Industry Update Industrials 22 July 2020 Yuri Lynk, MSc, CFA | Analyst | Canaccord Genuity Corp. (Canada) | [email protected] | 1.514.844.3708 Capital Goods ESG themes Company Rating Price Target Engineering and Construction Key themes impacting the sector ARE-TSX Buy C$15.00 C$19.00 BAD-TSX Buy C$30.40 C$32.00 ESG considerations in the capital goods space do more than just check the BDT-TSX Buy C$6.74 C$7.00 sustainability box, they are good for business. We highlight the social component NOA-TSX Buy C$7.55 C$16.00 of ESG as being particularly important to our coverage universe, which is dominated STN-TSX Buy C$43.71 C$46.00 by companies in the construction, engineering, and equipment supply chain. These WSP-TSX Buy C$86.14 C$95.00 are businesses that rely almost entirely on human capital to design, build, operate, Equipment Distribution and Rentals and maintain infrastructure and equipment, often in harsh geographic climates. When FTT-TSX Buy C$19.03 C$24.00 your primary asset is people, it pays to keep turnover low and engagement high while TIH-TSX Buy C$73.35 C$71.00 fostering a diverse workforce with a strong safety culture. Priced as of close of business 20 July 2020 Within the social aspects of ESG, we believe diversity and safety are of particular importance. In an industry where fatalities unfortunately do occur, safety is priority number one and a safe workplace helps attract and retain talent. Additionally, it is key for winning new business from customers that increasingly demand a clean safety record from suppliers. Importantly, industry safety records can be quantified, unlike many other ESG factors, through the Total Reportable Injury Frequency (TRIF) ratio and similar measures. In terms of diversity, engineering and construction, companies face labour constraints, so being able to attract people that are underrepresented in the industry, such as women and minorities, potentially alleviates the labour pinch point while fostering an environment of diversity and inclusion. Which companies are doing it best? Stantec - Stantec, in our view, has perhaps the most comprehensive ESG profile. On the environmental front, Stantec has achieved a 39% reduction in its emissions from its 2013 baseline and expects to surpass its 2028 reduction target of 40%. Its social leadership is also strong as evidenced by its inclusion in the Bloomberg Gender-Equality Index and the Jantzi Social Index, while its safety record has been improving since at least 2014. On the governance front, the board is 40% female comprised and 75% independent. WSP Global - WSP is making strides across all aspects of ESG and was named "Most Sustainable Company in the Engineering Industry - 2019" by World Finance magazine. It has a 25% GHG reduction target (2018-2030) in place and is making progress on achieving it. Its safety record is impressive, but its progress on filling over 30% of management positions by women requires improvement. In terms of governance, WSP scores well with an independent Chairperson and good shareholder alignment. We note 6 of 8 directors are independent and 3 of 8 are women. Toromont Industries - Toromont has reduced its GHG emission carbon intensity by 10% over the last three years and increased landfill diversion by 25%. The company scores well on social considerations, with senior leadership compensation tied to TRIF. In a tight labour market, Toromont was able to increase its workforce by 8% in 2019, reflecting successful recruiting, onboarding, and retention. Toromont values diversity, as evidenced by women comprising 22% of its leadership team and 30% of its Board. Aecon Group - Aecon has begun disclosing its carbon footprint and set reduction targets; possesses a strong safety culture; has relationships with over 40 Indigenous groups; and scores well on governance measures with 80% of the board independent and 100% of employees being shareholders. Best of the rest - We would be remiss if we did not mention the strong safety cultures at Badger Daylighting, Bird Construction, and North American Construction Group, while Finning International boasts a comprehensive ESG program and is on track to improve its safety measures. Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX) The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all the companies and securities that are the subject of this report discussed herein. 22 July 2020 8