Responsible investing claims over 60% of Canada's investment industry, with $15 billion in ESG mutual funds
The COVID-19 pandemic has proven to be a powerful tailwind for ESG investing, particularly as funds tilted to the strategy performed better than in-category counterparts during the first-quarter market downturn. But even before that, the Canadian investment industry’s appetite for responsible investing had been on an exponential growth path.
That’s the story told by the Responsible Investment Association in its newly unveiled 2020 Canadian Responsible Investment Trends Report, which included survey data representing over 1000 asset managers, asset owners, and publicly available sources as of December 31, 2019.
By the end of last year, the RIA found there were $3.2 trillion in RI assets under management across the Canadian industry, which came off of 48.5% growth over a two-year period. Over that time, the percentage of Canadian investment industry assets placed in RI also rose from 50.6% to 61.8%. Public equity and fixed income accounted for the majority of Canadian RI assets by the end of 2019, making up 45% and 35% of RI AUM, respectively.
Institutional investors’ leading role in RI was clear, with institutional AUM reported at $2.3 trillion compared to $882 billion for individual investors. But assets in the individual segment displayed much greater acceleration, as RIA’s 2017 figures showed $1.7 trillion and $435.7 billion in institutional and retail assets, respectively.
“While this growth, to some extent, represents rising demand from individual investors, it is largely indicative of asset management firms implementing an ESG integration strategy across all of their assets, including retail funds that are not necessarily labelled or marketed as responsible investments,” the report clarified.
Driven by strong interest from individual investors, assets in designated RI retail mutual funds rose 36% from $11.1 billion to $15.1 billion, while RI ETF assets grew from $240.6 million o $654.9 million.
Looking at investors’ motivations for considering ESG factors, the survey found the five most commonly cited reasons were to:
- Minimize risk over time;
- Improve returns over time;
- Fulfill their fiduciary duty;
- Fulfill their mission, purpose, or values; and
- Meet client/beneficiary demand.
“The understanding around how incorporating ESG is consistent with, not in conflict with, an investment manager’s fiduciary duty has become more widely accepted within the investment industry,” the RIA said.
The environmental pillar of ESG dominated the top five ESG considerations among those surveyed, which were:
- Climate change mitigation;
- Energy efficiency;
- Climate change adaptation;
- Pollution/toxics; and
Breaking out assets in terms of RI strategy, the report found the largest allocation went to ESG integration with $3 trillion as of 2019, followed by shareholder engagement with $2.7 billion. Roughly $1.36 trillion was held in negative screening strategies, while $1 trillion went to norms-based screening.
Reported asset levels were much more modest in thematic ESG investing ($48 billion), positive screening ($20.6 billion), and impact strategies ($20.3 billion).