A Year in Review: A Message from RIA CEO Patricia Fletcher

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

The Importance of Knowing Your Clients’ Preferences on Responsible Investing

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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Energy End Users May Be the Missing Piece of Your Sustainable Portfolio: Interview with Andrew Simpson  

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.

Growing Investor Confidence In RI 

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.