector researcher, analyst and reporter Paul Harris, in an interview.
Legacy CSR programs are simply no longer adequate. The analyst suggests those wishing to do business in these jurisdictions take a more holistic approach toward meaningful engagement with host communities before engaging governmental authorities about their respective projects.
The solution, according to Harris, is companies today have to be willing to give up an ownership stake in their projects so that local communities and local and federal governments have more skin in the game.
China still holds the cards for global supply chains, whether or not Covid lockdowns frustrate businesses in the near term. An employee works on the production line of the screens for 5G smartphones at a factory on May 13, 2022 in Ganzhou, Jiangxi Province of China.
Standardizing ESG reporting, and making it mandatory, would be a start toward reliable ESG investing
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“Scam” or “dangerous placebo” are some of the terms used by critics to denounce Environmental, Social and Governance (ESG) investing. Yet others see it as one of our last chances to pivot our financial world to a more sustainable and environmentally-friendly model.
ESG, a form of sustainable investing, is increasingly being used as a measure of how well a company is using its investment money. For investors looking to instigate change, ESG scores help them decide if a company is worth their money.
This is despite ESG dating back to 2006, when the U.N. launched the Principles for Responsible Investment at the New York Stock Exchange. The initiative was backed by leading institutions from 16 countries, representing more than $2 trillion in assets owned at the time.
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ESG critics and optimists have called on the government to use its power to fine tune ESG metrics and finally standardize it, in order to give it more credibility.
ESG not what it seems?
In 2021, ESG investment saw issuance exceeding US$1.6 trillion, bringing its total market to more than US$4 trillion. Not only that, but Bloomberg expects ESG assets to exceed US$53 trillion by 2025.
Fierce critics like Tariq Fancy — who worked as the chief investment officer for investment management firm BlackRock before leaving in late 2019 — made headlines with his disillusionment over ESG’s true impact.
“That $4 trillion isn’t really $4 trillion,” Fancy said, in reference to the widely-circulated figure.
For Fancy, the “vast majority” of what’s happening is that companies are “recategorizing existing funds and moving money and shares around from one basket to another…
“They’ve figured out that socially conscious investors will gladly pay more in fees for something with a ‘green’ label,” he said, adding that ESG funds have 43 per cent higher fees on average.
“Also, they don’t fund carbon capture and new innovations, for the most part they publicly overweight tech companies (Microsoft) and underweight oil companies (Exxon),” he added.
Also, regular investors mainly have access to secondary shares that are sold and purchased on a daily basis, which have little impact, argued Fancy.
“The changes we need immediately to flatten the [greenhouse gas] curve are collective actions led by the government — experts have been telling us this for decades,” he said.
As ESG investing rises, so do emissions
Like elsewhere, Canadian ESG investment is increasing, but, again like elsewhere, the nation hasn’t reduced its emissions in the past year.
A March, 2022 report from the International Energy Agency said that global energy-related carbon dioxide emissions rose by six per cent in 2021 to 36.3 billion tonnes — a new record — as the world bounced back from the pandemic.
ESG does make a difference
Art Lightstone, climate activist and host of the Green Neighbour Podcast, acknowledges ESG has its critics. But for him, this class of investing is still making a difference.
“The fact that ESG investing has not only helped to launch several green tech companies, but also encouraged less socially-minded companies to compete in ESG spaces is now pretty much undeniable,” Lightstone said. “Tesla is invariably the best case in point. The amount of investment directed toward Tesla and other EV startups has been mind boggling.”
While money can be moved from one shareholder to another, “that’s not where the story ends.” He cited the example of Tesla when it was “able to raise large amounts of capital [at market prices] with rather little dilution to its stock.”
“Tesla did this three times in 2020, and with that money they were able to build more factories, scale up their production, lower their per-unit costs, increase their profit margins, and therefore increase the economic viability of their entire operation,” he explained.
This expansion created a domino effect for legacy automakers such as GM and Ford, who are investing more in their electric vehicle programs.
Investing intentionally and collectively
Tim Nash, founder of Good Investing, a company with a goal to help at least one million Canadians invest intentionally, argues that informed decision-making can make the impact needed.
“People spend more time choosing an avocado in the grocery store than they spend when choosing a mutual fund for their RRSP,” Nash said.
Instead, he urged people to think more about their portfolios and ways to diversify, including carving out part of their portfolios for investment just “for doing more good.”
“This is where we can invest part of our money into things like community bonds and impact investments,” he explained.
Community bonds, a debt financing tool, are issued by non-profit, charity or co-operative organizations. They allow these groups to take loans from community backers. The backers will eventually get paid interest for investing in an impactful project, while the organization enjoys access to capital.
During the interview, Nash noted that he was located at the Centre for Social Innovation, a non-profit that owns two buildings in downtown Toronto.
“How does a non-profit own two buildings in downtown Toronto?” he asked. “Community bonds. That’s how they were able to access capital.”
Then there is also shareholder activism, and this is where Nash highlighted how shares that are publicly traded on a secondary market can be used as a powerful tool if used collectively.
“If I sell my shares, someone else is going to buy them. However, if enough people sell their shares that will impact a company’s cost of capital,” he said. “This is a very important metric when it comes to how a company operates.”
One example Nash cited as proof of effective shareholder activism is the increased cost of capital for fossil fuel companies. At the same time, there has been an unprecedented shifting of investment capital into greener energy.
Better knowledge needed
The financial industry needs to delve into the environmental sciences, sustainability, and systems thinking to have a more well-rounded view on how to make a full impact, Nash says.
“I do think that a lot of the criticisms come from the financial industry, people who don’t have a background (in these topics),” he said. “ESG is a very broad concept… We need everybody rowing together in the same direction.”
While the government is in a position to lead, it’s still caught up in a four-year election cycle, he added.
“It’s even shorter if it’s a minority government, which we’re in right now,” he noted.
Time to start mandating metrics on ESG
Nash put the onus on the Ontario Securities Commission, which regulates companies listed on the Toronto Stock Exchange, to start mandating disclosures of ESG issues, as other regulators have done.
For example, the SEC in the U.S. is focused on the climate aspect of ESG. It mandates that all publicly traded corporations publish their environmental compliance costs, and proposed new rules in March to standardize climate-related disclosures to investors. The rules would require businesses to disclose information about their direct greenhouse gas emissions, as well as the indirect emissions from the energy the business consumes.
In Europe, the trend tends to lean more toward the corporate governance aspect of ESG. Under the 2018 Non-Financial Reporting Directive of the European Union, companies are expected to disclose information on environmental, social, and employee-related problems, such as anti-bribery, corruption, and human rights performance.
In Nash’s view, Japan is ahead of the curve with its Financial Services Agency actually mandating climate risk disclosure.
“Investors, I think, to some degree are demanding more data and information and disclosure than what governments are requiring,” he said. “This is an area where investors are asking tough questions and pushing that forward. That said, investors can ask, and companies get to decide how they respond. Many of them are responding in different ways.”
ESG optimists and critics alike want to see those regular investors emboldened to make the difference the world is waiting for.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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