Where Sustainability Meets Asset Performance

The Canadian housing market has become increasingly characterized by structural supply shortages and affordability challenges. While new construction is at the forefront of the discussion, there is a compelling case for revitalizing Canada’s existing multi-family dwellings. Compared to building new, retrofits offer a practical and timely solution, breathing new life into long-standing neighbourhoods while reducing environmental impact. There is merit for multi-family property owners to continue exploring the transformative power of large-scale retrofits in addressing the housing crisis, fostering a more sustainable future, and creating value for investors.

Extending the life of older properties

Many of today’s investors are looking for opportunities with purpose. They consider a company’s social and environmental impact before investing, seeking both return performance and sustainable, ethical options that align with their values. Forward-thinking investment funds offer this cohort of investors an investment option that balances these desires.

Investing in older properties and extending their useful life is an efficient and affordable way to create modern spaces with a reduced carbon footprint in desirable communities. The UN’s Global Status Report finds that “the buildings and construction sector contributes significantly to global climate change, accounting for about 21 per cent of global greenhouse gas emissions. In 2022, buildings were responsible for 34 per cent of global energy demand.” Other sources have found that retrofitting an existing building emits 50 to 75 per cent less carbon than constructing the same building new. Unlike new developments, where significant building resources and environmental disruption are required to create supporting infrastructure, shifting the focus to the sustainable retrofitting of existing buildings offers a more eco-conscious approach.

According to data compiled by the Canada Mortgage and Housing Corporation (CMHC), over 80 per cent of Canada’s rental buildings were built before the year 2000. With an aging housing stock, maintaining and upgrading these properties is the quickest path to addressing our nation’s housing crisis. Older buildings can be upgraded relatively quickly to improve energy efficiency and modernize living spaces while utilizing established infrastructure and minimizing external disruption. This strategy increases the long-term value of existing properties and aligns with investor priorities.

A collaborative approach

While there are benefits to transforming aging properties into modern, sustainable homes, bringing these large-scale retrofits to life requires innovation and collaboration between public and private entities. There is an opportunity for property owners to work closely with financial institutions and various levels of government, specifically where programs are offered that incentivize green building projects. Property owners capitalizing on the potential of this solution have been able to showcase how strategic investment in older buildings can deliver robust financial performance for investors, especially when partnering with government and exploring funding options.

Avenue Living has recently proven the benefits of this type of solution by successfully using programs offered by the Canada Infrastructure Bank (CIB) and Bank of Montreal (BMO) to access financing structures supporting energy-efficiency initiatives. These types of financing offerings can help to move ambitious, large-scale retrofitting projects through to completion. By securing favourable lending terms, property owners can implement sustainable renovations while maintaining market-competitive rental prices, without compromising investor returns.

Case Study: The SunRise property in Edmonton, Alberta

The transformation of The SunRise property in Edmonton is a recent example of how a housing provider can revitalize aging housing stock. Formerly known as Capital Tower, this 12-story, 179-unit building constructed in 1970 is situated in a prime location but was being underutilized in the local rental market because it needed extensive renovations. Rather than demolishing and rebuilding, Avenue Living gave the building new life through environmentally sustainable upgrades.

Significant renovations were undertaken with the goal of reducing the building’s carbon footprint while also showcasing the neighbourhood’s cultural heritage with a unique solar panel mural designed by local Indigenous artist Lance Cardinal. The solar panels generate energy used by the common areas of the building while doubling as a striking art installation. At 26 meters high, it is North America’s largest vertical solar panel art array.

Beneath the solar façade, new insulation on the building’s exterior walls improved the efficiency of the interior. Coupled with new triple-glazed windows, these measures help keep residents comfortable year-round and allow the heating and cooling systems to run more efficiently. The inside of the building was also extensively renovated, with in-suite updates to modernize the interior, improve heating, cooling and ventilation, and reduce overall greenhouse gas emissions.

Financing for the improvements at The SunRise was obtained through BMO’s offerings available for energy-efficiency initiatives.

By prioritizing sustainability, affordability, and community engagement, Avenue Living continues to build a portfolio that aligns with the values of today’s investors. This proven model seeks strong financial returns alongside long-term social and environmental benefits. Through strategic partnerships, innovative property revitalization, and a commitment to ESG principles, Avenue Living is paving the way for a more sustainable future — one building at a time.

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RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

Historically, the primary mechanism for impact investment was the provision of finance through private equity investment or debt issuance. This could be explained, at least in part, by the clear link to the additionality of the financing; alignment with the longer-term nature of impact goals; and simpler impact measurement for project-specific financing.

In more recent years, the narrative around impact investing has evolved, leading to a greater appreciation of public equities as an asset class within impact investment. We see two key reasons for this:

– Addressing global challenges requires leveraging public equities, as they provide access to the vast capital needed to drive meaningful change. The persistent shortfall in achieving frameworks like the UN’s Sustainable Development Goals (SDGs) exemplifies this urgency.

– There have been improvements in the ability to measure the impacts—both positive and negative—of public equity investments. Given the value placed on impact measurement by investors, this development has increased the feasibility of public equities as an impactful asset class.

While impact investment in public equities is still in its infancy, we believe these factors will be foundational in the continued growth of the impact investment market in the future. 

Impact-related assets under management globally are now USD 1.6 trillion, slightly more than one per cent of global AUM. As transparency has improved, public equity and public debt markets have experienced the fastest growth within the impact investing landscape. This rapid growth has not solely been due to a rise in altruistic investment; we, alongside other impact investors, believe that impact and financial performance can be positively interrelated.  

Companies that create impactful and innovative products that address unmet societal needs can access attractive growth opportunities afforded by public markets. Quality companies should attract additional capital, , with profit generation allowing for reinvestment to generate further impact and compound returns for shareholders.

Putting principles into practice

To truly balance the dual objective of positive impact and financial returns, there should be processes in place to establish a credible and authentic impact offering. The Global Impact Investing Network (GIIN) sets out four key characteristics of impact investing that we believe should frame any strategy, process or behaviour.

– Intentionality: We know that when investing, numerous biases and behaviours may lead to impact being de-emphasised in favour of chasing performance or reducing tracking error. To guard against this, there should be a clear mandate to invest in companies providing products or services that contribute towards an environmental or social objective, along with a theory of change for each investment. Impact should be a pre-condition for inclusion.

– Evidence and impact data in investment design: While we view intentionality as a precondition, this should be accompanied by analysis that sets out the impact the company is having in the real world. We believe that without a systematic approach to impact, one cannot provide evidence that holdings are relevant to the impact strategy and that they contribute to the impact objective.

– Manage impact performance: Once the presence of impact has been confirmed, its magnitude should be measured, encouraging accountability both for fund managers and the companies themselves creating tangible results to monitor and track. This can also be used to inform an engagement agenda for managers to accelerate the impact, a key additionality mechanism for public equity managers that could involve setting portfolio level or company level KPIs for reporting purposes.

– Contribute to the growth of impact investing: We advocate for an impact market with enough scale to deliver against the expectations of end investors. This could involve driving forward the impact investment market through innovation and best-practice sharing, acting as a long-term partner to investee companies and clients, and being transparent in approach, successes, and shortcomings.

These elements should not be totally new to investors. We regularly conduct detailed research and analysis. Looking through an impact lens is simply a new way of absorbing and processing company information, and we believe a methodical approach is important to avoid the above-mentioned biases.

Below, we set out a possible way of integrating impact into portfolio construction decision-making by weighing investment and impact conviction equally when determining position sizes. This ensures that a focus on impact is maintained, while working to maximize returns within the opportunity set of impactful investments.

At the portfolio level, this could be represented by the diagram below:

However investors decide to integrate impact into their analysis and decision making, investing in public equities can provide impact at a scale that can only be achieved in public markets. We recognize that the companies in which we invest are likely to touch millions of lives each day, and we believe that more people are becoming explicitly aware of this, too.

As end investors seek to better understand the real-world impacts of their investments, rather than considering them as simply prices on a screen, we expect to see the impact investing market continue to thrive—and along with it, progress towards overcoming some of the greatest challenges we are facing as a society.

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RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

Over the past 15 years, Sarona Asset Management has navigated the complexities of investing in emerging markets, continuously refining its approach to balance financial returns with impact. Our experience has provided valuable insights into what works, what doesn’t, and the realities of responsible investing that are often overlooked. This article distils key lessons learned, focusing on actionable takeaways for investors looking to succeed in these dynamic markets.

1. The Challenge of First-Time Fund Managers

One of our core lessons is the difficulty of working with first-time fund managers. While these managers often bring innovative ideas and deep local knowledge, they also present higher execution risks due to limited track records and institutional weaknesses. We mitigate these risks by emphasising rigorous due diligence, governance support, and hands-on engagement. Investors should be prepared to provide strategic guidance and facilitate peer learning to enhance their partners’ capabilities.

2. Avoiding the Pitfalls of Mixed Investment Strategies

A common misstep in emerging market investing is blending multiple investment strategies without precise alignment. We have seen instances where funds attempt to combine venture capital with later-stage private equity or mix impact-driven capital with purely financial mandates, leading to conflicting incentives and suboptimal outcomes. Success in these markets requires strategic discipline—ensuring investment theses are well-defined, execution capabilities match the strategy, and alignment exists between investors and investees.

3. The Critical Role of Currency Risk Management

Currency fluctuations remain one of the most persistent challenges in emerging markets. Over the years, we have observed how poorly managed foreign exchange risks can erode returns, even in high-growth investment opportunities. While hedging instruments exist, they are often expensive or unavailable in frontier economies. Our approach has prioritised businesses with natural hedges—those generating revenues in hard currencies or with strong local supply chains. Investors must factor currency risk into their decision-making and consider structuring investments to mitigate exposure.

4. Realities of Successful Exits

Exiting investments in emerging markets is rarely as straightforward as in developed economies. Liquidity constraints, regulatory barriers, and political instability can all impact exit timing and valuations. Over our 15 years, we have seen the importance of planning exit strategies early – identifying multiple potential buyers, nurturing secondary market interest, and ensuring businesses are built with sustainable, long-term value creation in mind. A well-thought-out exit plan is just as crucial as the initial investment thesis.

5. Investing in Emerging Markets is Not as Risky as Perceived

A common misconception is that investing in emerging markets is inherently tricky and risky. However, these markets can offer strong returns and impactful opportunities with the right local partners, extensive due diligence, and a disciplined approach. Over 15 years, we have developed deep expertise and relationships to navigate these challenges effectively. Our experience has shown that local knowledge and partnerships are crucial in mitigating risks and unlocking value. Rather than seeing emerging markets as overly complex, investors should recognise the opportunities with the right strategy and execution.

6. Turning Setbacks into Opportunities

No investment strategy is without challenges, and emerging markets bring heightened risks, from economic downturns to geopolitical shifts. However, setbacks have often provided some of our most significant learning opportunities. For example, when faced with underperformance in certain portfolio funds, we leveraged these experiences to refine our selection criteria and strengthen portfolio monitoring. The key is resilience—adaptability and willingness to iterate based on real-world outcomes.

7. The Evolution of Impact Measurement

Fifteen years ago, impact measurement was primarily qualitative. Today, investors demand rigorous, data-driven metrics to assess financial and social performance. We have evolved our approach by integrating ESG and impact measurement into our investment decision-making, using frameworks that balance accountability with practicality. The future of responsible investing lies in finding the right balance between measurement complexity and actionable insights.

Looking Ahead

As we look to the next decade, the lessons from our journey will continue to inform our approach. Key priorities include deepening our focus on climate resilience, supporting fund managers with strong financial acumen and social impact, and leveraging technology to enhance investment efficiency. Emerging markets remain among the most promising yet challenging landscapes for investors, and long-term success requires both wisdom and action.

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RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

In recent proxy seasons, one area of continued activity has been the inclusion of environmental, social and governance (ESG) metrics within short- and long-term compensation plans of listed companies globally. Recent statistics based on 2024 disclosures indicate that more than 75% companies within the S&P500 Index constituents incorporate ESG metrics within their executive compensation plans, compared to two-thirds in 2021. On the shareholder proposal front, there has been continued activity related to the filing of shareholder proposals seeking the inclusion of environmental and/or social metrics into compensation plans for shareholder vote.

Executive compensation plays an important role in incentivizing management and influencing behaviour. So, structuring executive compensation plans to align with strategic priorities, including the management of material ESG risks, may be warranted to incentivize performance in these areas, especially when performance is lagging.

To this end, when investors assess whether and what ESG metrics should be included in a portfolio company’s executive compensation plans, a holistic framework approach to analyzing metric inclusion is most appropriate. While not exhaustive, outlined below are certain key relevant factors that investors should consider when assessing ESG metrics in compensation plans. Such factors include whether a metric is relevant and financially material, the company’s performance in relation to the metric, the degree of existing disclosures already made available in a company’s other filing materials, and whether a portfolio company’s plans related to the ESG issues linked with such ESG metrics in compensation arrangements have credibility. This approach should take into account the specific circumstances of the portfolio company to drive appropriate behaviours and outcomes. Overall, investor focus should remain grounded in the philosophy that management incentives should be tied to long-term value creation.

Metric Relevance, Materiality and Company Performance

The ESG metrics which are selected for inclusion in executive compensation plans should be relevant to the specific company’s circumstances or industry, and importantly, they should be financially material. When a company lags in performance vis-à-vis its peers in a particular area, ESG risks, including ESG metrics, in these areas, becomes more appropriate.

Existing Disclosures

Consideration may also be given to whether the company has already made robust disclosures in other publicly disclosed documents (such as information circulars, ESG reports and annual reports). The lack of disclosure from a company elsewhere may mean that including such environmental or social metrics in pay plans would at a minimum indicate that the company will now likely measure relevant metrics on an annual basis to account for performance. Such inclusion may also mean improved disclosures if the company incorporates additional details regarding the measured metrics in the Compensation Discussion and Analysis (CD&A). Measurement at the very least makes issues top of mind for management, which can incentivize behaviour. Disclosures in the CD&A, on the other hand, may mean that investors might have access to more timely and relevant metric data, whereas before such inclusion, updates in this regard may not have been as regular.

Plan Credibility

Assessing whether a specific ESG metric should be included in executive compensation plans starts with examining whether the portfolio company has credible plans to tackle the financially material issue at hand. From a compensation philosophy standpoint, companies should link executive compensation to areas that require management’s focus and attention. If the portfolio company is making good progress against a credible plan, ESG metric inclusion may not be required or appropriate, as investor preference may be for the portfolio company to focus its efforts (and pay plans) on more material and pressing issues, all else being equal. However, even when compensation plans include financially material ESG metrics, such as carbon emission reduction metrics, if the company lacks a well thought-out and credible plan to reduce overall carbon emissions, no degree of metric inclusion will create the conditions necessary to incentivize management, as the plan likely doesn’t contain achievable or appropriate targets.

Concluding Thoughts

It is important for investors to recognize that independent directors are often in the best position to design programs that best incentivize management to create long-term value. This is due to the fact that independent directors acting from within the tent are far more familiar with the unique circumstances of a company than outside observers are. However, while deferring to the board and entrusting it to do what is best for shareholders, investors should take an active role in verifying whether their fiduciaries are properly discharged. As portfolio companies continue to consider ESG performance metrics in their compensation plans, investors must regularly engage with compensation committees on these topics, using the framework approach such as the one outlined above to remain active and responsive stewards of capital.

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The information contained herein is for information purposes only. The information has been drawn from sources believed to be reliable. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance.

This material is not an offer to any person in any jurisdiction where unlawful or unauthorized. These materials have not been reviewed by and are not registered with any securities or other regulatory authority in jurisdictions where we operate.

Any general discussion or opinions contained within these materials regarding securities or market conditions represent our view or the view of the source cited. Unless otherwise indicated, such view is as of the date noted and is subject to change. Information about the portfolio holdings, asset allocation or diversification is historical and is subject to change

This document may contain forward-looking statements (“FLS”). FLS reflect current expectations and projections about future events and/or outcomes based on data currently available. Such expectations and projections may be incorrect in the future as events which were not anticipated or considered in their formulation may occur and lead to results that differ materially from those expressed or implied. FLS are not guarantees of future performance and reliance on FLS should be avoided.

TD Asset Management Inc. is a wholly-owned subsidiary of The Toronto-Dominion Bank.

RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

Climate change presents a systemic risk to economies, financial markets, and investments. To spur the action required to mitigate its most severe impacts, the owners and managers of trillions of US dollars have committed to net-zero emissions by 2050 or sooner. Yet global emissions continue to rise.

While investors alone cannot bend the trajectory of emissions, the most common approach to net-zero investing – imposing targets to reduce portfolio emissions over time – is clearly not helping:

– Portfolio emissions reductions are often achieved by divesting from high-emission assets or regions. This reduces a portfolio’s carbon footprint on paper, but does nothing to actually lower emissions.

– Excluding high-emitting assets and regions often means cutting allocations to emerging markets. This limits the availability of capital where it is most needed to effect the energy transition.

– Shrinking the investment universe by excluding industries and regions on emissions grounds may result in suboptimal allocations and lower returns.

Our discussions with asset owners indicate a lack of confidence in the traditional approach to constructing net-zero portfolios. A survey we conducted in 2023 revealed that one-third of asset owners are unsure if their approach to transitioning their assets to net zero is actually helping to reduce emissions in the real world.

We believe there are ways to construct portfolios that do not compromise returns, fiduciary responsibilities, or progress towards a low-carbon future. But they require a shift away from approaches built around targets to reduce portfolio emissions over time.

From reducing financed emissions to financing reduced emissions

The starting point for getting net-zero investing on track is redefining what a net-zero investor is. We propose: one who acts to maximise their contribution to real-world emissions reduction and a socially responsible transition, without compromising investor returns or fiduciary responsibilities.

This means not seeking to reduce financed emissions (emissions linked to investment activities), but rather aiming to finance reduced emissions. This is particularly important in the current political climate – with potentially less supportive policy and fewer companies pushing hard for net zero and hence a slower pace of decarbonization – which may make it harder to construct a portfolio of lower carbon assets without substantially restricting the investment universe. At the same time, supporting real-world carbon reduction to help mitigate climate risk has become even more important.

While one size cannot fit all, an effective net-zero investment approach should include the following five components. Each of them plays a different role in supporting net-zero alignment:

1. Dedicated allocations to climate solutions equities and fixed income. These include investments in businesses that enable decarbonization, such as those focused on renewable energy, battery storage, electric-vehicle and energy-efficiency technologies, and green hydrogen. We believe this group of companies can achieve above-market structural growth as the world decarbonizes, potentially adding a differentiated source of returns to a portfolio.

2. Dedicated allocations to transition equities and debt. These investments include financing for companies or issuers in high-emitting sectors with credible transition plans, and companies providing products that enable the transition, like critical minerals. Such companies may often not fit in a typical net-zero portfolio, given their high emissions. But we see significant return and impact potential if they successfully implement their transition strategies.

3. Other equity and fixed income investments. For the bulk of a portfolio, we recommend prioritizing engagement to accelerate the work portfolio companies are doing to decarbonize their operations and value chains, rather than exclusion. Where engagement is not possible or unlikely to be effective, then investors may adopt a ‘positive inclusion’ tilt, directing investment towards companies with credible transition plans or potential.

4. Sovereign fixed income investments. For domestic government bonds and other assets with limited options for adjusting allocations (such as those held for regulatory reasons), the main net-zero tool is advocacy. For international sovereign bonds, there is significant opportunity to allocate towards countries making progress towards net zero – for example, by using the Ninety One Net Zero Sovereign Index to measure alignment. Investors can also allocate directly to climate solutions and transition via sovereign green and sustainability-linked bonds, where available.

5. Private markets and real assets. Investors can have significant influence via private investments. Investing in real assets can also be a way to contribute directly to the construction of low-carbon infrastructure and buildings, or to influence the management of these assets to reduce their carbon impact.

For good measure

A revised net-zero approach requires different metrics to appraise investments and measure progress, beyond simply measuring financed emissions.

– Climate solutions: use ‘carbon avoided’ – emissions avoided by the use of a product with lower emissions than the status quo.

– Transition investments: use ‘carbon reduced’ – the amount by which emissions have been lowered by a company or country.

– All investments: use ‘asset-alignment’ – the proportion of companies with science-based net-zero targets and credible transition plans; and ‘net-zero engagement’ – the proportion of emissions covered by strategic engagements aimed at influencing carbon reduction, ideally measuring engagement outcomes.

A new approach

The global economy is significantly off course to hit net-zero emissions by 2050. Yet the typical approach to building a net-zero portfolio is unlikely to be helping, and may even be hindering.

By focusing allocations on financing real-world emissions reduction and using engagement to encourage net-zero alignment, we think investors can help to shift the economy toward a credible decarbonization pathway, while optimizing returns for clients and beneficiaries.

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RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

Dear RIA Members, 

It’s hard to believe that a year has passed since I shared reflections on 2023 and aspirations for 2024. Taking stock of how the last year unfolded, one of our most significant feats was the launch of the RIA’s new strategic plan. Your strategic plan. Every aspect was conceived with members in mind and informed by extensive consultation. It became clear that the RIA’s priorities had to evolve alongside our rapidly changing industry in order to meet your needs, both today and into future. 

The strategic plan is anchored by three pillars that the RIA holds itself accountable to. The first is Build Community, where we act as a hub for members and RI market participants to impactfully collaborate, share, learn and stay abreast of the dynamic industry and environment. The second is to Drive Change and Influence Policy where we aim to be a bridge between investors and regulators and build trust and confidence in RI by advocating for policies and standards. And the third is to Educate and Inspire. Here the intention is to be a trusted source of objective data and insights, tapping into industry sentiments and charting the progress of RI. Foundational to all of this is the delivery of an exceptional member experience.  

Although many initiatives converge across all three pillars, a cornerstone of building community is convening. For the first time since 2017, we received a warm west coast welcome in beautiful British Columbia for the 2024 Vancouver Conference. We learned, connected and drew inspiration from the stellar speaker lineup and from each other. We also enjoyed the vibrancy of the RI community in la belle province at the Colloque de Montréal, which focused on economic reconciliation and responsible investment. Another highlight was hosting our Global Sustainable Investment Alliance (GSIA) colleagues at our Toronto offices this fall in the lead-up to PRI in Person, where the RIA and Climate Engagement Canada (CEC) had an active presence.

Other events took place in hybrid or online formats, including round tables, working groups and 15 webinar sessions addressing timely topics from regulatory developments to retail product knowledge, research launches, and everything in between. We also convened industry councils such as the Policy Stewardship Group, RIA Leadership Council and the new Public Policy and Advocacy Council. Their invaluable insights inform our priority initiatives, including our policy and advocacy agenda.

2024 held no shortage of opportunities to entrench RI in Canada’s financial ecosystem through strategic advocacy. From organizing member audiences with key regulators, delivering in-the-moment briefings on active industry consultations and consequential new legislation, to conducting a member survey and roundtable to inform our submission to the Competition Bureau on Bill C-59 and the new greenwashing provisions. The RIA was at the forefront, ensuring responsible investors had a seat at the table.   

The voice of investors will be particularly critical as part of the recently announced Canada Climate Week Xchange (CCWX), of which the RIA is a founding member alongside the TSX and other notable organizations. Together with our role as partner of the Circular Finance in Canada Working Group and member of the of the Sustainable Finance Forum organizing committee, among other carefully selected partnerships, we continued to increase our impact.  

Speaking of impact, 2024 was a fundamental in setting up tools, processes and optimized capacity that will palpably enhance your member experience into next year. Learners and credential holders will have already noticed some process changes, but we have only scratched the surface. 2025 will bring new digital infrastructure and exciting developments that will be shared in due course. All of this will set us up for a productive and ambitious year.  

2025 will be all about driving member value and I’m incredibly excited about all the initiatives we’ll be delivering. Highlights include the inauguration of our Retail Strategy Advisory Group, the launch of working groups for institutional members, 360-degree research and insights spanning the full spectrum of responsible investment in Canada, our webinar series, the inaugural Canada Climate Week Xchange, and the 2025 RIA Conference on June 3-4 in Toronto. The most rewarding part of my job is connecting with you, our members, and I truly hope to see you there. And be sure to look out for a member survey where you can share direct input on the program and the issues that matter to you the most.  

Thank you for your ongoing commitment to our industry and steadfast support of the RIA. I wish you a happy and healthy start to the new year and look forward to all that we will accomplish together in 2025.  

Sincerely,

Patricia Fletcher
CEO
Responsible Investment Association

There is a sentiment in the investment industry that Responsible Investing (RI) has taken a back seat after the frenzy of 2020-2022, when new product launches were dominating the headlines and there was keen interest in ESG funds. The pandemic perhaps triggered an existentialist crisis forcing a re-examining of one’s values, spending and investing. Despite the origins of RI being deeply seated in a long-term view of investments and focusing on key areas such as strong corporate governance and minimizing environmental and social harm, the current discussion is steering toward a political conversation which may be creating a paradox for financial advisors.

To help advisors navigate these conversations we can look at a recent study conducted on the advisor segment that shows there continues to be a clear need for advisors to better understand their clients’ values and objectives with a view on their risk appetite and risk adjusted returns. We argue that adding RI due diligence adds to the strength and trust of the advisor-client relationship and an element of fiduciary responsibility in working toward the best of interests of the client.

A 2024 RIA Advisor Insights Study found that advisors’ adoption of RI is lagging investors and investment manufacturers with only 14% of advisors offering RI information and funds to their clients, but 90% expecting growth in the coming years. The study also cites three main factors that commonly drive advisors to start offering RI services: client demand (37%), their own interest, research and values (25%), and wholesaler support (19%). On the other hand, the reasons advisors do not offer RI in their practice include concerns around greenwashing (35%), and either lack of expertise or that ‘they have not gotten around to it yet’ (43%). The study outlines that the understanding of RI varies broadly amongst advisors and that wholesalers/manufacturers likely need to step up in maturation of RI practices and adoption. While 32% stated that their dealer list had a wide range of ESG solutions available, 38% cited limited availability and 30% cited no availability, no dealer list and/or do not know about ESG solutions.

Combined with the 2023 RIA investor study, one could find some opportunity cost where 67% of investors say they would like to be informed about RI vs. only 14% of advisors are equipped to address it. Investment Executive published an article in 2024 citing similar insights on advisors and their ability to offer up ESG discussions to their clients.

Client and Advisor Fulfilment Gaps

Source: 2024 Advisor RI Insights Study  

From an investment perspective, on a spectrum of values-based investing to financially material ESG topics, advisors are likely to find where their clients are situated through their due diligence toolkit. Values based investing has existed for multiple decades and the issues or values have changed over time with the socio-economic, political, and cultural changes. The ongoing conflicts in eastern Europe and the middle east coupled with the severe weather impacts being felt in different geographies, are triggering or re-defining investor interests in either avoiding specific types of investments, doubling down on solutions, or purely managing these from a risk management perspective.

On financially material ESG factors, as data and methodologies solidify and taxonomies come into play, asset managers are using ESG metrics and information in the same way they would use any information with the objective of providing risk adjusted returns. Given the impact of community relations, carbon profile, governance profile and overall purpose of a firm, it is increasingly difficult for asset managers to ignore the market impact of ESG factors. On this end of the spectrum, there are nuances on fund profiles and the approach taken by asset managers, that do not come through without a deep understanding of RI. An understanding of how such fund profiles and approaches may be interacting with the investment objectives and preferences of clients, as well as the associated obligations for advisors to understand those objectives and preferences. In this context, it is important for advisors to know their clients’ preferences and be equipped to address them.

Some key questions advisors can ask their clients include:

1. Are there any specific economic activities, themes or issues they feel strongly about?

2. What are the drivers of these preferences – values (religious or family/personal) based, being responsible citizens (do not harm), or the economic argument for looking at ESG related investment risks or opportunities?

3. Do they care about investing in a specific fund which is aligned with their values or are they seeking asset managers whose underlying approach to RI stacks up well against their preferences?

4. Some questions advisors can ask of themselves, and their available solutions include:

5. Which funds are available to match the risk profile of their clients and the specific preferences they may have?

6. Are they familiar with the sustainable/RI approach and progress of the asset managers whose funds they utilize?

7. What tools can they access to understand the ESG characteristics of funds on offer alongside their traditional risk and return characteristics?

8. How can they keep themselves up to speed on the evolving nature of RI? What courses, workshops and educational tools are their dealers or industry associations making available?

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The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

When people think about investing in the energy transition, they often consider buying into renewable energy companies, carbon capture solutions, equipment manufacturers and other businesses related to reducing greenhouse gas emissions. But there is another way to play what by 2030 will become a US$4.5-trillion-per-year investment opportunity: owning the energy consumers.   

For Andrew Simpson, Senior Vice President, Portfolio Manager and Head of the Mackenzie Betterworld Team, this means owning companies that are making a concerted effort to become more sustainable rather than exclusively purchasing the shares of climate solution product companies.  

“These businesses don’t have to buy solar panels, they don’t have to source renewable energy, but they’ve chosen to, and they’ve integrated sustainability into their business processes,” says Simpson, who runs the Mackenzie Betterworld Global Equity Fund.  

Focusing on the end user – which he points out is not related to the average person buying an electric vehicle or installing LED lights, though that is important for the transition, too – is critical because “you don’t have innovation unless there is a market and support for it,” he explains.  

These companies have the resources to make large purchases and can allocate capital to different solutions. “They’re important to making things happen,” he adds. 

Leveraging large caps

Simpson, who has managed sustainable investment mandates for more than a decade, is always on the hunt for large-cap companies that can effect change. (His portfolios hold some small caps, too.) Companies like Microsoft, Amazon and Costco – names not usually associated with the energy transition – are ideal candidates for his portfolio because they are not only making a positive impact by reducing their own emissions, but they are also proven, often multinational, businesses with strong cash flows and a record of business success.  

“They have the ability to make things happen at scale,” he says. “They have the corporate wherewithal to do an analysis and say, ‘This is the best solution for us.’” 

Microsoft, for instance, has been 100% powered by renewable electricity through direct purchases and renewable energy credits since 2014. It is committed to carbon neutrality by 2030 and an even bolder proposal by 2050: “They actually want to reduce all the carbon they’ve emitted since they became a public company in the 1970s,” Simpson notes. 

To reach these goals, Microsoft has signed 25-year power agreements with renewable producers – binding contracts that make it impossible for the next CEO or board of directors to abruptly change course – for facilities, including its huge data centres. That includes delivering more than 10.5 gigawatts of renewable power capacity to Microsoft facilities in the U.S. and Europe between 2026 and 2030. The company is also spending an estimated US$806 million on two carbon removal contracts.  

As for other end users, in 2023, Amazon, the world’s largest corporate purchaser of renewable energy for 4 years in a row, announced 74 renewable power purchase agreements amounting to 8.8 gigawatts of capacity. While that has certainly helped Amazon’s energy efficiency, it estimates its solar and wind farms have also generated more than US$12 billion in economic activity globally from 2014 to 2022. 

In Canada, grocery giant Loblaw announced that by 2025, all its stores in Alberta will be powered with renewable energy, reducing the company’s carbon emissions by 17%. It is accomplishing that feat by buying solar, wind and hydro-generated power from TC Energy Corp. 

More broadly, over 430 multinationals have joined RE100, a group committed to obtaining 100% of its power from renewable sources by 2050. Together, they consume more than the entire generation capacity of Scandinavia, and they are not yet halfway to their goal of carbon neutrality. In Canada, major banks and grocery chains have made similar pledges.  

As a portfolio manager attuned to environmental, social and governance (ESG) criteria, Simpson places a lot of weight on these actions. “We’re focusing on companies with sustainable business models,” he says. “The behaviour of companies is an important part of our review.”  

Expanding the market 

While the list of end users is growing, more companies must follow Microsoft and Amazon’s lead if the global economy will reach net zero by 2050. Simpson is confident more businesses will make sustainability part of their strategy, especially as consumers increasingly choose to spend money with companies that share their values. That means investors and fund managers like Simpson will have more options for their portfolios.  

“There is still a long way to go on this, but companies have gotten on board,” he says. “There’s an opportunity for them to do more, especially for companies that haven’t yet made that commitment.”  

Because of technological advancements, businesses that may not have been considered end users can now become them. For instance, the waste industry emits a lot of methane, which is one of the worst greenhouse gases, notes Simpson. Now you have waste companies spending money to convert that gas to power, which they can use for their own trucks or sell to other operations.  

“You can have a company in health care or financials or waste contributing because they’re making investments or commitments to source renewable power,” he says. “There are – and will be more – opportunities across every sector.”  

Considering the end user as part of the energy transition opens up a new crop of companies to investors. It also means you can own a large-cap diversified fund and still take ESG into account.  

“A diversified investment strategy is still contributing toward the energy transition,” explains Simpson. “You can still feel good about investing in these types of companies. They’re not creating solar panels, but they’re contributing to the solution.”

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The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

The market share of responsible investment (RI) assets under management (AUM) in Canada has grown significantly, according to the latest findings from the 2024 Canadian Responsible Investment Trends Report. 

The 2024 Report reveals a pivotal milestone for the industry, with RI now accounting for 71% of total AUM. This growth is accompanied by a marked rise in investor confidence, driven by clearer definitions of RI strategies and improved ESG reporting practices. 

For the second year in a row, close to 60% of respondents say they are more confident in the overall quality of reporting than they were last year. And in each category of ESG reporting that was measured, only 6% of respondents, or fewer, expressed less confidence than last year.  When asked what would further increase their confidence in reporting, respondents noted that more universally accepted frameworks, alongside standardization and auditing of reporting, would be helpful.

Confidence in Reporting of RI AUM and Specific RI Approaches

Source: 2024 Canadian RI Trends Report

“As responsible investing continues to evolve, we cannot become complacent,” says Patricia Fletcher, CEO of the Responsible Investment Association. “Collective action and advocacy are necessary to further advance the adoption of RI and mobilize capital to strengthen Canada’s economic resilience.”

A window of opportunity exists to further strengthen RI in Canada, and this will require collective action and advocacy. Standardization is needed to further improve confidence and unlock the value that RI brings to investment decision-making. Recent definition changes have increased confidence, but more changes and standardization are on the horizon, and the industry must continue to adapt.

In 2023, 65% of surveyed Canadian investors expressed interest in responsible investment (RI), and two-thirds of respondents (67%) would like their financial services provider to inform them about RI options that are aligned with their values. However, only one third of those surveyed reported that their advisors are initiating discussions around RI, indicating a significant service gap. Year after year this service gap persists, leaving a full third of investors eager to speak to a financial service provider about responsible investing. With such clear client demand, why are so many financial advisors sitting on the sidelines of responsible investment?

The RIA’s 2024 Advisor RI Insights Study set out to find out. Here are some of the key findings:

– Reasons not to offer RI centre around a lack of knowledge and resources, or a perceived administration burden. Product availability is not a barrier.

– Advisors’ education and knowledge of RI are tightly linked to their overall use of RI. The more confident they are about RI, the more extensively they will use it in their practice.

– Advisors rely on investment companies – especially wholesalers – for information, and will likely turn to them with questions when introducing or increasing their RI usage.

– Investor demand is driving advisor adoption.

– Nearly 90% of RI users anticipate the growth of RI over the coming years, and non-users are open to using RI.

This means that financial advisors who learn to engage clients on ESG topics and RI strategies stand to gain tremendously.

Client and Advisor Fulfillment Gaps

Source: 2024 Advisor RI Insights Study – Topline Report

How can we drive greater adoption of RI at the retail level? It will take a 360-degree approach, from advisors informing themselves and servicing their clients based on needs and priorities, to fund manufacturers and wholesalers providing the needed support.

It is clear that the more RI knowledge an advisor has, the better positioned they are to serve their clients’ ESG-related needs and narrow the RI service gap. These recordings from the 2024 Advisor RI Bootcamp present an excellent jumping off point for anyone looking to learn about leading responsible investment products from the portfolio managers and analysts behind them.

And if you would like to learn more about RI assets and trends in Canada, be sure check out the virtual launch of the 2024 Canadian RI Trends Report on November 19^th.

The opportunity is there – but it is incumbent on all of us to play our part in closing the RI service gap.

For more information about the 2024 Advisor RI Insights Study, contact membership@riacanada.ca.