Canadian institutional investment pros say RI is important

But Canada, US lags Europe, UK in shift partly due to regulatory trends

Canadian institutional investment pros say RI is important
Steve Randall

The share of investment professionals in Canada and globally that say responsible investing is at least somewhat important to them is rising.

But North American respondents to the global survey by consulting firm Aon were behind their European counterparts at 78% for both Canadian and US respondents, compared to 87% in the UK and 87% in Continental Europe.

“I am sure it comes as no surprise that responsible investing is growing in importance in regions like the UK and Continental Europe, where there’s been a marked increase in RI regulation,” said Meredith Jones, author of the report and global head of responsible investing at Aon Hewitt Investment Consulting. “However, we are also seeing significant investor-led RI efforts in areas where regulation is not driving activity. It seems institutional investors are increasingly concerned about risks associated with non-financial factors within their portfolios, and RI offers multiple ways to capture, evaluate and mitigate those risks.”

The survey of nearly 230 investment professionals globally also revealed that 44% of the investors said their organization already has an RI policy in place while 24% said they have a policy in development.  

It also suggested that respondents’ concerns about how RI might affect returns may be easing and 40% believe that the incorporation of non-financial environmental, social, and governance (ESG) data results in better investment performance.

Tipping point
There is a feeling by a third of respondents that responsible investing is reaching a ‘tipping point’ (up 10 points from a year ago) and 64% allocated assets to some type of responsible investing strategy, up from 49% in 2018. Of those respondents, 59% indicated they would maintain or increase their allocations to RI in the coming year.

“The staggering increase in RI sentiment and activity we witnessed in our 2019 survey makes one thing abundantly clear: responsible investing is officially a going and growing concern,” added Jones. “The changing regulatory framework will play a larger role in some investors’ RI endeavours, while others will adopt increasingly “mainstream” ESG integration, and still others will embrace roles as global change agents. Regardless, institutional investors seem to understand that the world will look very different in the coming years and are evolving now to meet the investment challenges that lie ahead.”

In Canada, where the trend towards regulation governing ESG has admittedly been slower than in Europe, growth in interest and implementation is still quite evident. For example, the percentage of Canadian institutional investors who believe that RI is “very important” to their organization jumped five percentage points in this year’s survey, and more investors (19 percent) also reported having dedicated RI staff in 2019 than in the prior year (12.5 percent), said Calum Mackenzie, Partner and Head of Investment in Canada, Aon.

“Investment committees have moved ESG up the agenda, and it is increasingly an important part of investment risk considerations for institutions of varying size, background and complexity,” explained Mackenzie. “Having a coherent ESG policy and commitment is becoming just an entry-level requirement for institutional investors, who are growing more sophisticated in their approach to responsible investing. In fact, we are finding that investors are increasingly asking Aon to look under the hood of their strategies to ensure that ESG is truly integrated into their investment process, and not just ‘green washing.’”

Canadian findings
Among Canadian respondents, 38% already have an RI policy.

But while globally 29% of respondents said that the primary motivation for engaging in responsible investing was to impact global issues such as climate change, diversity or social justice, only 8% of Canadian investors indicated that global impact was a motivating RI factor.

Due to a considerably slower and more tepid regulatory response in Canada than there has been than in Europe, only 8% of respondents indicated regulations were motivating their RI initiatives while around 30% of Canadian investors are opting to take a “wait and see” regulatory approach.

Respondents from Canada were the least likely to have responsible investments of any kind with 52% stating they had no proactive responsible investments in their portfolios and 29% indicated that RI plays no role in their investment decision-making.

Globally, the percentage of respondents who do not consider RI in the manager selection process dropped from 37% to 29%.