In-depth interviews with Canadian institutional investors reveals increased emphasis on disclosure and revised climate focus
The coronavirus crisis isn’t taking away from the importance of ESG among institutional investors, according to a new study by Millani, an advisory services firm that specializes in ESG integration.
After interviewing 23 Canadian institutional-level asset owners and managers representing $2.3 trillion in AUM, Millani found that while efforts may pause in the near term as companies grapple with the pandemic’s impact, 74% agree that COVID-19 will ultimately have a positive impact on ESG and sustainable finance.
Institutional investors surveyed saw an opportunity for governments and financial infrastructure to “rebuild” better. According to Millani founder and President Milla Craig, respondents agreed that a new normal should include a stronger focus on ESG issues, with the UN’s Sustainable Development Goals being used as a guide.
And as issues related to the virus exposed many risks to companies’ business models, 65% of interviewed investors said they expect enhanced ESG disclosures with a focus on issues that are financially material to their business. That includes reliable, accurate, and complete quantitative ESG metrics that are aligned with recognized standards and frameworks.
Some of those interviewed expressed concerns that COVID-19 and the subsequent reactions from the market would push climate change and ESG out of the policy agenda as governments, industries, and individuals focus on basic necessities and maintaining a functioning economy and society. Indeed, the study found that because of human capital issues like worker protection, health benefits, and supply chain sustainability being pushed to the fore, there will be more focus on Social issues in ESG integration.
But 87% of respondents agreed that climate change will remain a key theme for their engagement activities, though probably demoted from its original standing as the number one risk for a company. Responses in interviews included mentions of the Task Force for Climate Related Financial Disclosure (TCFD) and the Sustainability Accounting Standards Board (SASB), as well as an EU Taxonomy aimed at aiding the transition to a low-carbon economy by distinguishing “green” from “brown” products.
“A taxonomy of this nature is being developed in Canada as we speak,” Craig said. “This taxonomy will help in clarifying fund labelling as well as financing products moving forward.”