Growth expectations have moderated over issues such as greenwashing and data quality
Current economic uncertainty may not be conducive to investment strategies where there is doubt, but one area showing resilience despite concerns is responsible investing.
A new report released today (Oct. 26) by the Responsible Investment Association highlights the strong desire among Canadian investors to focus their investing through an ESG lens.
RI assets now account for almost half (49%) of Canadian AUM and increased its share, but that does not negate concerns that investors have about greenwashing, data quality, and disclosures, which have contributed to a moderation of the sector’s growth.
However, reporting improvements continue with six in ten contributors saying overall quality of ESG reporting (including their own) compared to last year, although investors are keen to see global standards to further improve the integrity of reporting and boost confidence in the responsible investing space.
“As sustainability issues increasingly define investment risk and opportunity, the financial sector is codifying RI practices, ramping up transparency and reporting, and pushing for greater clarity and certainty,” says Patricia Fletcher, CEO of the RIA. “I am optimistic about the future of RI in Canada and the opportunity to embrace the global momentum behind emerging tools – from disclosure standards to green and transition taxonomies – in ways that advance Canada's priorities, including economic Indigenous reconciliation.”
The main reasons given by poll participants for considering ESG factors are: minimizing risk, improving returns over time, and fulfilling fiduciary duties.
“It is encouraging to see the maturation of responsible investing across Canadian money managers,” said Fate Saghir, SVP, Head of Sustainability, Mackenzie Investments, one of the organizations that provided input to the report. “This is especially apparent in the consideration of ESG to minimize risk over time, which is a practice that we at Mackenzie have implemented across our diversified investment boutiques to align to client outcomes.”
ESG integration, corporate engagement, and negative screening are the most commonly used RI strategy while more than half of organizations are using impact investing.
Overall growth in RI is being driven by climate change, investor demand for ESG/impact, and regulatory guidance/requirements.
“It is heartening to see that asset managers and owners continue to put their clients’ needs first when it comes to the application of responsible investment strategies—as they must,” said Adelaide Chiu, VP, Head of Responsible Investing at NEI Investments. “The fact that reducing risk, improving returns, and fulfilling fiduciary duty remain top reasons for consideration of material non-financial information underscores the importance of ESG integration. As standardization of disclosures improves and confidence in reporting rises, there will be no reason to ignore that information in the pursuit of Canadians’ investment success.”