Canadian asset owners stepping up support for ESG

Why asset managers and issuers should prepare for increased expectations around issues beyond performance

Canadian asset owners stepping up support for ESG

Canadian pension funds’ increased focus on ESG-focused companies is becoming more evident as a global commitment to sustainable investment, as well as a narrowing gap between ESG evaluation and the rate of adoption, comes into play.

That’s according to Alistair Almeida, CIBC Mellon’s Segment Lead, Asset Owners, in a recent interview.

In the piece published by CIBC Mellon, Almeida pointed out that responsible investing has emerged as the most popular investment strategy among Canadians. Leading Canadian pension funds and other institutional investors are increasingly at the forefront of ESG conversations. Pension plans are hoping to push the industry and their suppliers forward amid pressured from plan members to go above and beyond.

In addition to the joint statement by eight of Canada's largest pension plans calling for increased transparency, Almeida cited a call for increased corporate climate accountability from Canadian investors representing $5.5 trillion in assets under management at all five of Canada's major banks, insurance companies, foundations, and others.

Beyond that, there are a number of Canadian plans actively engaged on issues such as carbon emissions and net-zero goals. Indigenous reconciliation in the corporate sector, improved corporate governance, diversity and inclusion, and board diversity and inclusion are also gaining more attention, as well as allocating resources strategically to meet both financial and non-financial goals.

Furthermore, significant and rapid progress has been made around the problems connected with clear, compatible, and reliable ESG data, which has been a long-term challenge. Investors' rapidly changing opinions and studies of ESG have established their macro significance. It is causing change not only in the way businesses operate, but also in how the company identifies itself and considers its place in the world.

Institutional investors continue to express interest in not only bringing in unstructured data, but also connecting it numerous sources and create their own scores to measure the impact of ESG, akin to building their own benchmark impact their financial decisions. That demand will only strengthen the case for stricter environmental, social, and governance (ESG) reporting requirements continue to push for ESG metric standardization.

Both private and public markets are affected. While CIBC sees a lot of effort needed ahead, it sees significant progress, such as the establishment of an office for the International Sustainability Standards Board in Montreal.

As for a viable ESG investment outlook for Canadian pension plans in 2022, Almeida says investors are demanding greater transparency on environmental, social, and governance (ESG) issues, as well as alternative investment possibilities that could lead to higher returns. ESG outcomes that are positive expect more transparency from asset managers and issuers when it comes to ESG investing.

Read more: Canadian pension plans maintain positive trajectory in Q2 2023 performance

Internal and external stakeholders' portfolios and many pension funds want to collaborate with external managers, becoming more hands-on than previously. This is true not only in terms of performance, but also in terms of governance and the consideration of non-financial or values-driven variables.

“Investors should watch for further announcements, especially as the Canada’s Office of the Superintendent of Financial Institutions announced in an industry letter that it will issue draft guidance on climate risk management for federally regulated financial institutions later this year,” Almeida added.