Category: News

Responsible investment now one third of global capital markets

• Global responsible investment has reached US$35.3 trillion in five major markets, a 15% increase in the past two years (2018-2020)
• Responsible investment assets under management make up a total of 36% of total assets under management
• Responsible investment assets continue to grow in most regions, with Canada experiencing the largest increase in absolute terms over the past two years (48% growth), followed by the United States (42% growth), Japan (38% growth) and Australasia (25% growth)
• The US and Europe continue to represent more than 80% of global responsible investing assets
• Canada is now the market with the highest proportion of responsible investment assets at 62%, followed by Europe (42%), Australasia (38%), the United States (33%) and Japan (24%)

Today the Global Sustainable Investment Alliance (GSIA) released its biennial Global Sustainable Investment Review, revealing an industry that has grown to US$35.3 trillion as it transitions to one more focused on the short- and long- term impacts generated by investors.

In its fifth edition, the biennial Global Sustainable Investment Review 2020 maps the state of responsible investment of the major financial markets globally, combining regional data from the United States, Canada, Japan, Australasia and Europe. Responsible investment refers to the incorporation of environmental, social and governance (ESG) issues into the selection and management of investments.

This year’s report shows the continuing prevalence of responsible investment across the global investment industry, with assets under management reaching US$35.3 trillion, a growth of 15% in two years, and in total equating to 36% of all professionally managed assets across regions covered in this report.

“The Global Sustainable Investment Review 2020 demonstrates that sustainable investment is a major force shaping global capital markets, and, in turn is influencing companies and others seeking to raise capital in those global markets” said Simon O’Connor, Chair of the GSIA.

“This growth is being fuelled by rising consumer expectations, strong financial performance and the increasing materiality of social and environmental issues – from biodiversity to racial equity to climate change.”

It also reveals an industry that is in transition, with variations in the scale and growth of responsible investment in different regions, and rapid developments that are reshaping responsible investment to increasingly focus on moving the industry towards best standards of practice.

Many regions continue to see strong growth in responsible investment assets under management – with Canada experiencing the largest increase in absolute terms over the past two years (48% growth), followed by the United States (42% growth), and Japan (38% growth).

Other regions are slowing down their rate of growth or have seen a reported reversal – in particular Europe and Australasia. In both cases, this is largely due to changes in how sustainable investment is defined. In the case of the EU, there’s been a decline in absolute terms over this period (-13%), owing to revised definitions of sustainable investment that have become embedded into legislation as part of the European Sustainable Finance Action Plan. Meanwhile in Australasia, growth has been affected by tightening of industry standards.

The most common responsible investment strategy is ESG integration, followed by negative screening, corporate engagement and shareholder action, norms-based screening and sustainability-themed investment.

“Increasingly, there are expectations that sustainable investment is defined not just by the strategies involved, but by the short and long term social and environmental impacts that investors are generating through their sustainable investment approaches,” said O’Connor.

“This research confirms that responsible investment is not a fad or a trend; it’s a global paradigm shift,” said Dustyn Lanz, CEO of the Responsible Investment Association of Canada. “Leading investors are adopting a stewardship mindset, which is a critical starting point for capital to play a meaningful role in the transition to a sustainable economy.” He added, “A large portion of these assets analyze ESG factors from a risk management perspective. Looking ahead at the next phase of market development, I expect we’ll continue to see more investors focusing on sustainable and inclusive outcomes.”

This year’s report includes additional market insights from the United Kingdom, China, Latin America, Africa and other areas of Asia, all showing unique markets for responsible investment.

Download the full report here.

About the Global Sustainable Investment Review

The Global Sustainable Investment Review 2020 is the fifth edition of this biennial report mapping the state of sustainable investment in the major financial markets globally. This edition collates results from the US SIF: The Forum for Sustainable and Responsible Investment (US SIF), Japan Sustainable Investment Forum (JSIF), the Responsible Investment Association Canada (RIA Canada) and the Responsible Investment Association Australasia (RIAA) and in the case of Europe (including UK), from secondary industry data.

All 2020 assets are reported as of 31 December 2019, except for Japan which reports as of 31 March 2020. The report also includes additional market insights from the United Kingdom, China, and across Latin America, Africa and Asia, to form a global picture of the sustainable investment industry

About The Global Sustainable Investment Alliance

The Global Sustainable Investment Alliance (GSIA) is an international collaboration of membership-based sustainable investment organisations around the world. Our mission is to deepen the impact and visibility of sustainable investment organisations at the global level. Our vision is a world where sustainable investment is integrated into financial systems and the investment chain and where all regions of the world have coverage by vigorous membership-based institutions that represent and advance the sustainable investment community. For more information, visit gsi-alliance.org.

About the Responsible Investment Association

The Responsible Investment Association (RIA) is a nonprofit, membership-based organization dedicated to the advancement of responsible investment in Canada. The RIA’s membership is composed of over 400 institutional investors and investment professionals who practice and support responsible investing. To learn more about the RIA, please visit www.riacanada.ca.

Congratulations to Canada’s newest recipients of the RIA’s financial credentials in recognition of expertise in responsible investing. View a full list of RIA credential holders here.

Learn more about the RIA’s training and credentials here.

Md Nasim Akhtar (RIS)
Susan Alain (RIS), Coast Capital Wealth Management Ltd.
Brendan Andrews (RIS), Kingsmere Financial
Michael Asadoorian (RIS), IPC SECURITIES CORPORATION
Dylan Asham (RIS), Westoba Financial Solutions Ltd.
Theresa Michelle Aucoin (RIS)
Ankit Bahl (RIS), Datel AS
Laurence Baril (RIS), Desjardins
Bryan Beaulieu (RIS), Financière Banque Nationale
Dzenan Bezdrob (RIS), Tycuda Group
Craig Brenzan (RIS), Investia Financial Services
Michael Bryans (RIS), Focus Financial Solutions Inc
William Buchholz (RIS)
Carla Bugera (RIS), Crossroads Credit Union
Keith Carruthers (RIS), Carruthers Financial
Julie Chaplain (RIS), Desjardins
Jennifer Clyne (RIS), Tycuda Group, a division of Leede Jones Gable Inc.
Miles Clyne (RIS), Tycuda Group
Simon Cousineau (RIS), Gestion financière Lanoie inc.
Kristina De Souza (RIS), Kleinburg Private Wealth Management
Annabelle Dumais (RIS), SFL Placements
Silviu Dumitru Burlibasa (RIS), Desjardins Financial Security
Nicole Dungey (RIS)
Dustin Dyck (RIS), Westoba Credit Union Ltd.
Patricia Echeverria Gonzalez (RIS), Vancity Credit Union
Sheron Marie Elder (RIS), Keybase Financial Group Inc.
Rocco Faiella (RIS), Faiella Financial
Ryan Faiella (RIS), Faiella Financial Group
Katia Felix Nogueira (RIS), Vancity
Mani Fenili (RIS)
Glen Furlong (RIS)
Glen Furlong (RIS), Strategic Wealth Planning Inc.
Adele Garibaldi (RIS), Investment Planning Counsel
Lorraine Graham (RIS)
Linda Gratton (RIS), Canada Life
Paul Hamon (RIS), Sapience Financial Management Inc.
Joe Harris (RIS), Aligned Capital Partners
Brendon Henry (RIS), Latitude Financial
Brendon Henry (RIS), Latitude Financial
Michael Higgins (RIAC), Raymond James
Andrew Robbie Hoyte (RIS), Valley First
Kartik Iyer (RIS), Vancity
Richard James Chmara (RIS), RBC Dominion Securities
Philip Janzen (RIS), FundEX Investments
Andrew Joseph Kinzie (RIS)
Jeanette Jow (RIS), Vancity
Jay Kamlia (RIS), Desjardins
Shahzada Kamran (RIPC), RBC Global Asset Management Inc.
Michelle Karst (RIS), Synergy Credit Union
Mary Keetch (RIS), Mary Keetch Financial Services Group
Amber Kuchinka (RIS), Affinity Wealth Management
Donald Kuepfer (RIS), FundEX Investments Inc.
Cécile L’Héritier (RIS), Investia Services Financiers Inc.
Jimmy Lauzon (RIS), GFM Groupe Financier
Christopher Lee Gorman (RIS)
Daniel Linardic (RIS), Alterna Savings and Credit Union Ltd.
Melanie Linkletter (RIS), Edward Jones
Blair Lissinna (RIS), Crossroads Credit Union
Peter Macintosh (RIS), MACINTOSH FINANCIAL GROUP
Danielle Marsala (RIS), Fidelity Investments Canada
Kerrie Masley-Smith (RIS)
Bryan Moss (RIS), Alterna Savings and Credit Union Ltd.
Michelle B. Myles (RIS), Manulife Securities Incorporated
David Navarro (RIS), Navarro Financial Group
Peter Nikolakakos (RIS), Alterna Savings and Credit Union Ltd.
Bobby Ning (RIS)
Eng-Khai Ong (RIS), Desjardins
Kelly Pather (RIS), Assante Financial Management Ltd.
Chrys Pelegris (RIS), BMO Nesbitt Burns
Anton Poverennov (RIS), Richardson Wealth Limited
Joel Rabouin (RIS), Investia Financial Services
Gagan Rai (RIS), Vancity Credit Union
Behnoosh Ramezani (RIPC)
Mike Razavi (RIS), Aldergrove Credit Union
Stuart Rieger (RIS), GFCU MoneyWorks
Kathryn Ritter (RIS), Sean Peach Financial Services Inc
Richard Rizi (RIS), Worldsource Wealth Management Inc.
Linda Ann Robinson (RIS), Desjardins
Josee-Anne Rochon (RIS), Sapience Financial Management & Investia Financial Services Inc.
Neil Rogers (RIS), Desjardins
Spencer Rolls (RIS), Assante Financial Management Ltd.
Erwin Sandejas (RIS), Affinity Wealth Management
Geoffrey Sgarbossa (RIS), Bossa Financial Inc / Excel Private Wealth
Celina Shoji (RIS)
Nammy Singh (RIS), YNCU
Dana Sleiman (RIS), Gestion FÉRIQUE
Andrew Smith (RIS), Andrew Smith Insurance Inc.
Kim A. Stratulat (RIS), Credential Financial Strategies Inc.
Jeff Swan (RIS), INVESTIA FINANCIAL SERVICES INC.
Kevin T.M. Jackson (RIS), Investia Financial Services Inc.
Muhammad Tayyab (RIS), Scotiabank Wealth Management
Daniel Tkatchuk (RIS), Affinity Credit Union
Anthony Tobias (RIS), Investia Financial Services Inc.
Sandra Trudeau (RIS), Desjardins
Patricia Turgeon (RIS), Island Savings
Paul W. Lermitte (RIS), Assante Financial Management Ltd.
Ronald W. Schreider (RIS), Qtrade Insurance Solutions Inc.
Jennifer Walker (RIS), Carruthers Financial
Andrea Walsh Gagnon (RIS), Investia
Daniel Whalen (RIS), CU Financial Management
Taylor Wilson (RIS), Libro
Faisal Yousuf (RIS), NEI Investments

On June 22, 2021, the RIA held its 2021 remote AGM and Special Meeting via GoToWebinar. The AGM included the election of three new board members:

• Carol Smith, Financial Advisor, Desjardins Financial Security Independent Network
• Nalini Feuilloley, Director, Responsible Investment, BMO Global Asset Management
• Marie-Justine Labelle, Responsible Investment Practice Lead, Desjardins

Several board members were also re-elected during the AGM:

• Johnny Fansher, Responsible Investment Specialist, iA Investia Financial Services
• Kelly Gauthier, Managing Director & Partner, Rally Assets
• Lisa Becker, COO & CCO, University of Toronto Asset Management Corporation
• Milla Craig, Founder and President, Millani Perspectives
• Daphne King, Vice President, National Accounts and Strategic Sales Initiatives, iA Clarington Investments
• Karrie Van Belle, Senior Vice-President, Head of Marketing and Communications, AGF Investments Inc.
• Melanie Adams, VP & Head, Corporate Governance & Responsible Investment, RBC Global Asset Management (GAM)
• Dominique Barker, Head, Sustainability Advisory, CIBC Asset Management
• Louis Spadacini, Vice President, National Institutional & Strategic Relationships, NEI Investments
• Nicole Vadori, Associate Vice President & Head of Environment, TD Bank Group
• Roger Beauchemin, President & CEO, Addenda Capital

The RIA would like to extend a warm thank you to outgoing board members Michael Silicz, Sébastien Vallée and Robert Jenkins for their contributions to the organization.

The Annual General & Special Meeting had a virtual turn-out of 42. In advance of the AGM the RIA offered a remote voting option for members via service provider ClickBallot. A total of 122 members voted in advance of the AGM. All AGM ballot items were passed.

Immediately following the AGM, the RIA Board met to formalize the appointments of the Chair, Vice-Chair, Treasurer and Secretary. The Executive Committee confirmed at the post-AGM is now:

• Chair – Roger Beauchemin, President & CEO, Addenda Capital
• Vice-Chair – Melanie Adams,VP & Head, Corporate Governance & Responsible Investment, RBC Global Asset Management
• Treasurer – Lisa Becker, COO & CCO, University of Toronto Asset Management Corporation
• Secretary – Karrie Van Belle, Senior Vice-President, Head of Marketing and Communications, AGF Investments inc.

Thank you to outgoing Chair, Ian Robertson, for his outstanding leadership and dedication to the organization. The full list of the Board of Directors can be found here .

The Responsible Investment Association (RIA) is pleased to announce the release of its 2020 annual report. The report summarizes the organization’s progress along its five strategic priorities for achieving the RIA’s overarching goal of driving the adoption of responsible investing (RI) in Canada’s retail and institutional markets.

The year 2020 was a challenging year many organizations, including the RIA. As the pandemic escalated in March of last year, we pivoted to a remote work environment and cancelled numerous projects and events, including our annual conference. Thanks to our committed team and our supportive members, we were able to rapidly adapt and deliver the 2020 RIA Virtual Conference, which hosted a record-setting 940 attendees.

In 2020, RIA membership continued to grow across both organizational and individual segments. We finished 2020 with 360 individual members, up from 271 a year prior, and our organizational membership grew from 128 to 136 over the same period. Combined, our total membership grew from 399 to 496 during 2020 – a growth rate of 24.3%.

At the end of 2019, we had granted a total of 897 credentials to professionals in our RIAC, RIPC and RIS programs. By the end of 2020, this figure grew to 1736, nearly doubling our cumulative figure within one year. This growth is driven primarily by strong uptake of our Responsible Investment Specialist (RIS) program among retail advisors.

The RIA’s five strategic priorities:

1. Educate: We will continue to promote education for the industry and the broader market.
2. Catalyze: We will play a leadership role in catalyzing market development and promoting market integrity in Canada with respect to RI.
3. Advocate: We will advance a policy/regulatory environment that is conducive to RI.
4. Build: We will continue to build our brand and reputation as the hub and leading voice for RI in Canada.
5. Grow: We will continue to focus on growing our financial and human capital resources to strengthen our capacity..

The Annual Report summarizes our work toward delivering on these priorities in 2020. Download the full report here.

About the Responsible Investment Association
The Responsible Investment Association (RIA) is a nonprofit, membership-based organization dedicated to the advancement of responsible investment in Canada. The RIA’s membership is composed of over 400 institutional investors and investment professionals who practice and support responsible investing. To learn more about the RIA, please visit www.riacanada.ca.

Speakers:
Ian Robertson, VP, Director and Portfolio Manager, Odlum Brown
Jackie Cook, Director of Investment Stewardship Research, Morningstar
Michelle de Cordova, Principal, ESG Global Advisors Inc.
Greg Dalgetty, Senior Editor, Investment Executive

With more and more headlines about “greenwashing” in the news, RI advisors will likely need to spend increased time fielding questions and addressing concerns about the topic.

At the RIA’s final conference session, Greg Dalgetty, Senior Editor at Investment Executive, explained the concept of greenwashing as “when an investment fund makes false or misleading claims about how sustainable it is.”

“Greenwashing really poses the question: what’s inside the tent?” he added.

One extreme example of greenwashing is a fund that says it has no holdings in the energy sector but, in reality, holds positions in multiple oil and gas companies.

“However, just because a responsible investing (RI) fund invests in oil and gas doesn’t mean it’s greenwashed. A fund may invest in the energy sector through an ESG lens or use shareholder engagement with energy companies,” Dalgetty said.

Clients concerned with greenwashing may question why certain securities are in their portfolio based on their perceptions of the company and how it behaves in its communities.

Audience poll

“It comes back to an education process and making sure that client expectations are aligned well with the processes being used. For example, are we using an exclusionary process that’s maybe a best-in-class approach where you’re trying to screen out complete sectors altogether or more of an ESG integration approach?” said Ian Robertson, Vice President, Director and Portfolio Manager at Odlum Brown.

“It’s an ongoing process of communication and education.”

Audience poll

Using Nestlé as an example, the panelists discussed how bad press can make clients question companies in their portfolios.

“One of the challenges is trying to marry what may be an individual client’s personal feelings, memories and so on about a particular company against what we may call the objective research on that company,” said Michelle de Cordova, Principal at ESG Global Advisors Inc.

“Nestlé is a great example,” she said, “It’s a company people feel extremely strongly about, partly because of the baby milk scandals of the 1990s, but at the same time, on many of the benchmarking exercises, Nestlé comes out very, very high. They have very good policies and processes. The values reaction of an investor and what we may call the objective research on a company can be quite different.”

The discussion then turned toward how advisors concerned about greenwashing can evaluate an asset manager’s commitment to the ESG products they manage.

“Investment managers would be well advised to have a good overview of what the ESG commitment level is of the asset managers behind the products that they’re recommending, said Jackie Cook, Director of Investment Stewardship Research at Morningstar.

At Morningstar, for instance, their evaluation is built around three pillars: philosophy and process, resources and active ownership. .

“If an advisor is wanting to get a quick lay of the land when it comes to the ESG commitment level of an asset manager behind the products that they’re recommending or advising on, look at the public disclosure around stewardship. That’s really where the rubber meets the road,” Cook said.

“If an asset manager is engaging and voting and using their influence to advocate on ESG, it really does reveal a stronger level of commitment.

Speakers:
Jonathan Lo, VP and Client Portfolio Manager, AGF Investment Management
Sucheta Rajagopal, Portfolio Manager, Research Capital Corp.
Carol Smith, Financial Advisor, Desjardins Financial Security Independent Network
Melissa Shin, Editorial Director, Advisor’s Edge & Investment Executive

During the COVID-19 pandemic, retail clients have become much more keen to learn about the “S” in environmental, social and governance (ESG) issues.

Previously, clients didn’t pay as much attention to the social aspect of ESG, but “it really came to the forefront last year,” said Sucheta Rajagopal, Portfolio Manager of Research Capital Corp. at the final day of the RIA conference. People became much more invested in the ESG-related stories they were reading or hearing in the news.

For instance, when Empire Co., owner of Sobey’s, Foodland and FreshCo, brought back a wage bump to its employees known as “hero pay,” clients started talking about investing in the company.

“[Clients] were connecting what’s going on in their life with publicly traded companies that may or may not be in their portfolio to an extent that I had not seen before on the social side,” Rajagopal said.

Carol Smith, Financial Advisor at Desjardins Financial Security Independent Network, noticed the same thing with her clients.

“The pandemic definitely opened up a lot of dialogue and everybody was sort of in their feelings. Everyone was very vulnerable. And there was just a lot of really good communication,” Smith said.

She had quite a few conversations with clients about social issues and topics like net zero, and even hosted a couple of webinars. Advisors should take this as a sign that clients are more eager than ever to discuss ESG topics.

Both Rajagopal and Smith also said they had more prospective clients reach out because of their RI specialties, and they also received more referrals from their existing client base.

“In 2020, I had several people actually approaching me about RI. My experience in the past seven years plus was that people weren’t approaching me about RI. It was something that I had done as my process,“ said Smith.

The composition of her book is now changing because of her increased focus. “My mainstream investments are shrinking and my RI holdings are growing,” she said.

Both Smith and Rajagopal noted in the session that younger clients are particularly intrigued about ESG and may be seeking advisors with an RI specialty. Additionally, Smith and Rajagopal noted that their RI clients are considered “sticky,” regardless of age.

“We’re going to see trillions of dollars moving from one generation to a newer generation and I would say that the younger generation is definitely much more concerned. They view some form of socially responsible investing as table stakes. They have very few problems choosing me,” Rajagopal said.

“And because your clients are with you for more than the returns, when you have a tough year in the market, you’ve got these other stories that you can point to around values alignment and why they’re holding certain companies. It’s very encouraging. It gives you something to talk about and it gives clients a reason to hang in.”

On the asset management front, “the expectations of asset managers have really changed,” said Jonathan Lo, VP and Client Portfolio Manager of AGF Investment Management.

“It’s really evolved from just the single question of, ‘do you consider ESG?’ to a series of questions around how we do that, how we engage and how we measure impact, etc.”

Going forward, Lo predicts a proliferation of products in the market.

“With inflows so strong in the space and so many commitments to integrate ESG, asset managers have responded with a lot of products. There are a lot of portfolios out there making some claim to ESG and sustainability and the space has become a lot more competitive.”

This will likely call for greater education so industry professionals and clients alike can distinguish between products.

Speakers:
Monique Mathys-Graaff, Senior Advisor and Public Markets Lead, Impact Management Project
Sean Gilbert, Director, Member Engagement, Global Impact Investing Network
Jory Cohen, Director of Finance and Impact Investment, Inspirit Foundation
Diane Young, Senior Portfolio Manager, Fixed Income & Co-Head, Corporate Bonds, Addenda Capital

Over the years, there’s been a turning point in understanding the term fiduciary duty in the institutional and pension fund space, said Diane Young, Senior Portfolio Manager, Fixed Income and Co-Head of Corporate Bonds at Addenda Capital at the Responsible Investment Conference on Thursday.

“Plans are now not just looking at the returns on their assets, but the underlying assets themselves. There is this idea of sacrificing returns that pension plans were wary about [when it came to impact investing], but I think that’s been largely dispelled with the most recent philosophy.” she said.

“Pension plans are looking more broadly at what their duty is to their beneficiaries.”

Young, along with moderator Jory Cohen, Director of Finance and Impact Investment at Inspirit Foundation, and fellow panelists Sean Gilbert, Director of Member Engagement at Global Impact Investing Network, and Monique Mathys-Graaff, Senior Advisor and Public Markets Lead at the Impact Management Project, discussed the evolve nature of impact investing in public markets.

“From a regulation perspective, we’ve been seeing policy standard sectors mainstreaming,” Mathys-Graaff added.

“Particularly, I think you could look at the IFRS [The International Financial Reporting Standards] foundation’s announcement of the Sustainability Standards Board. It speaks to more deliberate consistency in the data that we can expect to see that will only benefit the great momentum we have in ensuring that impact management practices and performance can scale for public markets.”

Gilbert added that the industry is trying now to focus more on intentionality and measurement, and noted three key changes when it comes to impact funds:

1. Articulation of impact objectives

Companies are doing a better job of specifying the sort of change they want to see in the world. For instance, funds are articulating purpose, such as “to invest in the companies that are developing solutions specifically for X, Y and Z,” Gilbert said. “That would play over into the types of specific companies that would go into their portfolio.”

2. The types of data being used

Funds are trying to take information about a company’s outputs and translate into what it means for a particular objective. “And, more importantly,” Gilbert said, “for the stakeholders that make the world around the company. What does it mean for places, things, people, and particular changes that the fund felt was important in the real world?” he asked.

3. The nature of engagements

“Shareholder engagement has been around for 40 to 50 years and has contributed a lot in terms of making a difference,” Gilbert said. “For some impact funds, we can see that the types of topics they choose to focus on are much more closely tied to the impact thesis that they put into the strategy of their fund.”

Looking to the future

To close the session, Cohen asked the panelists what impact investing in the public market will look like five years from now.

“Trends over the last few years make it very clear that investors want financial returns but they also want financial returns done in a way that delivers returns to the real economy and the places they live in,” Gilbert said.

“I think the challenge for the industry is if people want multiple kinds of returns, like financial returns and returns for the real economy. How do we deliver the products that do that with authenticity? It will have to involve innovating how we go about our investment processes because simply repacking the products that we’ve been offering and the investment processes we’ve been offering for the last 15 or 20 years in response to the kind of demand that’s emerging will probably fall short of expectation.”

Young noted that there will be an “explosion of supply of at least fixed income opportunities.”

Speakers:
Muska Frackowiak, Manager, Operations and Programs, Responsible Investment Association
Alexa Blain, Co-Founder and Managing Partner, Deetken Impact
Kate Murray, Director, Impact Management, Rally Assets
Belissa Rojas, Impact Measurement and Management Lead, SDG Impact Team, UNDP

The pandemic has brought to light the interdependence of social, environmental and economic connections, and has shown the urgency to act much faster, said Belissa Rojas, Impact Measurement and Management Lead of the SDG Impact Team at United Nations Development Programme (UNDP), at the RIA conference session “Achieving the SDGs by 2030: Leading Practices for Impact Measurement.”

“Before the pandemic, we really knew that action was needed. After the pandemic, we saw the magnitude of huge inequalities and how a crisis, like COVID-19, really affects communities in different ways.”

Rojas noted that interest in ESG investing has grown, but further action is still needed.

“Although there’s an intention, we’re seeing a gap between intention and actual results. Furthermore, we don’t even know what the results are because only 1% are really reporting on what they did that’s measured, and specific metrics,” Rojas said.

“They say what’s not measured is not managed, but many things that are measured are not managed either.”

To change this, the UNDP believes that the private sector needs to shift their mindset and behaviours so that ESG or impact is embedded as a core philosophy, rather than considered an add-on.

The five dimensions of the Impact Management Project

Kate Murray, Director of Impact Management at Rally Management, shared with the audience some of the more credible tools and frameworks available for fund managers to measure and report on their impacts. One particular framework Murray highlighted was the Impact Management Project, which contextualizes the five dimensions of impact by proposing the following five questions:

1. What is the impact?
2. Who is benefiting? Are the beneficiaries well-served or underserved?
3. How much? What is the scale of impact?
4. What is the contribution or change that is occurring?
5. What is the risk? More specifically, what is the risk that the impact is going to be different than anticipated?

“Ultimately, this all boils down into an assessment as to whether an investment is avoiding harm, which is reducing harmful practices,” Murray said.

Industry wary of impact washing

Conversations around greenwashing and impact washing are on the rise, leading some in the industry to wonder if greater discernment is needed when it comes to impact investing.

“There’s tremendous interest in impact investing right now and I think that can lead people to want to jump on the bandwagon,” said Alexa Blain, Co-Founder and Managing Partner at fund manager Deetken Impact.

“There has been a lot of concern around impact washing,” she added. Impact washing is basically when a company or fund tries to benefit by overstating or falsely making impact-focused claims.

“I think we need to be a little bit careful when we talk about impact washing so that we’re not creating barriers to entry to the industry or kind of gatekeeping impact. We want this to be a big tent and there’s going to be different approaches to impact,” Blain said.

“What I think is really important is transparency and accountability so that you’re saying what you’re going to do and we’re not misleading or misrepresenting investment approaches to investors, which certainly would be quite damaging to the impact industry as a whole.”

When evaluating an impact fund or opportunity, Blain recommends asking what their impact management process is, and inquiring whether there is a team or professional — and this doesn’t have to be a full-time person — who is responsible for impact management.

“You want to make sure that they’re able to articulate their impact process very clearly, that they love talking about it, that they can show clear results, and that they’re being consistent in the way they communicate their impact.”

Speakers:
Jennifer Coulson, Vice President, ESG, BCI
Lindsey Walton, Head of Canada, Principles for Responsible Investment
Jamie Bonham, Director, Corporate Engagement, NEI
Sarah Couturier-Tanoh, Senior Shareholder Engagement and Policy Analyst, SHARE

Conversations around active ownership have evolved toward broader stewardship, making this an exciting time in the industry, said Lindsey Walton, Head of Canada at Principles for Responsible Investment at the RIA’s conference session “Masterclass: Case Studies in Canadian Investor Stewardship.”

“Canada has a uniquely collaborative financial industry that’s well positioned to influence sustainability at scale,” she said.

Walton, along with Jennifer Coulson, vice president of ESG at BCI, Jamie Bonham, Director of Corporate Engagement at NEI, and Sarah Couturier-Tanoh, Senior Shareholder Engagement and Policy Analyst at SHARE, shared with the audience some effective strategies for engaging with Canadian companies.

“The perception that investors have on human capital management is changing,” Couturier-Tanoh said while explaining how SHARE has been working to encourage better company practices. “Because of that, companies are more receptive to shareholder engagement.”

Before SHARE begins engaging with a company, they conduct a deep analysis exploring the risks and challenges the company might be facing, as well as what gaps may exist.

“We look for opportunities to drive changes that would positively contribute to shareholder long-term value,” Couturier-Tanoh said. “These gaps can be identified at a company level. For instance, when a company lags behind its peers in adopting certain policies and practices.” But, gaps can also occur at the sector level, she added.

The panel also emphasized the importance of getting clear on your message when filing a resolution, which is especially important given the 500 maximum word count.

“Filing a resolution is the easy part,” Bonham added. “It is the follow up where all the work comes in to get a vote out.”

Bonham shared that engagement is not always a speedy process, but every effort counts. “Perseverance is really important,” Bonham said. “Staying at it, as well as being able to pivot when things don’t work out the way you want them to. Even if it does feel like you’re banging your head against a wall, it is still likely to have an impact.”

Working with others can also help to achieve great things. “With complex and challenging dialogues, there is great value in collaboration. It’s a big time commitment to do that, but it’s really useful,” Bonham said.

For instance, the panelists spoke of Climate Action 100+, which is an investor-led initiative to encourage necessary climate action from the world’s largest global greenhouse gas emitters.

There can be potential roadblocks in collaborative agreements like Climate Action 100+, however. For instance, some investors may want to move faster than others. The upside is that this can encourage valuable discussion.

“It’s great for investors, like myself, who maybe want to push something faster to hear the rebuttal of why investors aren’t comfortable with that path,” Bonham said. “If you think about it, these are investors who have signed a collaborative engagement on climate change and are saying they’re not comfortable. Think of the other investors who aren’t even at the table and what their reluctance might be. There’s a lot to learn from that.”

Coulson added that it’s important to understand differences. “We can’t assume all investors are the same. We all have different mandates, different legal structures, different portfolios,” she said.

“But, if we don’t ultimately get to a Paris aligned economy, it’s going to be very hard for us to generate any kind of returns given the economic impacts that are predicted.”

Speakers:
Anuj A. Shah, Partner, Head of US & UK, KKS Advisors
Bérénice Lasfargues, ESG Specialist, BNP Paribas Asset Management
Bruce Duguid, Director, Head of Stewardship, EOS, Federated Hermes
Rosalie Vendette, Sustainable Finance Expert

Many people in the market are now using the terms “stewardship” and “engagement” interchangeably, which begs the question: what does “stewardship” mean exactly?

According to leading researchers and practitioners, stewardship goes far beyond proxy voting and engagement to include factors such as collaboration, education, and more.

In Wednesday’s RIA conference session, “The Rise of Investor Stewardship: A Global Perspective,” Sustainable Finance Expert Rosalie Vendette spoke with Bérénice Lasfargues, ESG Specialist at BNP Paribas Asset Management, Bruce Duguid, Director of Stewardship at Federated Hermes’s EOS, and Anuj A. Shah, Partner and Head of US and UK at KKS Advisors, to share their insights on the current and future role of stewardship.

When KKS Advisors started their own research on stewardship, there was no set definition. Different firms and organizations were describing stewardship in unique ways.

“Broadly speaking, stewardship reflects the role of investors as stewards of the assets entrusted to them by their clients and it’s the responsibility of investment professionals to carefully protect and enhance the value of those assets,” Shah explained.

“It embodies the notion that investors are influential market players and have the power to shape markets. Within ESG, specifically, stewardship is a core concept and it’s deeply linked to fiduciary duty and inherently encompasses the entirety of all of the definitions of stewardship and fiduciary duty.

Shah broke down the key components of stewardship as:

 Slides presented by Anuj A. Shah

“Stewardship is linked to greater financial performance and improved ESG performance,” he added.

It’s shown to have many benefits, such as reducing exposure to downside risk, creating an informational advantage, leading to higher firm market value, lowering stock price volatility, and positively affecting sales growth and returns.

Slide presented by Anuj A. Shah

Lasfargues added to the conversation by sharing BNP Paribas Asset Management’s approach to stewardship, which they group into three broad categories: voting, corporate engagement and public advocacy.

Slide presented by Bérénice Lasfargues

Stewardship and active ownership are key to helping the asset manager gather data to gain insight into company performance, as well as educate issuers on ESG issues, drive disclosure and improve performance on a range of issues, Lasfargues said. Stewardship also plays an important role in helping to contribute to policies and regulations.

“One distinction that we like to make is a distinction between investors that are future takers or future makers. And as a future maker, it is our belief that we’ll protect future performance by using our influence with companies to advocate for a low carbon economy.”

Shareholder resolutions on the rise

Coming off the heels of a climate win for ExxonMobil’s shareholder activists, most participants at the conference felt strongly that there will be more shareholder resolutions in the future.

Audience poll

Lasfargues agreed that the market might be going in that direction, but noted that “ideally a good dialogue would yield the same outcome.”

“A lot of good things happen behind the scenes without us having to file a shareholder proposal,” she added. “It’s somewhat of an escalation strategy when you feel the issuer is not being responsible or not paying sufficient attention to the issue or you feel voting down the board will not be enough.”

Duguid also predicted that engagement will escalate in the future. “We’re probably going to see more votes on transition plans, and more proxy access and more shareholder resolutions,” he said.

“So many investors are committing either publicly or privately to a net zero investment strategy. To do that and not be forced into mass divestment, it really does mean changing the nature of the company’s underlying portfolio. And that’s driven by asset owners. I think that’s going to carry on and make stewardship extremely interesting over this decade.”