Most medium-sized businesses in Canada are calling for additional incentives to help with the green transition in the upcoming federal budget, according to a survey by KPMG Canada on Wednesday.

Out of the 505 medium-sized enterprises it surveyed, 80 per cent are calling for additional tax incentives and investment tax credits to help make it more affordable to adopt clean technology, and compete with green tax legislation in the U.S. and European Union.

“Canada’s business leaders are ready to make the green transition but need government to create a more supportive environment, including further tax relief to help them transition away from carbon-intensive products and invest in clean energy and net-zero technologies,’’ Lucy Iacovelli, Canadian managing partner for tax at KPMG Canada, said in the press release.

“More than eight in 10 (84 per cent) indicated that they are using existing government incentives to reduce their environmental footprint, but to stay competitive, they believe it is vital that Canada keeps pace with the new green investments and tax measures being adopted in the U.S.”

Last week, Finance Minister Chrystia Freeland announced she will table the 2023 federal budget on March 28.

In the federal government’s 2022 Fall Economic Statement, officials placed a spotlight on plans to improve investments in sustainable energy.

In the release, finance officials said after the U.S. introduced the Inflation Reduction Act, “the need for a competitive clean technology tax credit in Canada is more important than ever.”

INCREASING INCENTIVES

The report found Canadian business leaders are committed to the green transition, with 89 per cent saying they’ve already integrated ESG (environment, social and governance) practices into their strategy and 82 per cent of organizations plan to increase their investment this year.

“It is encouraging to see that these business leaders plan to increase investments and resources in their ESG practices this year,” Doron Telem, national ESG leader at KPMG Canada, said in the press release.

“However, many may only be able to do so with stronger government support. We expect the federal budget will offer more details on the government’s economic plan to support business and the green transition, with a specific focus on emerging sectors, clean technologies, zero-emission vehicles and batteries, critical minerals and energy sources.”

But businesses don’t just want tax incentives and programs for themselves, with 80 per cent saying they think there needs to be “more consumer incentives to further drive consumer demand for change.”

INFLATIONARY PRESSURES

While most medium-sized enterprises are on-board with adopting integrating ESG practices, the report found leaders are concerned about how inflation and economic volatility could weigh on this transition.

It said 84 per cent of businesses think inflationary pressure will stretch into 2024 and 81 per cent “peg this continued volatility, in part, on the green energy transition as well as supply shocks caused by deglobalization and rising political pressures.”

“While committed to a green future, high inflation and rising interest rates are making the transition and the required investments increasingly more expensive for business,” Mary Jo Fedy, national enterprise leader at KPMG Canada, said in the report.

“With the economic volatility likely to drag on into the foreseeable future, more than eight in 10 (82 per cent) want government investment to increase significantly in order to develop the clean technologies and solutions that businesses need to meet Canada’s climate commitments.”

But businesses are still optimistic about the renewable push in Canada, with 82 per cent saying they believe small- and medium-sized enterprises are key to the green transition.

“With the right supports and tools, Canadian businesses can play a key role in driving clean growth, creating sustainable jobs and carving out a unique place for Canada in the new global economy,” Iacovelli said.

Methodology:

KPMG in Canada surveyed 505 Canadian companies between February 3 and February 16, 2023, using Sago’s Methodify online research platform. All respondents are business owners or executive-level decision makers. Forty-four per cent helm companies with more than $500 million in annual gross revenue; 20 per cent, between $300 million to $499 million; 16 per cent, between $200 million and $299 million; 16 per cent, between $100 million and $199 million; and the remaining 4 per cent, between $50 million and $99.9 million. Seventy-seven per cent of the companies are privately held and 23 per cent are publicly traded. Forty-four per cent are family-owned businesses.