June 25th, 2018
By David Hageraats
If you’ve attended the annual RIA Conference before, you may have noticed something different at this year’s event, held earlier in June. Yes, the crowd got bigger — as it has every year — but there was something even more noteworthy. This year, we heard from the kids.
Four Canadian youth leaders kicked off the conference in an opening session, each with powerful messages that reminded us why we had all gathered there in the first place. In case you missed it, here are the highlights and key takeaways from the plenary sessions throughout the two-day forum. As for the breakouts, you’ll just have to join us next year in Montreal!
Talking about Tomorrow: Conversations with Today’s Youth Leaders
Thirteen year-old water advocate, Autumn Peltier, was first to take to the stage. As an anishinaabe woman, Pelletier says she has an important role in speaking up for water. Her mother and her aunt Josephine Mandamin, who is a water walker, Elder and activist, both inspired her mission. She highlighted that water is sacred, and everyone has a responsibility to preserve what they depend on.
Sibling activists Franny and Rupert Yakelashek followed up with a call to action on environmental rights in Canada, having already persuaded twenty-three municipalities to legislate environmental rights declarations. The pair echoed that all Canadian youth have the present and future right to drink clean water, breath clean air, and live in a stable climate. Many other countries have proven that environmental rights bills are effective ways of protecting those things, yet Canada has still not caught on.
Finally, Levi Hildebrand, a University of Victoria student and YouTube entertainer, brought to light the tone of conversations around environmental problems, including the negativity around climate change. He said it’s time we start celebrating each and every success story and build momentum for long lasting solutions.
Moderator and Senior Vice President of Sales and Distribution at NEI Investments, Chris Nickerson, acknowledged the bright future to come with these youth leading the way. He ended the session with their main message: “Our voices together are stronger.”
Global Financial Stability: Climate disclosure to the rescue?
The TCFD recommendations are receiving lots of support from the international investment community, but signing on is not enough. The panel tackling this issue included Jane Ambachtsheer, Partner and Chair, Responsible Investment at Mercer; Roger Beauchemin, CEO and President of Addenda Capital; Andrew Chisolm, Board of Directors at RBC; Maia Becker, Director, Environmental and Social Risk Policy at RBC; and Julie Robertson, Vice President and Controller at Barrick Gold. The panelist noted that we need better data and deeper analysis to understand the impacts of climate change on investments and portfolios. The TCFD recommendations provide a market for this data, a platform for the analysis, and a major opportunity to manage systemic risk.
The transition to a low-carbon economy with rigorous climate-related financial disclosures is very important for Canada, considering its resource-based industries. Despite growing discussions, the Canadian financial community has not yet digested the international movement towards a better understanding of climate risks. There is still no national narrative in Canada around transitioning, possibly because of an aging population that controls most of the wealth. Nevertheless, the dialogue must be made relevant to the Canadian context for the public and investors to take notice and act.
Technological Disruption: The Good, The Bad, and the Unavoidable
Manmeet Bhatia, SVP at Aviso Wealth Inc., sat down with Michael Kagan, Senior Portfolio Manager at ClearBridge Investments, for a fireside chat on disruptive technologies and their ESG implications. First on the docket: automation and the job market. Kagan noted that low-skill jobs, particularly in manufacturing and transportation, are significantly at risk. How soon for self-driving cars to make it to market? When an audience member asked if his six year-old son will need his driver’s license in ten years, Kagan without doubt said that self-driving cars will be on the road by then. In terms of the investment, it will take longer-term data collecting, more tech improvements, and deeper ethical and regulatory discussions before self-driving cars are worth the risk. If they are part of the investment thesis, consider a significant discount.
The session also touched on data privacy, much to the rising paranoia level in the room. In essence, secure data doesn’t really exist, and probably never will, for two main reasons: creativity and stupidity. Kagan explained that there will always be inventive people looking to break codes for their own benefit, as well as people who make mistakes. Those things combined, don’t count on your data ever being fully safe. And besides, once quantum computing is widely accessible, passwords will be obsolete anyways…
Sustainable Development Goals: The $7 Trillion Challenge
The first of two sessions on the SDGs brought together Dirk-Jan Verzuu, Investment Director and Lead Portfolio Manager, Impact Investing, PGGM; Rosalie Vendette, ESG Practice Leader, Desjardin Group; Michelle O’Keeffe, Governance and Sustainability Analyst, Ballie Gifford; and Kevin Ranney, Director, Advisory Services, Sustainalytics. The panelists focused on how the private sector can play its part and also revealed the large data challenges for investors and service providers; Canadian companies are starting to report on the SDGs, but a standardized taxonomy for impact measurement is inexistent. At the same time, investors can benefit from attempting to measure SDG impact, even with their own methodology, because this helps identify SDG washing.
Despite the challenges, numerous companies are setting good examples. Chr. Hansen produces innovative bioscience solutions using enzymes, cultures, and probiotics that focus on three SDG areas: better farming practices (SDG2), less waste (SDG12), and good health (SDG3). Tomra has helped Norway reach a 90% recycling rate of plastic bottles through reverse vending. Safaricom has given mobile banking access to millions of people in developing countries through services like M-PESA. And the list goes on…
Charting a Course Towards Long-Term Value with SASB and the Future-Fit Business Benchmark
Over the last ten years, responsible investors have been asking, “What impact does ESG have on your portfolio?”. As we look ten years into the future, the question is becoming, “What impact does your portfolio have on ESG efforts?”, shifting the focus from short to long-term. Brian Minns, Vice President of Sustainable Investing at Addenda Capital, engaged with Martin Rich, Co-founder and Executive Director at Future-Fit Foundation, and Katie Schmitz Eulitt, Strategic Advisor for Stakeholder Outreach at SASB, on the options available to investors regarding long-term evaluation.
SASB and the Future-Fit Business Benchmark may be the perfect combination for those investors searching for standards that help eradicate short-term behaviour while not losing sight of what’s material today. Inceasingly, a large portion of investors among Gen X and Millennials want to understand how their money is impacting the world. Both SASB and the Future-Fit Business Benchmark can help achieve this goal, first by starting a dialogue with investee companies on which issues are financially material.
Kicking the Habit: The Global Movement Towards Tobacco-Free Portfolios
Dr. Bronwyn King, internationally renowned radiation oncologist and CEO of Tobacco Free Portfolios, returned to the RIA conference this year to deliver another compelling message on making a global shift towards tobacco-free finance. After presenting equally powerful ethical and financial arguments, she was joined on stage by Canadian institutional investors to describe their experiences going tobacco-free. They were each challenged by implementing divestment across all of their portfolios, but in the end, it was an easy decision.
Engagement and the UN SDGs
This follow-up session highlighted how companies are ahead of investors when it comes to understanding the SDGs, but investors still have a part to play. Vicki Bakhshi, Director of the Governance and Sustainable Investment Team at BMO Global Asset Management, noted that BMO has been running a formal engagement program since 2000, which takes on many different form. Engagement is really about partnerships, which investors have a responsibility to uphold.
The SDGs have three main uses for investors: A common language platform that can help set priorities for sustainability, a risk-opportunity framework for internal auditing of portfolios, and a reporting tool to translate high-level goals into investment opportunities. It’s important that investors dive in and familiarize themselves with the SDGs, so that engagement can be most effective. The SDG Compass is a good place to start.
A Just Transition: Social Implications of a Low-Carbon Transition in Canada
While Canada struggles with its identity crisis as a hopeful climate leader and a resource-developing nation, the social implications for Canadian workers regarding climate change do not get enough attention. The uneven distribution of fossil fuel sector jobs and emissions per job sector present a significant political challenge for Canada regarding a just transition. The mining, oil and gas sector represents only 1% of total employment, about 8% of GDP, and 33% of GHG emissions. These jobs are regionally concentrated in Alberta. In comparison, the services sector represents 75% of employment, approximately 70% of GDP, but only 10% of GHG emissions. The just transition will happen over many decades, but there is still lots of space for both reactive and proactive policies.
Investing in Systemic Opportunities
ESG integration has often been understood by investors and portfolio managers as a means to reduce risk. However, the real investment driver for retail investors and the larger public is opportunity, not risk. Martin Grosskopf, Vice President and Portfolio Manager of Sustainable Investing, AGF Investments, provided some refreshing (yet concerning) data that showed despite clear evidence of a positive relationship between ESG scores and financial performance, investors with strong ethical preferences are still driving the assets rather than those seeking opportunity. At the same time, passive investing in indexes is taking hold, likely reducing investor engagement.
ESG Analysis at the Country vs Company Level
ESG analysis differs greatly at the country level compared to the company level. ESG scores for a country are generated using indicators on corruption, civil rights and liberties, and gasoline and tobacco prices. Interestingly, scores are positively linked to a country’s credit rating. Country level ESG analysis can also complement company assessments. However, engagement and rigorous independent research is often necessary because the disclosure data is just not sufficient. This is particularly important for multi-jurisdictional companies. As a whole, ESG analysis is tending towards trend lines as opposed to point estimates to compensate for the lack of data.
After hearing from a diverse list of talented and sophisticated speakers, it was clear to attendees that the future challenges are just as big as the opportunities. Fortunately, the ball is in our court. As people mixed and mingled during the closing reception, the words of youth leaders, just one day old, hung still in the air… “What are we waiting for?” said Pelletier, reminding us that it’s never too early to get involved, nor too late.
The 2019 RIA Conference will be held in Montréal at the Fairmont Queen Elizabeth on April 24th and 25th.
Disclaimer: The views expressed in this article are attributable to individuals who spoke at the 2018 RIA Conference. They do not reflect the views of the Responsible Investment Association.
About the Author
David Hageraats graduated from McGill University in 2015 and recently joined the Master of Science in Sustainability Management program at the University of Toronto. His current academic research examines the intersection between behavioural finance and socially responsible investing. With consulting experience in the new energy sector, he is passionate about empowering business to be a force for good. Prior to focusing on sustainable business and finance, David worked with at-risk youth and was a whitewater canoe instructor.