Advisors, Take Note: Retail Investors Are Still Waiting To Be Informed About RI

The RIA’s most recent survey of over 1,000 investors gives insight into how Canadian retail investors perceive responsible investment (RI) and what they expect from their financial advisors on the topic. In the 2022 survey, we see steady trends around respondents’ interest and knowledge of RI—with some concerns shared by the broader RI community, including biodiversity and greenwashing.

Opportunities for financial service providers remain clear

As we have seen for years in this survey, most respondents (73%) would like their financial services provider to inform them about RI options that are aligned with their values, yet only 31% of respondents said their financial services provider had broached the subject. That leaves a significant proportion (42%) of respondents who are interested in RI, but not receiving the services they want.

This “RI service gap” presents a massive business opportunity for advisors who can:

  • Engage their clients in discussions about their ESG/RI preferences,
  • Educate them about ESG topics and RI strategies,
  • Recommend well suited investment options.

With only one-third of respondents saying they currently own responsible investments, the opportunity for financial advisors to help clients “take the leap,” remains, for those with an understanding of the options available.

It’s 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. The RIA hosts a biannual ESG Product Knowledge event, where retail advisors looking to meet this opportunity can learn about leading responsible investment products from the portfolio managers and analysts behind them.

Levels of RI knowledge among investors appear to have leveled-off in the past 2 years as well, with 70% of respondents claiming to know little or nothing about RI. In fact, one-quarter of respondents reported they had never heard of it! Yet, the majority of respondents (64%) continue to express interest. While inflation and converging global crises have made for uncertain financial markets, discussing RI remains a highly relevant option. 40% of respondents said they were now more likely to choose RI than one year ago in the context of the current volatile environment, while 44% said they were neither more nor less likely than one year ago. Just 5% said they were less likely than one year ago, and 12% were unsure.

In the news and investors’ thoughts

The 2022 United Nations Biodiversity Conference (COP15) in Montréal included the adoption of the “30-by-30” target, a framework requiring countries to work towards conserving 30 percent of the earth’s biodiversity by 2030. At the same conference, the International Sustainability Standards Board (ISSB) of the IFRS Foundation announced it will add biodiversity and just transition considerations to its Climate-related Disclosure Standard.

To complement this international activity, the RIA sought to understand Canadian retail investors’ views about biodiversity loss, and their expectations for companies to manage biodiversity risk. The majority of respondents, 74%, reported being either very or somewhat concerned about biodiversity loss. Additionally, 68% of respondents agreed that it was either very or somewhat important that companies are committed to preventing biodiversity loss.

Greenwashing also came to the forefront for the industry in 2022 with highly publicized investigations around misleading ESG claims making headlines, and partisan political backlash against ESG (largely in the US). In previous RIA studies, financial advisors and institutional investors alike cited significant concern over greenwashing in the investment industry.

In 2022, 75% of respondents said they were either very or somewhat concerned about greenwashing, similar to the level expressed in 2021. Meanwhile, 78% of respondents either strongly or somewhat agreed that there needs to be increased scrutiny in the investment industry to combat greenwashing.

The value for financial professionals and their clients

Based on these results, opportunities exist for financial professionals to add value for their clients by starting the conversation about their ESG values, educating them about relevant topics, and introducing them to suitable RI options. Some greenwashing concerns may be alleviated by recent improvements to investment disclosures on funds, which are supported by actions from governments, regulators, and standard-setters. Ideally these measures will help inform the public conversation about RI, and clear the way for greater adoption amongst retail investors.

Finally, 76% of respondents either strongly or somewhat agreed that RI can have a real impact on the economy and contribute to positive change for society. It is our hope that in 2023, the RI industry will live up to respondents’ expectations.

Respecting Employee Rights: Why Investors Should Consider the Risks Around Concealment Clauses

Something to watch in 2023 as shareholders think about the upcoming proxy season is the heightened focus on human capital issues. One interesting aspect of human capital management that garnered attention in the U.S. during 2022’s proxy season were the risks around certain concealment clauses within employee contracts, particularly those that look to keep controversial issues – such as workplace discrimination, harassment and retaliation – under wraps. 

Concealment clauses in employment contracts can include language that prevents employees or contractors from speaking publicly about certain matters that occur in the workplace. Concealment clauses may also be implemented for competitive purposes that restrict employees from revealing proprietary information to protect a company’s plans, strategy or competitive advantage. 

Risks of Concealment Clauses

Furthermore, concealment clauses in employment contracts may be exploited by companies as a means to silence employees who have endured harassment, discrimination and other unlawful behaviors to avoid public controversy. Mandatory arbitration clauses and non-disclosure agreements that keep matters out of the public domain may perpetuate company failings and undermine the company’s trajectory. Possible risks stemming from concealment clauses in employment contracts may include perpetuating poor workplace practices, creating a problematic corporate culture, legal action, regulatory investigation, penalties and negative public perception – all of which may impact a company’s bottom line.

Government Response

Some governments have implemented laws restricting the use of concealment clauses for certain issues. The combination of emerging laws, regulations and public perception in this area may create potential risks for companies where they continue to enforce overly broad concealment clauses. 

For example, in the U.S., Silenced No More acts were recently passed in California and Washington state, which restrict the use of certain concealment clauses related to harassment, discrimination and      retaliation. At the federal level, President Joe Biden signed the Speak Out Act into law in December 2022 and the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act in 2021. The Speak Out Act prevents the enforcement of non-disclosure agreements in instances of sexual assault and harassment, while the latter gives individuals asserting sexual assault or sexual harassment claims under federal, state or tribal law the option to bring those claims in court even if they had agreed to arbitrate such disputes before the claims arose.  

In Canada, Bill C-65 introduced a number of amendments to strengthen the existing framework for harassment and violence prevention in federally regulated industries and workplace. At the provincial level, Prince Edward Island has been the first Canadian province to limit the use of non-disclosure agreements in cases of discrimination and harassment. Nova Scotia and Manitoba have also recently proposed legislation to limit the use of non-discourse agreements in certain instances. 

Shareholder Proxy Proposals

In last year’s proxy season, proposals regarding human capital management came down to a total of 76 in the United States (more in line with the 2020 count) after spiking in 2021 by 70%, to 133 proposals.¹ Despite this, the broader topic of human capital management remains one of the more prominent issues advanced within proxy proposals. The elevated interest in human capital practices may stem from various factors, including the pandemic’s impact on employees (particularly in 2021), record low unemployment levels, high quit rates, and a corporate need to navigate these realities to attract and retain talent.

Proposals requesting further transparency on concealment clauses received significant support in the U.S. While the number of human capital proposals filed came down in 2022 following the heat of the pandemic, shareholders still voted for a healthy fraction of the human capital proposals that made it to the ballot – seven or 25% in 2022 and eight or 22% in 2021. The average support rate of human capital proposals continues to tick higher, moving from 15% in 2020 to 34% in 2021 and 37.4% in 2022.² Of the seven proposals that received majority support in 2022, four involved requests for further transparency around concealment clauses.³ This level of support relative to other human capital proposals demonstrates the focus shareholders now put on the need to mitigate risks associated with concealment clauses. 

Continued Corporate Progress and Investor Engagement

Companies and investors should continue to support the employees who drive company value, ensuring that management puts forward policies and practices which build an attractive corporate culture that will keep the talent necessary to thrive and grow. Companies should revisit their concealment clauses, ensuring their implementation respects employee rights. Continued use of these clauses should be mindful of the concerns levied by lawmakers and the concerns echoed within the well-supported proxy proposals that sought transparency around such clauses. Going into the 2023 proxy season, shareholders may continue to push for greater transparency by supporting proposals that look to better understand the risks a company might face around concealment clauses. Investors can also further their engagement discussions with companies on the topic by inquiring about their use of such clauses and the associated risks, where relevant. Investors may also ask questions about the mechanisms in place to allow employees to voice concerns and to ensure those concerns are properly addressed.

¹ ISS (October 2022) Shareholder Resolutions in Review: Labor Issues; ISS (October 2021) 2021 United States Environmental & Social Issues Proxy Season Review.
² ISS (October 2022) Shareholder Resolutions in Review: Labor Issues; ISS (October 2021) 2021 United States Environmental & Social Issues Proxy Season Review.
³ ISS (October 2022) Shareholder Resolutions in Review: Labor Issues.

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.

An ESG Framework for Extractive Industries

Extractive industries represent a meaningful challenge for responsible investors. The energy transition currently relies on industries that typically have significant negative externalities, yet solutions exist for this paradox.

The Challenge

Electrification requires large amounts of copper, for conducting electricity, and battery materials such as cobalt and lithium, for storing it. Mining these minerals entails substantial ESG (environment, social, governance) risks. Extractive industries are often, by nature, tough on the environment. Further, many mines operate in emerging economies with substantial risks due to lower living standards, reduced social protections, and lax governance and environmental regulations.

Fossil fuels also play a critical role in the energy transition. They still provide the bulk of global energy and, unfortunately from an environmental standpoint, will be with us for decades. Simplistically, we would like to see reduced production of all hydrocarbons, but natural gas emits less carbon dioxide and pollution than other fossil fuels (50% less CO2 than coal when producing electricity), so it can be used to displace coal and backstop intermittent renewables like wind and solar.


One approach to investing in extractive industries is simply to exclude those companies from investment portfolios. Many ESG-minded investors have adopted this stance and therefore may be underinvested in materials needed for the energy transition (Exhibit 1).

Exhibit 1: ESG Funds Underweight Key Energy Transition Materials vs. MSCI ACWI

As of June 2022. Shows weight of ESG funds relative to MSCI AC World Index. Source: Goldman Sachs Investment Research.

An alternative approach seeks out companies that are either best-in-class or show credible signs of improvement toward more sustainable operations, acknowledging that some extractive industries may have a place in transitioning to a more sustainable future. Clearbridge created a framework for responsibly investing in these more sustainably-minded companies. Participating in these sectors also enables engagement, a key tenet of active ownership.

Environmental Factors

Environmental considerations are front and center for our ESG framework for extractive industries. Our environmental assessment scrutinizes a company’s:

  • Environmental efficiency of operations
  • Land usage and impact
  • Water usage and water pollution
  • Scope 1 and 2 emission reduction targets
  • Greenhouse gas emission disclosure in line with the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB)
  • Contribution to clean technology, such as electrification
  • Position on the cost curve: Lower-cost producers can be more profitable and therefore better positioned to weather the volatility of the commodity cycle, and thereby better positioned to support the energy transition

Environment Factor: Water Management

Water management is a core consideration for miners. Water is a necessary input for mines, smelters and processing facilities, but it should be used in an efficient way to minimize environmental and community impacts. A copper producer we have engaged with, for example, provides clear disclosure on the source of its water requirements (i.e. groundwater, surface water), and looks to minimize its use of freshwater in its operations via effluent water use from local municipalities. It also makes local investments in regions by constructing dams, water lines and wastewater treatment facilities that can benefit internal operations and the local community, another best practice.

One best practice is to reuse as much water as possible. Similar to the above-mentioned copper producer, which recycles or reuses 82% of its water requirements, we visited and engaged with a U.S. mining company that has a facility producing rare earths used in electric vehicle motors. The facility recycles all water from its process such that recycled water meets 95% of the facility’s water needs, while the rest comes from groundwater. Engaging the company, we encouraged it to disclose the groundwater extraction quantities that make up the other 5% and compare these to peers.

Social and Governance Factors

While environmental concerns predominate in extractive industries, social and governance considerations remain critical and, taken together, could roughly equal the total weight of environmental factors. In an ESG framework for extractive industries, among social and governance considerations one could weigh:

  • Disclosures: Clear and detailed disclosures underpin any active management approach to engaging for improvements in any of the environmental factors
  • Stakeholder engagement: Extractive industries impact their host communities in particularly challenging ways, it is critical that companies work constructively with all their stakeholders
  • Health and safety: Does a company have strong targets and execution?
  • Board effectiveness: Does the board incentivize management and hold it accountable for ESG execution?

Publication of sustainability and water stewardship reports is also considered a best practice. In addition to environmental information, such reports should include clear information on community engagement and efforts to enable healthy, thriving communities where these companies operate. In terms of supply chain transparency, for companies with extensive international operations, it is important to  look for robust analysis of local employment rates to better understand underlying social issues in distant geographies.

If investors wish to proactively help the energy transition along, they will need to allocate capital to some extractive industries. A responsible, active approach to doing this can put environmental factors first and seek out companies that are either best-in-class or show credible signs of improvement toward more sustainable operations.

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.

How Asset Managers are Pushing Companies Towards Meeting their Net-Zero Targets

Financial firms have the power to encourage companies to take on more ambitious steps to lower their carbon footprints

With just 27 years to go until 2050 – the deadline for countries and businesses to reach net-zero carbon emissions – there’s enormous pressure on companies to reduce their climate-related risks. Moving to net-zero isn’t going to be easy – it requires a lot of capital and the will to make change. Asset managers, however, are uniquely positioned to help businesses achieve their net-zero goals.

Increasingly, managers believe that the companies trying to lower their environmental risk will be better positioned for the future, which is not only good for the planet, but also for investment returns. Yet businesses are strapped for resources and often lack the expertise to deal with this challenge, which is why some financial companies are now trying to help businesses meet their targets by offering climate solutions that bridge policy, science and finance.

While there are still skeptics about the impact climate will have on the broader economy, many business leaders acknowledge the significant risk. According to the inaugural BMO Climate Institute survey of small- and medium-sized businesses in North America, 69 per cent of respondents expect the physical impacts of climate will disrupt operations over the next five years. Another third say severe weather patterns are already creating challenges.

Managing climate risk

When it comes to climate risk, we believe asset managers need to consider environmental challenges. Fixed-income managers in particular can’t afford to ignore environmental, social and governance (ESG) factors when assessing credit risk, says Vishang Chawla, Portfolio Manager, Active Fixed Income at BMO Global Asset Management.

“When you look at ESG, you have to think about which companies are going to be around 10, 20 and 30 years from now because we’re buying 30-year bonds,” notes Chawla. “As a credit analyst, when you make that investment, you have to ask yourself if you want to own this company for 30 years. So you have to think about net-zero.”

Fixed-income asset managers are doing more than deciding which investments to hold – they’re engaging company leadership to adopt net-zero. Unlike with equities, the money raised by sustainable bonds should be earmarked for specific projects, explains Chawla. As a result, asset managers can analyze a net-zero plan and assess whether it’s going to advance the company’s net-zero goals. This gives asset managers the opportunity to provide guidance to management on how to strengthen their ESG initiatives if it finds their plans are lacking, he adds.

“As active managers of billions of dollars of credit, part of our responsibility is being in touch with the management of those companies, asking the tough questions and looking at the balance sheet,” says Earl Davis, Head of Fixed Income and Money Markets at BMO Global Asset Management. “It’s from there that you start seeing trends and are able to push or influence companies.”

The interactions between asset managers and companies can be notable. When a large Canadian energy company was raising funds for its sustainability initiatives, BMO Global Asset Management engaged with this company to encourage it to adopt stronger net-zero goals.

Making a measurable impact

The Global Impact Investing Network estimates the market for impact funds, which includes sustainable funds, to be about US$1.16 trillion dollars. Sustainable funds seek to invest in companies that are attractive from both a financial return and ESG perspective. The issuance of green bonds, which are financial instruments designed to fund projects that have environmental or climate benefits, have been an important contributor to that growth.

Sustainable bond funds offer an effective way to tap into the green bond market. With these funds, you’re getting access to companies that have used green bonds to affect change for specific projects. They include projects like Brookfield Asset Management’s push to extend the life and increase the capacity at Shepherds Flat, one of the largest onshore wind projects in the U.S. By replacing the existing turbines with longer blades and updated technology the company expects the project will increase its generation capacity of clean energy by about 25 percent per year, or about 400-gigawatt hours. Bell Canada is another example. The telecom recently issued a sustainable linked bond to fund a variety of renewable energy projects to offset its carbon footprint as it upgrades its 5G network.

Taking a long-term view

Asset managers must take a long-term view of the impact of climate change, but the industry is facing pressure to put short-term returns first. Some managers are concerned that the push to net-zero contradicts the goal of providing the best risk-adjusted return. At least one large asset manager has caved to these pressures by pulling out of an investment-industry initiative on climate change, claiming that having a stance on net-zero conflicts with its ability to remain independent.

Davis thinks the pushback against net-zero is short-sighted. “When we invest, we invest from a net present value perspective, so from that you look at the cash flows going through in the future,” he says. This perspective doesn’t mean you have to sacrifice returns, he adds, noting that the risk profiles and performance of many sustainable bond funds are similar to conventional bond funds.

The difference comes down to how managers weigh risk. The risks fixed income managers are looking for may not be making headlines today, but if those risks increase in the future, then it could have a material impact on a company’s performance. “Part of our role is to ensure future sustainable financial returns,” he says.

For BMO Global Asset Management’s Davis, it’s about working with the companies to find solutions that make sense and will deliver results. “When you think about net-zero as a whole, no one person or institution could do it on their own,” he says. “This has to be a global effort.”

Contributor Disclaimer
The viewpoints expressed by the individual portfolio manager represent their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice.  Past performance is no guarantee of future results.  This communication is intended for informational purposes only.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

®/™Registered trademarks/trademark of Bank of Montreal, used under licence.

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 Drivers to Propel Infrastructure Investments

The new year has started off much like the last year, with the global economy feeling the macro effects of the COVID-19 pandemic, high inflation, and geopolitical instability. Amid all the uncertainty in the global markets and economy, we believe certain macro drivers should benefit infrastructure assets in 2023 and beyond.

The Inflation Reduction Act

U.S. fiscal policy related to climate change should be a significant driver for infrastructure. The U.S. Inflation Reduction Act (IRA), signed into law in August 2022, is one of the most significant pieces of climate legislation in U.S. history. We believe it will be industry-transformative for utilities and renewables. The increasing need for electrification—such as for more electric vehicle charging infrastructure and more residential and smaller commercial rooftop solar services—will require new substations, new transformers, and upgraded wires along distribution networks. The impact of this legislation was seen in the 2023 capital expenditures plans of utilities, together with the forward order books of companies involved in the energy transition—such as renewable, storage and components suppliers—increasing their growth profiles.

The U.S. Inflation Reduction Act Score Card

Exhibit 1: Inflation Reduction Act’s Key Impacts

One major macro takeaway from the IRA: we believe there is no reason to build anything other than renewables from now on. The main reason? Tax credits. U.S. production tax credits for solar/wind are available until 2032 or until a 75% reduction in greenhouse gases is achieved (based off of 2022 numbers). Either way, this is expected to be a tailwind for infrastructure investment for well over a decade.

Energy Security

We expect energy security will be another key driver. The security of energy resources is driving policy globally now, and a significant amount of infrastructure will need to be built to attain energy security. The Russia/Ukraine war brought on higher gas prices and supply constraints, which highlight the importance of energy security and energy investment. This priority supports energy infrastructure, particularly in Europe, where additional capacity is needed to supplant Russian oil and gas supply.

Muted recession impact

After seeing economic growth in 2022 slow from the rapid pace of 2021, the year 2023 is expected to bring recessions in the major economies of the United States, Europe, and the United Kingdom. Plus, China’s growth will likely be below trend for at least a good portion of this year. However, we still feel that infrastructure assets have higher relative appeal versus equities, even in the event of a recession.

Bond yields should push higher before abating, along with inflation, later this year. For equities, contracting multiples driven by those rising bond yields have characterized the first part of this bear market. An earnings recession generally marks the second phase of a bear market, and we expect that earnings hit to be a force, particularly in early 2023.

We believe the impact of a recession on infrastructure assets should be muted, particularly for regulated assets. Regulated infrastructure assets involve companies that generate their cash flows, earnings and dividends from their underlying asset bases. Those asset bases are expected to increase over the next several years, which makes infrastructure earnings look better protected than global equities.

Inflation Impacts

Inflation proved to be much stickier than expected last year, and by late 2022 inflation ranged from around 7% in the U.S. and Canada, to about 11% in the U.K. and European Union[1]. Most infrastructure companies have a link to inflation in their revenue or returns. Regulated assets, such as utilities, have regulated allowed returns that are adjusted for changes in bond yields over time. As real yields rise, utilities look poised to perform well (see Exhibit 1), and we have tilted our infrastructure portfolios to reflect this.

Utilities Poised to Perform Well

Exhibit 2: US 10-Year Real Yield Vs Utilities Price-to-Earnings (P/E) Ratio
As of October 31, 2022.

This means that the underlying valuations of infrastructure assets are generally not affected by changes in inflation and bond yields. However, we have seen that equity market volatility associated with higher bond yields impact the prices of listed infrastructure securities, making them more compelling when compared with unlisted infrastructure valuations in the private markets.

Secular growth drivers for infrastructure assets should be on full display this year. U.S. President Joe Biden wants to reduce U.S. emissions by 50% by 2030, with the goal of having roughly half of U.S. power coming from solar plants by 2050. This will require nearly US$320 billion to be invested in electricity transmission infrastructure by 2030 to meet net zero by 2050.

The dire need for infrastructure spending to support climate change initiatives underpins the anticipated growth in this sector for the next decade and beyond, and the first steps for meeting these long-term goals are being taken now.

[1] Bloomberg, January 2023

Contributor Disclaimer
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds and ETFs. Please read the prospectus and fund fact/ETF facts document before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated.


All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors or general market conditions. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments. Investments in infrastructure-related securities involve special risks, such as high interest costs, high leverage and increased susceptibility to adverse economic or regulatory developments affecting the sector. In addition to other factors, securities issued by utility companies have been historically sensitive to interest rate changes. When interest rates fall, utility securities prices tend to rise; when interest rates rise, their prices generally fall.

The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

ClearBridge Investments is a subsidiary of Franklin Resources, Inc.

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.

Bringing Impact into Portfolio Management: Reflections from Impact Frontiers

As part of a global program, a cohort of asset managers and owners in Canada just spent 18 months grappling with the practical challenges of how to bring impact considerations into the creation and management of their portfolios. While not straightforward, their work was ultimately fruitful. These cohort members are now able to manage their portfolios’ real-world impact alongside financial performance and to see the relationship between the two. Cohort members’ reflections could help others wanting to invest with impact.

Impact investing considerations

The investment sector is used to having standard, widely understood numbers and metrics for financial performance that all investments use. But that’s not the case with impact performance due to the multi-dimensional complexity of impact – as one must consider who is impacted, in what way, and to what degree. For example, the benefits of a company producing renewable energy for Africans and one developing plant-based proteins for North Americans are very different, even though both investments could be within an environmental portfolio. To present a picture of a portfolio’s impact, then, one must use an integrated framework for scoring impact that is relevant to that portfolio. 

So that’s what cohort members did.  


Impact Frontiers is an educational initiative to advance the state of impact management practice. Cohort members worked together and studied alone to learn and test new ways to measure and manage impact and integrate impact into their investment practices. Members experimented with new approaches on real portfolios, developed tools to use in their work and gained insights from peers and impact measurement experts. 

No Easy Template; Rather, a Replicable Process

Clear about the impact outcomes they were looking for from a portfolio, cohort members then determined which metrics would support attainment of those outcomes. They developed custom frameworks that combined data points, research and analysis to score investments on social and environmental metrics, and then plotted impact metrics against a relevant-to-them financial metric, such as return on equity. 

These were custom frameworks that worked for their portfolios – for example, some examined carbon intensity, others the number of new jobs created, and others how well an investment increased the resilience of the local food system.  

Cohort members found that a key benefit of this work was its wide applicability and understandability:

  • Process was widely applicable. While metrics and resulting graphs were different, cohort members found the process applicable and helpful for everyone. Large asset managers with many varying funds were able to develop a flexible assessment that could be piloted with one fund and then extended across to others. Managers with small staff teams were able to develop a framework that would not be too onerous to maintain.  
  • Results were widely understood. Cohort members found that the final graphs helped colleagues see and understand impact, and how it could continue to be measured alongside financial performance, supporting company buy-in. Other members found the graphs demonstrated that positive impact contributes to the success of a business – which is valuable when speaking with potential investors.

Portfolio Snapshot


Cohort members pointed out several challenges to measuring impact. Many gaps in data, even with more established commonly used metrics like GHG emissions, presented a common challenge, as did inconsistent reporting expectations. But a challenge is sometimes also an opportunity. Several cohort members found the problem of data gaps could be minimized by incorporating a more qualitative approach into scoring and even using storytelling. 

Tips for all Investors

  1. Work with and learn from others. While impact measurement is an emerging field, there is a robust global community of expertise. Working with others within your own team or within wider impact measurement networks is incredibly useful. Different perspectives and experiences will be handy as you experiment, test and roll out a new integrated impact-finance methodology.  
  2. Break away from a siloed perspective. Leading investors examine impact right at the start of their due diligence, and from all angles – company products as well as operations, negative as well as positive impacts, and the interconnection between stakeholders that may affect impact. 
  3. Do. Then Re-do. It’s worth remembering that once an impact scoring framework has been made, it’s not set in stone. New learnings and data will, and indeed should, refine and modify the framework over time. 

It is Worth Doing

The hard work to integrate impact is worth it, not least because it meets the growing calls for more transparent, robust and understandable impact measurement, management and reporting in Canada’s investment sector. 

The recent 2022 Canadian Responsible Investment Trends Report confirmed there is growing demand for sophistication and more vigilant reporting within responsible investing. The measuring of impact brings that sophistication and vigilance into portfolio creation and reporting, which help managers to ward off concerns around greenwashing, which continue to shape ESG investing.  

The approach for integrating impact is adaptable and flexible and works even for those new to impact. And while  there are and will continue to be challenges,these are manageable and should not stop you from progressing today on your impact measurement work.

Overall, cohort members learned that relationships between impact and financial risk and return can be analysed empirically and managed proactively. Doing so enables investors to improve their impact performance while meeting their financial goals, set more comprehensive goals for their portfolio and communicate more clearly with colleagues, investors and stakeholders about impact and financial performance.

A Note about the Impact Frontiers Canadian Cohort

The cohort of asset managers and owners were enrolled in the Impact Frontiers program in Canada from spring 2021 to fall 2022. The cohort was made up of participants from large and small asset managers and owners, managing portfolios of varying asset classes, including Anthos Fund & Asset Management, Builders Vision, Cofra Holding, Desjardins Investments, Fair Finance Fund, Foundation of Greater Montreal, Mackenzie Investments, The McConnell Foundation and Raven Indigenous Capital Partners. The Canada cohort was motivated to join and learn from a global network of Impact Frontiers practitioners who are leading impact measurement and management efforts. 

Additional Resources:

  • – A collaboration between leading providers of sustainability standards and guidance, this website offers many resources to support the practice of impact management 

Contributor’s Note
Rally Assets is an impact investment management and advisory firm. Rally Assets and Impact Frontiers worked with many partners including the RIA to deliver the Impact Frontiers program in Canada. This article brings together ideas from many of the cohort members

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.

The Inflation Reduction Act: A Deepdive for Responsible Investors

The Inflation Reduction Act of 2022 (“IRA”) was passed in the United States in August of 2022 and despite its name, is in fact a dramatic benefit for climate change and clean energy project investment. We believe that the large tax credit programs and grants for clean energy investing in the IRA will provide a significant tailwind for the companies we invest in for our mandates that are focused on the energy transition. There is an important alignment between the enhanced investment opportunities created by the IRA, and the various components of the act that are designed to deliver the reduction of US carbon emissions by about 40% by 2030 from 2005 levels.

National Versus International Impacts

The IRA is a domestic program designed to spur USA economic activity and jobs in clean energy investing and carbon reduction. As a result, there were some early concerns expressed in the media by other countries that the IRA was essentially protectionist, by focusing on the USA domestic industries. In reality, we believe countries need to start at home to have a positive impact on climate change while augmenting industrial activity and building a green economy skill set. Other countries are doing the same, but the IRA is so impactful that it will likely spur competition among countries as they seek to make themselves as attractive a place to invest as the USA and introduce their own version of an IRA. This could increase available government incentives in many countries, which will increase investment activity in emissions and carbon reduction which is good for the global energy transition and the climate as well as providing additional investment opportunities for our portfolios.

Our mandates look globally for companies that are helping drive the energy transition towards a more sustainable future. Most of the companies we invest in operate internationally or rely on global supply chains. The US IRA comes at the same time as supportive initiatives in other countries, such as China’s 14th Five-Year Plan and market reforms, and the REPowerEU plan which are driving a dramatically increased forecast of renewable capacity expansion by the International Energy Agency (the “IEA”) as published in May 2022. The IEA sees renewables growing by almost 2400 GW over 2022-2027, which is equal to the entire installed power capacity of China today and is 30% higher than the forecast in the 2021 IEA report. The Russian invasion of Ukraine in February 2022 also had an impact on increasing renewables growth as energy security came into focus. A significant portion of this expansion of renewable power capacity will come from the public companies that we invest in, directly translating to the potential for revenue growth and strong investment returns if we identify the companies best positioned to take advantage of the supportive environment. Already we have seen increasing growth projections, supported by the IRA, in solar panel and tracker manufacturing as well as hydrogen.

Long-Term Investment Benefits

In a global context, the IRA is unique as it provides long-term policy visibility as it is in place for ten years. This is particularly beneficial for USA wind and solar projects which are seeing extended tax credits until 2032. Permitting reform is also part of the IRA which should assist in all areas of renewable energy development. This longer-term policy clarity allows for project investment decisions to be made that lower risks, reduce costs and enhance returns in companies that we are considering for investment. The IRA contains a hydrogen production tax credit of up to $3/Kg, which will drive investment growth in this area that we think is a key opportunity as our mandates look at hydrogen in the local context, providing opportunities for local sourcing and use. Hydrogen is still very early stage and the IRA production tax credit is helpful, but we remain diligent and selective on which companies and projects meet our investment criteria.

Investors, including us, typically prefer certainty. The duration of the IRA is attractive as it allows for planning and implementation of projects across  potentially different Administrations. Permitting facilitation as well as clarity on domestic content should  speed project development. The IRA is the most extensive investment in climate in US history and investments are just being planned to capitalize on $269 Billion of tax credits and subsidies towards renewable energy, clean fuels, carbon capture and storage, hydrogen hubs and electric vehicles that results in massive greenhouse gas reduction and investment in low or no carbon energy. The largest near term beneficiary is the power sector with provisions for rapid development of wind and solar in the next decade. We see opportunities in utility scale wind and solar as well as for solar in residential and commercial & industrial applications. The IRA, with clarity on the domestic content requirements, should make these projects economically attractive in many more jurisdictions in the USA which allows us to expand the companies and jurisdictions in which we invest.

Notable Features of the IRA

As clarity comes regarding the utilization and applicability of the tax credits, the companies initially expect that they can keep most of the benefits for themselves, rather than sharing with consumers. This is addressed in the IRA in the form of social adders which are passed on to consumers, focused on lower income populations and solar energy. In addition, the IRA will help consumers with direct utility bill rebates in 2023. This provides us confidence in incorporating the supportive features of the IRA in our investment analysis and investment thesis on companies. We typically build in a margin of safety in our assumptions when we set our expectations for companies, but these additional features of the IRA reduce the risk that regulators will recapture any of the investment upside potential in the future. Other questions include qualification for items like production tax credits, which have a domestic content requirement. We don’t yet know the details on domestic production, whether it has to be fully or partially produced in the USA or simply assembled. Despite this, there are already discussions underway regarding increasing USA polysilicon crystalline capacity and battery manufacturing, among other opportunities that we are following closely.

The IRA is unique with its “all carrot, no sticks” approach that provides numerous subsidies to kickstart investment and  there are no items like cap and trade or carbon taxes in the legislation to jeopardize or reduce investment. This supports growth and jobs and doesn’t penalize anyone. Our assessment of the act is that it has many features that can contribute to improving the sustainability of the US economy, while providing attractive investment opportunities in specific companies and projects. The implementation of these projects may not actually reduce near term inflation, but we believe it will certainly improve the reputation of the USA on the world stage and increase the size and speed of investment in carbon and emissions reduction businesses across the USA and, with competing incentives, in other countries around the world. A win-win for society and for our investment efforts for our clients.

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.