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2013-2017 CORPORATE PLAN SUMMARY INTRODUCTION 3 EXECUTIVE SUMMARY 4 CHAPTER 1: THE PLANNING ENVIRONMENT 7 1.1 THE GLOBAL OUTLOOK 8 1.2 CANADA’S TRADE AND INVESTMENT PERFORMANCE 9 1.3 OPPORTUNITIES FOR CANADIAN COMPANIES 10 CHAPTER 2: THE BUSINESS STRATEGY 13 2.1 OVERVIEW 13 2.2 CREATING BENEFITS FOR CANADA 15 2.3 OUR OVERARCHING PRINCIPLES 15 A Partnership-Preferred Philosophy 16 A Commitment to Corporate Social Responsibility 17 2.4 INVESTING IN OUR STRENGTHS 18 A Focus on People 18 Leveraging Technology for Success 19 Managing our Capital Base 20 2.5 THE FOUR CORE DIMENSIONS OF EDC’S BUSINESS 20 The Business Development Dimension 21 The Operations Dimension 29 The Risk Management Dimension 34 The Financial Sustainability Dimension 36 2.6 MEASURING SUCCESS 37 Creating Benefits for Canada 37 EDC’s Scorecard for 2013 37 CHAPTER 3: EDC’S FINANCIAL PLAN 41 3.1 KEY BUSINESS ASSUMPTIONS 42 Business Facilitated 42 Risk Profile of Business Facilitated 43 Foreign Exchange 45 Interest Rates and Yields 45 3.2 ADMINISTRATIVE EXPENSES & PRODUCTIVITY RATIO 45 Productivity Ratio 46 2013-2017 CORPORATE PLAN 1 3.3 PLANNED CAPITAL EXPENDITURES 47 3.4 FINANCIAL RESULTS 48 Statement of Comprehensive Income 48 Statement of Financial Position 50 Statement of Changes in Equity 52 Statement of Cash Flows 53 Accounting Policies and Future Accounting Changes 54 Evolving Standards 54 3.5 CAPITAL MANAGEMENT 54 Capital Adequacy Policy (CAP) 54 Eligible Dividends 55 3.6 STATUTORY LIMITS 56 3.7 ASSET/LIABILITY MANAGEMENT AND BORROWING STRATEGIES 57 Asset Liability and Market Risk Management 57 Borrowing Strategies 58 Sources of Financing 60 Drivers of Capital Markets Borrowing Requirements 61 3.8 PROGRESSION OF EDC PLANS FOR 2011 AND 2012 65 3.9 OPERATION OF SUBSIDIARY 66 ANNEX I: EXPORT DEVELOPMENT CANADA CORPORATE OVERVIEW 69 Mandate and Operating Principles 70 Legislative Powers and Obligations 72 Managerial and Organizational Structure 74 Board and Committee Structure 75 EDC’s Financing and Insurance Solutions 76 Bonding 77 Financing 78 Online Products and Tools 79 ANNEX II: CANADIAN EXPORT FORECAST BY SECTOR AND MARKET 80 The 2013–2017 Corporate Plan was approved by EDC’s Board of Directors on October 17, 2012. The Plan and its underlying assumptions were developed over the summer and fall of 2012, during a period of ongoing uncertainty in the global economy. While the Plan and its underlying assumptions were aligned with the economic environment at the time of their development, continued volatility in the global economy may alter the economic landscape and, in some cases, impact the assumptions upon which the Plan is based. 2 EXPORT DEVELOPMENT CANADA INTRODUCTION Since 1944, Export Development Canada (EDC) has played an important role in building Canada‟s trade capacity. Every transaction that EDC undertakes is designed to create benefits for Canada– benefits that will generate growth, prosperity and jobs for Canadians. Through its international trade expertise and suite of financing and insurance solutions, EDC facilitates trade by helping Canadian companies be more competitive, helping them to take advantage of global international business opportunities. Working together with our partners in government, EDC is also helping to create trade where it would not otherwise take place by helping Canadian businesses expand into new markets and identifying opportunities that play to Canada‟s strengths. EDC‟s expertise in international trade and risk management, our strong network of public- and private-sector partners and our ongoing commitment to deliver value to our customers are what drives the corporation‟s vision of being the most knowledgeable, most connected, most committed partner in trade for Canada. The initiatives profiled in the 2013-2017 Corporate Plan highlight how we are working towards this vision over the next five years and beyond. 2013-2017 CORPORATE PLAN 3 EXECUTIVE SUMMARY EDC is a Crown corporation which provides trade finance and risk management services to Canadian companies to help them take advantage of global trade and investment opportunities. The corporation‟s mandate is to support and develop, directly or indirectly, Canada‟s export trade and Canadian capacity to engage in that trade, as well as respond to international business opportunities. Since March 2009, and until March 2013, EDC is also responding to the domestic needs of Canadian companies within the trade-related space. At the core of EDC‟s mission is its unique ability to take on and manage significant levels of financial risk in order to facilitate the success of Canadian companies in international markets. The Planning Environment Three major forces continue to shape the planning horizon. First, major parts of the global economy are still struggling in the aftermath of the 2008 financial crisis. Although the economy was expected to recover and settle into a steadier growth path more quickly, volatility will continue to temper growth in the short term. Second, while liquidity is returning to the market in many areas, the new international financial regulatory framework is impacting banks and insurance companies‟ ability to engage in trade finance activities. Third, emerging markets continue to grow, spurring the development of major infrastructure projects and driving strong demand for natural resources. The impact of this demand on commodity prices has contributed to a strong Canadian dollar, despite slower economic growth in Canada. The result is an evolving economic landscape which, although not significantly different from last year‟s, remains two-sided. On the one hand slower growth for Canada‟s long- established trade partners is contributing to diminished opportunities for many Canadian companies which rely on these markets, particularly small business. On the other hand, emerging markets are experiencing sustained expansion, driving increased trade flows between them. Opportunities abound for Canadian companies willing to venture beyond the traditional markets and establish a presence abroad to take advantage of these shifting patterns of trade. At home, renewed emphasis on the development of resources within Canada and the growth of Canada‟s ocean cluster reflect the increased global demand for energy and natural resources. The outlook for the planning period calls for a disparity in 2013 between a growing resource sector and other sectors still experiencing challenging conditions. Beyond 2013 however, all sectors should benefit from the increased pace of export growth. 4 EXPORT DEVELOPMENT CANADA The Business Strategy Last year, EDC launched a new corporate strategy focused on creating benefits for Canadian companies in an uncertain environment. Thanks to this strategy, EDC remains very well positioned to deliver value to Canadian businesses in the current economic environment. The 2013-2017 Business Strategy constitutes a next step in the direction set last year. It highlights the progress we have made in the initiatives launched in the 2012- 2016 Plan. It introduces new areas of opportunity to explore, but maintains a stable scope of activities as we continue to invest in delivering value to our clients through our core business and through the priorities identified in 2012. The 2013-2017 Business Strategy is built around two fundamental strategic objectives:  Trade Facilitation - Trade facilitation continues to be EDC‟s core business. EDC will continue to adapt and improve its suite of financing and insurance solutions in response to the evolving needs of Canadian companies.  Trade Creation - EDC has a critical role to play in introducing Canadian companies to opportunities they would not otherwise have been aware of or able to access. The activities related to this strategic objective are made possible by achieving productivity gains which free up resources within the organization. In order to achieve these objectives, EDC will continue to invest in its three core strengths: our people and their unique talents, our technological platform, and our financial capital. Firstly, we will strive to anticipate the people risks that could prevent the corporation from achieving its business priorities and ensure we have the right resources to deliver on our mandate. Secondly, EDC will make significant new investments over the planning period to modernize its key business systems to support continuous improvement of our service offering and to accommodate growing demand with existing human resources. The strengthening of our service delivery to small Canadian businesses will be a particular focus of this effort. Finally, the corporation will ensure it leverages its capital to the fullest extent in the execution of its mandate, while ensuring it has adequate capital to meet the demands of its current and future business, including in the event of significant unforeseen challenges. EDC remains committed to Corporate Social Responsibility (CSR) and to a Partnership- Preferred Philosophy, our two overarching principles. EDC‟s Partnership-Preferred Philosophy means that whenever possible, we will use our financial capacity in a manner that is complementary to the products and services of private-sector financial institutions. In particularly challenging markets or sectors, EDC will use its capital strength without other financial players but will, where relevant, look to create conditions that will favour the participation of the private sector. EDC‟s commitment to CSR is founded on our goal to meet the expectations of Canadians to act as good corporate citizens, upholding Canada‟s values both at home and abroad, while ensuring that Canadian businesses benefit from international business opportunities. 2013-2017 CORPORATE PLAN 5 The 2013-2017 Business Strategy highlights key initiatives that correspond to the four dimensions of our strategic framework: Business Development: At EDC, business development means going beyond our financial solutions and proactively developing trade opportunities that Canadian companies would otherwise not be able to access. This is done through a variety of trade creation tools, as well as through three strategic initiatives launched in 2012: Aerospace, Clean technologies and Indian infrastructure. The Business Development section of the Plan profiles how our activities in Canada and our international representations are helping Canadian exporters and investors succeed. Operations: EDC operates on commercial terms, while fully leveraging its capital to meet its mandate, adding financial capacity to the market where it is needed and delivering value to our customers through the continuous improvement of our financial solutions. Over the planning period, EDC will focus on how it can broaden access to its services through online tools to reach a larger proportion of small business exporters, while focusing its customized services on high-growth companies that need its expertise. Risk Management: EDC‟s ability to adequately manage the significant risks we take to help Canadian companies be successful is a key competency of the organization. It is supported by a strong risk management culture and effective policies and processes. The new Enterprise Risk Management group will elevate the critical importance of understanding, planning and preparing for the multitude of risks to which the corporation is exposed, while enabling us to provide the best possible service to Canadian exporters. Financial Sustainability: Financial sustainability and a continual focus on efficiency enables the corporation to effectively respond to the demands of its customers today, without compromising its ability to serve Canadian global businesses in the long term. Over the planning period, EDC has committed to spend no more than approximately 25 cents of every dollar earned on overhead costs. To do so, EDC must continually achieve productivity gains to ensure it fulfills its mandate to the fullest. The Financial Plan EDC‟s ability to deploy its lending and insurance solutions to Canadian global businesses is dependent on the corporation‟s commitment to sound financial management. The 2013-2017 Financial Plan outlines how EDC is managing its administrative and operating expenses. It provides a detailed analysis of how the changes to EDC‟s Capital Adequacy Policy will ensure the corporation adequately manages its supply of capital while continuing to take on significant risks to ensure Canadian companies are best positioned in international markets, despite an uncertain environment. Key business assumptions which underlay EDC‟s projected financial performance, including projected consolidated statements of income and comprehensive income, statements of financial position, statements of changes in equity, and statements of cash flow, as well as planned capital expenditures for 2013-2017, are also highlighted. 6 EXPORT DEVELOPMENT CANADA CHAPTER 1: THE PLANNING ENVIRONMENT Introduction Over the next five years, the global economic environment will be shaped by the significant volatility expected to continue in the shorter term. While Canadian exporters have reason to be optimistic in the later years of the planning horizon, as the economy is expected to recover and settle into a steadier growth path, the economic trends of the past 12 months will continue to temper growth in the near future. Three major forces continue to shape the planning horizon. First, major parts of the global economy continue to operate in an economic crater caused by the crisis in the U.S. financial sector in 2008. Second, the introduction of a new, international financial regulatory framework aimed at preventing a future credit crisis is impacting many international banks and insurance companies‟ ability to lend and provide coverage. Third, emerging markets continue to grow, spurring the development of major infrastructure projects and driving strong demand for natural resources. The impact of this demand on commodity prices has contributed to a strong Canadian dollar, despite slower economic growth in Canada. This two-track economy presents both challenges and opportunities for Canadian exporters. Slower growth for Canada‟s long-established trade partners is contributing to diminished opportunities for many Canadian companies, particularly small businesses, which have traditionally focused on these markets. This trend, combined with a high Canadian dollar and the relative strength of the domestic economy, has resulted in many companies choosing to leave the export market altogether. However, the strong, sustained growth of emerging markets presents a wealth of opportunities for Canadian companies willing to venture beyond the traditional markets and establish a presence abroad. The growth and size of these markets has led to a strong increase in trade flows between emerging markets, known as South-South trade, presenting opportunities for Canadian exporters to integrate into growing supply chains that service this South-South trade. At home, emphasis on the development of resources within Canada is responding to the increased global demand for energy and natural resources and creating opportunities to participate in this development. This chapter will provide EDC‟s economic outlook for the planning period, including the impacts of the new international credit and regulatory environments. We will examine the challenges affecting small businesses, as well as opportunities for growth in emerging markets, as observed by EDC‟s economic experts and customer-facing employees. 2013-2017 CORPORATE PLAN 7 1.1 THE GLOBAL OUTLOOK Challenges in the Global Financial System As noted earlier, the future of the Euro is likely to be tested over the planning period, making Europe a critical planning variable, as a default by one or more member countries or a breakup of the Euro would have cascading effects throughout the world‟s financial system. These, and other heightened risks have been key drivers in EDC‟s review of its Enterprise Risk Management. Other factors shaping the credit environment for financial institutions include the impact of Basel III (a comprehensive set of reform measures designed to improve the regulation, supervision and risk management within the banking sector) and Solvency II (an updated set of regulatory requirements for insurance firms that operate in the European Union). Over the planning period, the corporation will also explore ways in which it can refine its financing service offering in order to better serve Canadian exporters in the context of the Basel III framework and its impact on the financial industry. The Rise of New Trade Flows While traditional Western economies cope with credit constraints and economic uncertainty, emerging markets continue to show promise. This growth is particularly apparent with respect to trade between emerging markets. Commonly referred to as South-South trade, integrated intra-regional supply chains, particularly within Asia, as well as significant regional and sub-regional trading associations in Africa and Latin America are consistently showing annual growth of more than 20%. Canada‟s foreign affiliate sales (FAS) show that Canada is already present in the South- South space. Canadian-owned foreign affiliates, whose sales are about the same magnitude as direct exports from Canada, have become increasingly important, both as a source of lower-cost inputs for Canadian operations, as well as a vehicle to sell directly to foreign customers. Although the U.S. has been Canada‟s prime FAS location, its share of total FAS has plunged from 65% to just under 50%, while the share of Canadian FAS in emerging markets has risen from 12% to 28%. Similarly, Canadian direct investment abroad (CDIA) in emerging markets is also on the rise. In 2000, half of CDIA was in the U.S., while 22% of CDIA was in emerging markets. Since then, the U.S. share has slipped to 40%, while emerging markets have gained ground, rising to almost 28% of total CDIA. Canadian foreign direct investment is an important channel for companies to effectively capitalize on the opportunities arising from South-South trade. The Business Strategy chapter will highlight how EDC enables Canadian exporters to invest abroad and how the corporation is helping to identify supply chains which offer the best southbound trade opportunities. 8 EXPORT DEVELOPMENT CANADA 1.2 CANADA’S TRADE AND INVESTMENT PERFORMANCE At first glance, Canada‟s trade and investment performance appears to tell a positive story, despite slower growth in GDP and the economic volatility coming out of Europe. EDC‟s export forecast for Canada shows strong growth in the near future, with exports predicted to rise between 6 and 8% in 2012 and 2013. However, closer examination reveals that Canada‟s trade performance is uneven, and reflective of the current two-track economy. Exports in the extractive and resource sectors are on the rise, responding to strong demand from emerging markets. This demand is offsetting a softening of commodity prices, which continue to be volatile. However, many exporters in other sectors, particularly those reliant on the U.S. market, continue to face significant challenges. This is particularly true of the information technology, light manufacturing and transportation sectors, which have yet to see their annual export sales return to pre-recession (2007) levels. The importance of a vibrant, trade-engaged, small business sector cannot be underestimated. Over the last decade, 47% of all jobs in Canada that were created during 1 this time were created by small businesses. Moreover, small business exporters employ twice as many people, spend six times more on research and development and have revenues of more than twice their domestic equivalents. Small business exporters face a number of challenges in the international marketplace. Often these companies lack the connections necessary to identify export opportunities as they arise, as well as the resources and knowledge to look for and find needed information, resulting in missed opportunities for growth. Access to financing is another challenge for many small businesses, particularly for those which have grown beyond the venture capital stage but do not yet qualify for traditional financing solutions. There are a number of players in Canada who work with small businesses to help them address these challenges. EDC works with the private sector, helping to bring financial capacity and knowledge to the market. EDC uses its financial solutions to help Canadian small business exporters access working capital and other forms of financing, and as well mitigate business risks. In addition, EDC seeks to complement the Department of Foreign Affairs and International Trade‟s (DFAIT) Trade Commissioner Service‟s (TCS) extensive international network and expertise in trade which helps companies navigate foreign markets and connect into export and investment opportunities. The Business Development Bank of Canada (BDC) is another key collaborator. In 2011, EDC and BDC signed a Protocol to ensure that their Canadian customers have access to the services and financial capacity that best suits their needs. 1 Industry Canada (small businesses defined as companies with fewer than 100 employees) 2013-2017 CORPORATE PLAN 9 Looking ahead, the corporation is exploring ways of enhancing both our financing and insurance offering in the small business space. This will include leveraging our partnership with BDC to bring value to this important segment and help those Canadian small business exporters looking to grow, identify and realize international business opportunities. EDC‟s renewed focus on working with small business exporters is reflected in the introduction of a new small business measure as part of the corporation‟s scorecard. 1.3 OPPORTUNITIES FOR CANADIAN COMPANIES The two-track economy presents significant opportunities for Canadian exporters in a wide variety of sectors. The following section highlights some areas of focus for the upcoming planning period. Creating Opportunities through Trade Diversification Continued growth in emerging markets presents a wealth of opportunities for Canadian companies willing to diversify their customer base and integrate into South-South supply chains. EDC‟s economic intelligence shows that Canadian companies are increasingly looking to trade diversification as a way to grow their business. In the forestry sector, although the recovering U.S. housing market is driving demand in the U.S., companies are also continuing to diversify into emerging markets such as China. Similarly, Canadian agri-business is positioning itself to meet the growing needs of emerging economies to become more efficient in their food production. In the automotive sector, Original Equipment Manufacturers (OEM) have a strong and growing presence in emerging markets. Parts manufacturers, have decided to localize closer to OEM production facilities, presenting opportunities for Canadian suppliers across the value chain. Large infrastructure projects in emerging markets, particularly with respect to transportation and health care, are increasingly focused on public-private partnerships (P3), an area of Canadian expertise. Companies with experience in P3 projects are well positioned to capitalize on the opportunities created by these projects. EDC has collaborated with P3 Canada on a number of initiatives, such as a joint online panel for foreign companies and a P3 life cycle report for customer-facing EDC and TCS employees on how to promote trade development through P3. The Development of Natural Resources in Canada Canada is a world-renowned supplier of natural resources. As emerging economies such as China seek out new sources of natural resources to feed their growing economies, Canada is becoming an increasingly attractive destination for investment. 10 EXPORT DEVELOPMENT CANADA The development of Canada‟s natural resources not only impacts the export of sought- after commodities around the globe, it also creates world-class capabilities within Canada. Canadian and foreign investment into Canada‟s resources sector is creating conditions for Canadian firms – particularly small and mid-market companies – to gain expertise and credibility by serving large export projects, creating income and jobs across the country. This in turn allows them to integrate into international supply chains to which they may otherwise not have had access. EDC‟s capabilities align well with these opportunities for growth, while initially rooted in Canada, are inherently connected to global success. EDC‟s participation in this sector, complementing the private sector, will enable Canadian companies to increase their competitiveness and develop future export opportunities. This complementary approach has worked well in the auto and the aerospace sectors, where EDC works with suppliers to major exporters. This approach can be further leveraged in the resource sector, especially if the demand for financial capital for resource development projects is especially robust. Strengthening Canada’s Ocean Industry Cluster The development of an ocean industry cluster in Canada presents new economic opportunities for Canadian companies of all sizes, with significant potential to translate into international growth. The Ocean Industry Cluster is comprised of two interconnected industries: offshore oil and gas and shipbuilding. Both industries will require advanced technology, high levels of research, development and innovation, and a highly skilled labour force. Both will also have a definite export focus. The financial intermediation that EDC provides will help Canadian companies along the supply chain not only take advantage of the opportunities that will be created as projects come into development, but it will also help position them to become more knowledgeable about their respective industry and therefore more competitive for future export opportunities. Over the planning period, EDC will continue to strengthen its relationships with project sponsors and companies along the supply chain to adapt our solutions to their needs, helping companies develop their competencies and move to international markets. EDC as a Partner in Trade for Canada The following chapter outlines how EDC will work with its public- and private-sector partners to help Canadian companies meet the challenges posed by an uncertain global environment and take advantage of the many global opportunities. 2013-2017 CORPORATE PLAN 11 12 EXPORT DEVELOPMENT CANADA CHAPTER 2: THE BUSINESS STRATEGY 2.1 OVERVIEW EDC‟s 2012-2016 Corporate Plan introduced significant changes to our corporate strategy, with a new approach, a new structure and new themes, setting the direction for several years. The 2013-2017 Business Strategy represents an evolution of many of the themes and initiatives introduced in last year‟s Plan, highlighting EDC‟s progress to date and its response to some of the changes observed in the planning environment. As always, EDC‟s mandate - to support and develop, directly or indirectly, Canada‟s export trade and Canadian capacity to engage in that trade, as well as respond to international business opportunities - forms the cornerstone of the corporation‟s business strategy. The 2013-2017 Business Strategy is built around two fundamental strategic objectives which support our mandate:  Trade Facilitation - In the current credit environment, consistent and predictable access to financial intermediation can make the difference between success and failure for exporters and investors. EDC has over the years developed an offering of effective services and solutions, which it will continue to adapt and improve as the reality Canadian companies face keeps evolving. Trade facilitation continues to be EDC‟s core business.  Trade Creation - As Canadian companies strive to seize opportunities in a changing environment, EDC has a critical role to play in identifying opportunities that Canadian companies would not otherwise have been aware of, or able to access. Productivity gains achieved within the organization enable EDC to invest in innovative activities, which will effectively create trade opportunities for Canadian companies. These objectives are supported by the corporation‟s commitment to financial sustainability. The Business Strategy and Financial Plan will identify areas in which the corporation is exercising additional prudence in managing its operational costs, and demonstrate how the investments it is making in its people, processes and technology will enable the corporation to carry out its activities in an even more efficient manner. 2013-2017 CORPORATE PLAN 13 EDC’s Strategic Framework Last year, the corporation adopted a new strategic framework which brings together the complex dimensions of EDC‟s business. Three strengths enable us to create benefits for Canada: our people and their unique talents, our financial capital and technology. To deploy them in an optimal manner, we must take into account the four dimensions present in everything we do: business development, operations, risk management and financial sustainability. EDC‟s decisions are also guided by two overarching commitments: our partnership-preferred philosophy and our commitment to Corporate Social Responsibility. The following diagram illustrates how, when applied to the four dimensions of the business strategy, the corporation‟s high performing workforce, effective leveraging of technology and the prudent deployment of our capital base, generate benefits to Canada. Figure 1 - EDC's Strategic Framework 14 EXPORT DEVELOPMENT CANADA 2.2 CREATING BENEFITS FOR CANADA Delivering benefits for Canada guides all of the corporation‟s decisions. By facilitating the exports and investments of Canadian companies, EDC helps to grow Canadian businesses, create Canadian jobs and contribute to the economic growth of our country. EDC delivers value to Canadians through its ability to take on and manage financial risks that often exceed the appetite of other service providers in the industry, particularly where Canadian companies seek to do business in unfamiliar and challenging markets or in new sectors. Working alongside our public-sector partners, particularly the Department of Foreign Affairs and International Trade (DFAIT) and its Trade Commissioner Service (TCS), is critical to fulfilling our mandate. As a member of the international trade portfolio, EDC is able to leverage its expertise in trade financing and risk mitigation and contribute to the common goal of expanding Canada‟s international footprint. EDC continues to strengthen its engagement with its fellow Crown corporations. Building on the ongoing collaboration between the Business Development Bank of Canada (BDC) and EDC over the years, the two organizations signed a protocol in late 2011 to ensure that Canadian companies looking to expand their business in global markets have access to the services and financial capacity that best suits their needs. Over the planning period, EDC will also continue its efforts to work with the Canadian Commercial Corporation (CCC), Canada‟s international contracting and procurement agency, to deploy joint solutions to Canadian companies. Regular engagement continues to take place in specific product areas, as well as partnering in key sectors and in markets identified as high potential. In Canada’s Economic Action Plan 2012, the government announced its intention to refresh Canada’s Global Commerce Strategy (GCS) to align trade and investment objectives with specific high-growth priority markets, and ensure that Canada is branded to its greatest advantage within each of those markets. EDC is actively participating in this exercise, and will continue to engage with the government on ways in which it can best contribute to the GCS in order to maximize opportunities for Canadian companies abroad. 2.3 OUR OVERARCHING PRINCIPLES EDC‟s strategic direction is guided by two overarching principles: our Partnership- Preferred Philosophy and our commitment to Corporate Social Responsibility. 2013-2017 CORPORATE PLAN 15 A PARTNERSHIP-PREFERRED PHILOSOPHY Whenever possible EDC will use its financial capacity to complement the activities of private-sector financial institutions. It will also seek to collaborate with other public-sector partners where appropriate, with a view to creating conditions that will favour the emergence of private- sector capacity. By working with other financial service providers, particularly private insurers and banks, EDC ensures that customers have access to the financial solutions and services best suited to their needs. Partnership with the private sector generally means sharing risks on commercial terms, where the availability of private-sector capacity helps to determine EDC‟s level of involvement. When credit is harder to access, EDC steps up alongside the private sector to provide creditworthy companies with the capacity they need. Similarly, as the private sector returns, EDC‟s capacity may no longer be needed to the same extent, and consequently will be reduced or withdrawn. However, where significant potential benefits exist for Canada, but private-sector capacity is limited or not available to meet the needs of Canadian companies, EDC will also provide financial intermediation to companies or sectors ahead of the private sector, deploying its expertise in taking risks that other players may not be as familiar or comfortable with. This is especially true in areas such as foreign buyer financing in challenging markets, transactions with longer tenors in specific sectors, and financial solutions for “breakthrough” companies such as those in the Cleantech sector or small business space. In those circumstances, EDC will strive to create conditions that will favvour subsequent private-sector involvement. In 2011, EDC completed nearly 6,000 transactions in partnership with the private sector. Under its temporary powers in the domestic market, from March 2009 until July 2012, EDC was involved in transactions with 661 Canadian customers: 117 for financing and financial guarantees, 474 for credit insurance and 70 for bonding. All were consistent with our Partnership-Preferred Philosophy. The integrated and coordinated response to the recession by the global financial community brought to light the many benefits of closer collaboration between public- and private-sector institutions. These benefits will only appreciate as Canadian companies look to expand their business internationally. Looking ahead to 2013 and beyond, EDC remains fully committed to working with the private sector to ensure that Canadian companies have access to the financial solutions and services best suited to their needs. 2011 saw the creation of the Lending Practitioners‟ Forum, a joint consultative body with Canada‟s private financial sector, chaired by the Canadian Bankers Association. This forum is made up of senior executives from seven Canadian banks, EDC and its sister Crown corporation, BDC. This forum helps to build partnership between organizations by identifying the opportunities and challenges seen in the market, and fostering a consistent and open dialogue around strategic issues affecting the field of trade and 16 EXPORT DEVELOPMENT CANADA international finance. EDC will continue to strengthen its relationship with the banking sector through this forum. Canadian financial institutions are among Canada‟s largest exporters and foreign investors. EDC will continue to enhance its solutions dedicated to helping Canadian financial institutions be competitive and manage their risks in emerging markets. In the insurance sector, EDC will continue to be an active participant in the Credit Insurance Advisory Group (CIAG), a Government of Canada-led initiative. Involvement in the CIAG is one of the most important ways EDC maintains and grows its partnership with private-sector credit insurers. Building on the positive experiences of EDC‟s deployment of domestic insurance and export supplemental insurance in the wake of the credit crisis, the corporation is looking to develop a more proactive partnership-driven credit insurance solution to bring more capacity to the credit insurance space for the benefit of Canadian companies. This initiative will enhance EDC‟s facilitation of Canadian trade by offering capacity and underwriting to private insurers to be deployed among their customers. A COMMITMENT TO CORPORATE SOCIAL RESPONSIBILITY EDC strives to meet the expectations of Canadians to act as a good corporate citizen, upholding Canada‟s values both at home and abroad while ensuring that Canadian businesses benefit from international business opportunities. As such, Corporate Social Responsibility (CSR) is the second overarching principle guiding our strategic direction. CSR is a particular focus of the corporation‟s India Infrastructure Initiative. Through the 2013-2017 planning period EDC will continue to participate in infrastructure projects which meet the corporation‟s standards of CSR performance and generate benefits to Canada. Prior to developing this initiative, EDC conducted in-depth due diligence, including in market, of the CSR risks inherent to doing business in this market. EDC concluded that we can do meaningful business in the market without compromising our standards, providing we follow strict discipline, particularly in choosing our partners and counterparties. Over the planning period, EDC will continue to engage with its public- and private-sector partners to keep pace with evolving CSR standards. This will include promoting the consistent implementation and application of the International Finance Corporation‟s (IFC) Performance Standards to ensure a level international playing field for Canadian companies, and continued engagement through EDC‟s membership in the Steering Committee of the Equator Principles (EP) Association. EDC is the first export credit agency and the first Canadian financial institution to be represented on the committee of the EP Association, a financial industry benchmark for determining, assessing and 2013-2017 CORPORATE PLAN 17 managing environmental and social risk in project financing. This will also include EDC‟s implementation of the revised Organization for Economic Co-operation and Development (OECD) 2012 Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (the “Common Approaches”) and continued involvement with our ECA peers throughout the planning period to improve common practices, develop guidance and promote a level playing field. In addition, EDC will focus on creating greater transparency with respect to CSR processes. In 2012, the corporation undertook efforts to increase the public‟s understanding of our CSR reviews, including the publication of a guide on EDC‟s review of environmental and social impacts in project financing transactions. As well, our 2011 CSR Annual Report described how we undertake CSR reviews in corporate financing transactions. These activities, which promote transparency of our internal processes, will continue through the planning period. Lastly, EDC will continue its efforts to raise awareness among Canadian exporters about the risks of corruption and bribery in international markets. Through this engagement, EDC uses its expertise to help exporters identify and implement ways to strengthen due diligence procedures and anti-corruption programs, thereby better protecting themselves from corruption risk when operating abroad. 2.4 INVESTING IN OUR STRENGTHS Our resources are our strengths. In order to help Canadian businesses take advantage of global trade and investment opportunities and generate benefits for Canada, EDC will continue to invest in its people and its technology, while prudently managing its financial capital. These three strengths together play a fundamental role in EDC‟s ability to adapt to change in the face of unforeseen events. A FOCUS ON PEOPLE The corporation‟s overarching people strategy over the planning period is to anticipate the people risks that could prevent EDC from achieving its business priorities and have the right resources in place to achieve these priorities. EDC competes for talent in a tightening labour market for highly skilled knowledge workers which are increasingly diverse, distributed and operating in an increasingly borderless world. The corporation is developing a rigorous and sustainable workforce planning program to ensure that EDC continues to have the right people with the right skills in the right place at the right time. Elements of this program will include a workforce assessment and planning process which differentiates according to the roles 18 EXPORT DEVELOPMENT CANADA that drive EDC‟s business, and a process to ensure that the corporation maintains the right balance of strong technical skills and behavioural competencies. EDC will also seek to leverage internal productivity gains of 1.5% annually by utilizing the talent and expertise of its resiliency pool of employees. Launched in 2012, the resiliency pool redeploys talented employees to focus on key challenges, such as trade creation opportunities or high priority projects. This initiative enables EDC to work smarter, develop individual and organizational resiliency and create capacity for when and where demand is heaviest. Financial sustainability is another key component of effective workforce planning. With this in mind, EDC introduced a defined contribution component to EDC‟s pension plan for all new employees in January 2012, reducing future pension funding volatility while maintaining an attractive and competitive total compensation offering for employees. EDC is also participating in the Crown corporation pension plan review launched recently by Treasury Board Secretariat. In addition to participating in this review, EDC will continue its own efforts to ensure the general alignment of its pension plan with publicsector plans. Finally, over the planning period, EDC will continue efforts to ensure the diversity of experience and perspectives within its employee population in order to enhance employee engagement, foster innovation and create a more global mindset. Efforts to increase the overall level of bilingualism and a focus on the development of women in leadership will also continue to be priorities for the corporation. LEVERAGING TECHNOLOGY FOR SUCCESS EDC‟s information technology (IT) is a critical component which allows us to meet our mandate of delivering timely financial and risk management solutions to our customers. EDC‟s IT systems, which support our business platforms, need to be secure, efficient, flexible and well aligned with the corporation‟s plans and activities. This makes investments in technology, both in terms of capital and operating expenses, a top priority for the corporation. In order to promote continuous improvement of our service offering, as well as to address future technology obsolescence, the corporation has undertaken a multi-year program to modernize our key business systems. This program will modernize EDC‟s proprietary business applications and systems architecture, which are specifically designed to meet the needs of Canadian exporters. The key objectives of this modernization effort are to improve our core transacting systems to more flexibly meet evolving customer needs, to improve web access to EDC services for our customers, to enable cross-functional team collaboration in support of our service levels and productivity and to provide employees with better access to the 2013-2017 CORPORATE PLAN 19

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