A new report shows ESG factors gaining importance among asset managers and owners
Canada’s investment industry is growing through a responsible-investing renaissance, according to the Responsible Investment Association (RIA).
In its 2018 Canadian Responsible Investment Trends Report, the association found that the Canadian RI industry grew by 41.6% from having $1.51 trillion in 2015. With RI assets under management reaching $2.13 trillion at the end of 2017, assets being managed using at least one RI strategy grew to represent 50.6% of Canada’s investment industry, compared to just 37.8% two years prior.
Looking at RI strategies by AUM, RIA found that the most assets were invested in:
- ESG integration (~$1.89 trillion);
- Shareholder engagement (~$1.5 trillion);
- Norms-based screening (~$981 billion); and
- Negative screening (~$878 billion)
Assets in RI-labelled retail mutual funds also increased by 34% over the two-year period, from $8.26 billion to $11.07 billion. Growth on the ETF side was more pronounced, doubling from $97.9 million to $240.6 million. “The growth of assets in these products reflects the rising demand for RI among individual investors within a growing product landscape,” the report said.
Professionals surveyed by RIA reported managing a total of $435.7 billion in assets for individual investors in 2017, a massive increase from the $118.5 billion reported two years prior. Still, institutional assets represented a clear majority, with survey respondents saying they managed $1.7 trillion in RI strategies for institutional clients.
“This tremendous growth is largely the result of major institutions moving to integrate ESG factors across all of their assets,” the report said. More Canadian asset managers have also become signatories to the UN Principles for Responsible Investment, with the number growing from 38 to 56 over the period between 2015 and 2017.
Over that period, fixed income’s role in the responsible-investing landscape also expanded from 27% to 34% in terms of assets. Public equities represent the largest slice of the pie at 36%, though it has shrunk from its previous 2015 levels of 36%. Alternative asset classes held single-digit allocations, with the largest slivers seen in venture capital/private equity (9%) and real estate (8%).
When asked why they were considering ESG factors, respondents most overwhelmingly cited the need to minimize risk over time, followed by the need for improved returns over time. Other reasons included meeting client/beneficiary demands, satisfying their fiduciary duty, and following a certain mission or set of values.
The outlook for RI in Canada was generally bullish, with survey participants foreseeing tailwinds such as responsibility/fiduciary duty to client, risk management, increased recognition of climate risks, and interest from younger generations over the next two years. But to a lesser extent, they identified perceived factors including performance concerns, lack of qualified advice/expertise, and mistrust/concerns about greenwashing as major barriers for responsible investment from now until 2020.