Canadians are obligated to respect human rights in Canada and around the world. In this article we raise awareness regarding elevated human rights risks to Indigenous Peoples in Latin America and what investors can do to fulfill their human rights due diligence responsibilities across all regions under evolving regulatory and stakeholder expectations.

Demand for minerals to support the energy transition is anticipated to soar over the next years and decades. Indigenous Peoples around the world are at risk of being disproportionately impacted despite contributing the least to climate change given 50% of known transition minerals are located on or near to their traditional lands. These Peoples also protect and maintain up to 80% of the world’s remaining biodiversity. While Canadian institutional investors are increasingly aware of and educated on how to respect Indigenous rights and reconciliation in the Canadian context, there is less awareness of best practices to ensure respect for Indigenous Peoples’ rights in other regions and contexts. At the same time, investors are increasingly expected to account for adverse impacts on people and planet linked to investing and financing activities under voluntary standards like the United Nations Guiding Principles for Business and Human Rights (UNGPs) and new related mandatory sustainability laws like the European Union’s Corporate Sustainability Reporting Directive (CSRD). Major Canadian financial institutions and other large Canadian corporate entities with European subsidiaries or branches and a certain amount of turnover in the European Union, may eventually have to report against them. Given the extent of Canadian mining activities in Latin America, we outline significant risks to Indigenous rights from land-based projects in that region and what investors can do to help prevent and mitigate related human rights and investment risks.

The Human Rights Context of Indigenous Peoples in Latin America

Canadian companies in scope of the European Union’s mandatory CSRD will be required to disclose the most material impacts on society and the environment from business activities and how these are being managed as implementation of the law expands over the next few years. Evidence finds that severe impacts on human rights related to resource development occur most frequently in Latin America and disproportionately impact Indigenous Peoples.

Threats include multiple cumulative negative impacts from business and industrial activities, criminal groups and the compounded effects of climate change and environmental degradation that infringe on rights to safety and security, and the right to enjoy traditional cultural practices and livelihoods, amongst other human rights. Many Indigenous leaders have been persecuted, targeted, and even assassinated for defending their rights in these contexts.

Latin America is also home to an estimated 185 distinct Indigenous populations in voluntary isolation, whose rights to remain isolated are enshrined in international laws such as the Universal Declaration of Human Rights and the United Nations Declaration on the Rights of Indigenous Peoples.

While the concept of economic reconciliation as a benefit of resource development has gained traction in the context of negotiations with Indigenous governments in Canadian, it may be foreign to many Indigenous Peoples in Latin America, and it cannot necessarily be assumed that such concepts are welcomed in all sectors. This underscores the importance of a rights-based approach in every context that centres around the need for proponents to seek out and respect local perspectives through good faith due diligence, avoid complicity, and respect for the right to free prior and informed consent (FPIC).

Environmental and Climate Risks

Latin America is home to many unique ecosystems and habitats, including the Amazon, that are critical for ensuring the livelihoods of its inhabitants including Indigenous Peoples and for global climate change mitigation and biodiversity protection. Respect for, and protection of Indigenous Peoples rights, including to their lands, resources and territories is proven by research as necessary for protecting nature.

Nonetheless, scientists are already warning that the Amazon might be close to an irreversible tipping point. This year, stories of record-setting droughts made headlines across various news outlets and are expected to get worse.

Indigenous Peoples’ organizations have been clear about the need to reverse the trend towards irreversible tipping points. The Coordinator of Indigenous Organizations of the Amazon River Basin (COICA), along with other organizations have called for the protection of 80% of the Amazon by 2025, strict adherence to free, prior and informed consent, a moratorium on deforestation and degradation of primary forests, among other interventions.

Canadian Company Involvement in Latin America

Canada, being home to many companies in the mining sector, also hosts a significant share of the mining companies operating in Latin America. 2014 estimates were that between 50 – 70% of mining activity in Latin America involves Canadian mining companies. The same report found that the lack of consultation and implementation of FPIC by Canadian mining companies in Latin America was the rule rather than exception. Other reports have found many examples of Canadian companies with operations in Latin America being linked to acts of violence. In 2023, a coalition of more than 50 civil society organizations published the report “Unmasking Canada: Rights Violations Across Latin America,” highlighting human rights issues connected to 37 Canadian projects across Latin America and the Caribbean.

The Legal Context of Indigenous Peoples’ Rights and Associated Obligations in Latin America

While articulated most clearly through the UN Declaration on the Rights of Indigenous Peoples, Indigenous Peoples’ rights in Latin America are also protected by various legal frameworks and instruments*, national constitutions, national legislation, and judicial decisions.

*Those instruments include but are not limited to the International Covenant on Civil and Political Rights (ICCPR); International Covenant on Economic, Social and Cultural Rights (ICESCR); International Convention on the Elimination of all Forms of Racial Discrimination (ICERD); Convention on the Elimination of All Forms of Discrimination against Women (CEDAW); ILO Convention 169 on Indigenous and Tribal Peoples, and the American Convention on Human Rights.

For example, the Inter-American Court of Human Rights has established that the State must abide by the following safeguards: effective participation (including FPIC), reasonable sharing of benefits from any development plans within the territory, and that no concessions on Indigenous territory are granted before prior environmental and social impact assessments are conducted.

Many national court rulings have also established safeguards that in effect, require FPIC. For example, in Colombia and Brazil, courts have ruled that Indigenous Peoples’ own autonomous free, prior and informed consultation and consent protocols and laws are binding.

However, those rights and obligations are in practice only implemented after investments have been made, leading to significant risks. For example, in Ecuador, a decree regulating permitting with affected Indigenous Peoples was later ruled to be unconstitutional and suspended by Ecuador’s constitutional court for failing to guarantee the constitutionally enshrined rights of Indigenous Peoples in Ecuador, thus generating significant risks for mining projects. In Peru, a regional court found that the granting of concessions to businesses on Indigenous territories where formal Indigenous land title had not yet been granted was unlawful. It is this gap between international and, or constitutionally enshrined Indigenous rights and lack of protection of these rights by local and regional authorities that presents significant risks for both adverse human rights impacts and investments.

Priority Investor Actions

Institutional investors in Canadian mining companies can help ensure investee companies ‘mind the risk gap’ by advocating for them to adopt and implement, in every case, rights-based approaches that align with international human rights standards regardless of whether local and regional authorities actively respect and protect these rights. The UNGPs were developed over a decade ago to explicitly address this risk gap and ensure multinational companies operating abroad respect human rights no matter where they operate. They now provide the foundation upon which mandatory corporate sustainability laws, like the CSRD, and France, Germany, and other EU member states’ supply chain due diligence laws, are based. While investors can advocate for benefit-sharing mechanisms and other types of partnerships that create more equitable economic and social benefits from mining or other resource development activities on the traditional territories of Indigenous Peoples, the starting point should be a rights-based approach, including FPIC giving due consideration to the local legal and human rights context, and risks to Indigenous human rights defenders.

Key immediate actions Canadian investors can take to add to their due diligence include:

– Screen all portfolios for company involvement in Latin America, with a focus on land and resource-intensive sectors and conduct enhanced due diligence to understand implications for locally affected Indigenous Peoples;

– Ask investee companies for disclosures of evidence of FPIC;

– Consult Indigenous Peoples’ representative institutions or others from civil society working with Indigenous Peoples in Latin America regarding appropriate investor action;

– Spread awareness of the need for urgent investor action on human rights in Latin America

---

Contributor Disclaimer

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent prospectus.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate. Certain of the products and services offered under the brand name, BMO Global Asset Management, are designed specifically for various categories of investors in Canada and may not be available to all investors. Products and services are only offered to investors in Canada in accordance with applicable laws and regulatory requirements.

®/™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.

Pressure mounts to rethink balance sheets to account for natural capital—arguably the world’s most important asset. Are you prepared?

Nature is deteriorating at an alarming rate, and with over half of the world’s GDP (US$44 trillion) at risk due to rapid biodiversity loss, environmental degradation is quickly climbing to the top of corporate and investor agendas.

In a major step forward, the international Taskforce on Nature-related Financial Disclosures (TNFD) released landmark guidance last September to help organizations identify and assess nature-related risks, impacts and dependencies. Interested and affected parties in many jurisdictions, including Canada, are evaluating the standards and international developments to determine the best path forward.

Having finalized its climate and general requirements standards in June 2023, the International Sustainability Standards Board (ISSB), an independent standard-setting body charged with streamlining sustainability reporting by developing a global baseline, has turned its attention to discerning its next areas of focus. In April 2024, the ISSB announced that it will commence a research project on the disclosure of risks and opportunities associated with biodiversity, ecosystems and ecosystem services, shining a spotlight on the value of accounting for nature.

Following the release of the TNFD’s risk management and disclosure framework, the ISSB announced that it would “look to the TNFD recommendations—where it relates to meeting the information needs of investors—in its future work.”

Improving nature-related practices and disclosures

A growing global network of TNFD consultation groups is working diligently to identify knowledge gaps on nature-related issues and to engage with regional markets on its recommendations. The Chartered Professional Accountants of Canada (CPA Canada) and the Institute for Sustainable Finance (ISF), as co-convenors of the Canadian consultation group, are responsible for fostering awareness, education and capacity building for TNFD in Canada.

For more than 20 years, the Canadian accounting profession has been at the forefront of championing sustainability as a good business practice. With a long history of ensuring that organizations manage risk and report credible information in the capital markets, the accounting profession will play a pivotal role in guiding organizations and investors through the integration of nature into decision making, helping turn ambitious environmental pledges into practical actions.

Catalyzing sustainable investment

Commitments made at the COP 15 Biodiversity Conference in Montreal to safeguard 30 percent of natural habitats by 2030 have intensified the global focus on building capacity for nature-based reporting to support frontline conservation and adaptation efforts.

In resource-based economies like Canada, there is particular urgency to see stakeholders across the financial and corporate systems work collaboratively to shift business models, budgets and financial flows away from nature-negative to nature-positive outcomes. Investors increasingly recognize that they hold nature-related risk in their portfolios and want to understand how those threats are being managed to deliver robust financial returns and minimize environmental disruption. In fact, a 2023 study of ESG sentiment among institutional investors found that 63 per cent of respondents consider nature-related factors when making decisions.

Credible and comparable data is essential for building trust to drive effective capital reallocation and to attract new investments for scaling up sustainability efforts. The TNFD’s emphasis on transparency and accountability will help bridge the gap between financial markets and the natural world.

Climate and nature goals inherently linked

A collaborative and proactive approach to reporting could not be more urgent as climate change proves to be an increasingly important driver of biodiversity loss. Consequences of the climate crisis, from deforestation to water scarcity, can materialize as financial risks to businesses that inevitably impact the broader financial system. Conversely, restored ecosystems rich in biodiversity can enhance business operations, create new markets and play a critical role in achieving net-zero goals by removing carbon from the atmosphere.

Indigenous communities hold a profound connection to the land, rooted in centuries of stewardship and traditional knowledge. Despite comprising only 6.2 per cent of the world’s population, Indigenous Peoples safeguard an astonishing 80 per cent of the planet’s biodiversity, making the Indigenous perspective another vital component in combatting climate change and environmental degradation.

Natural capital underpins healthy societies and resilient economies. Halting and reversing nature loss hinges on our ability—as businesses, financial institutions and asset managers—to understand our dependencies and impacts on the natural world.

There is a significant need to empower both the users and preparers of climate- and nature-related information with best practices for disclosing sustainability performance. I can say with confidence that the CPA profession is up to the capacity-building challenge, but we are only one piece of the puzzle. With growing recognition of the intrinsic value of nature, investors are increasingly being called upon to finance this change.

Your blueprint for action

By aligning investment decisions with sustainability goals and advocating for robust reporting standards, investors are well positioned to drive transformation in nature-related reporting practices. Your role extends beyond mere financial support; your requests for transparency, accountability and standardized metrics have the power to catalyze a more holistic approach to accounting and reporting practices.

---

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.

There is a growing recognition of the business risks related to modern slavery within a company’s operations and supply chains, as well as increasing regulatory expectations. As a result, this important issue is increasingly front of mind for many companies and investors.

Modern slavery generally refers to situations of forced labour or child labour. It is both a human rights and employee rights issue and occurs when a person faces a situation of exploitation and cannot refuse or leave due to threats, violence, coercion, deception, and/or abuse of power. According to the Global Slavery Index, in 2021 an estimated 50 million people were living in modern slavery on any given day, which is an increase of 10 million people since 2016. In addition to the moral and ethical issues associated with modern slavery, companies also face business risks. These include reputational risks (e.g. boycotts, protests, or customer backlash), legal risks (e.g., fines, criminal charges, and litigation, depending on jurisdiction), financial risks (e.g. supply chain disruption, increased operating costs, decreased productivity, higher cost of capital, loss of market share), and/or supply chain risks (e.g. disruption in the flow of goods and services, lack of efficiency and performance of supply chains).

The United Nations (UN) established the UN Guiding Principles on Business and Human Rights (UNGPs) in 2011 to set common human rights expectations for governments and corporations. While the UNGPs are not binding, since their establishment, various countries have put in place legislation that requires companies of a certain size to prepare and publish an annual statement outlining the actions they are taking to address modern slavery in their operations and/or supply chains. Canada is one of the most recent countries to put in place its own act to address modern slavery in supply chains (the Act), which was passed in 2023 and came into force as of January 2024. Corporate entities covered by the Act must publish and submit to the government a report regarding modern slavery risks and mitigating actions by May 31, 2024. Unlike in some other jurisdictions, failure to comply with this Act comes with a fine of up to $250,000 per offence and may lead to personal liability for board members.

While most of the regulatory actions for corporations focus on transparency and disclosure, these statements in and of themselves are not sufficient to address modern slavery. They do, however, provide investors and others with insights on the policies and practices companies have in place to identify and address the risks of modern slavery in their operations and/or supply chains. They can also serve to inform engagement with companies on these issues. While often thought to be more prevalent in developing nations, modern slavery occurs in every country in the world and many cases in low-income countries are in fact linked directly to demand from higher-income countries. Some of the products imported from developing countries that are most at risk of using modern slavery are electronics, garments, palm oil, solar panels, and textiles.

Investment teams, [1] such as those at RBC Global Asset Management (RBC GAM), [2] may consider material ESG factors [3] when making investment-related decisions within the portfolios that they manage, for applicable types of investments. [4] This may include human rights, employee relations and working conditions, discrimination, modern slavery, and/or supply chain risks. As active stewards of clients’ capital, investment teams also engage with issuers on topics that they deem to be material to their investments. [5] Through proxy voting, shareholder proposals that call on companies to respect internationally recognize human rights and comply with relevant international agreements regarding the protection of those rights can generally be supported. For example, we will generally support shareholder proposals that call on companies to disclose their practices, policies, and oversight for assessing, preventing, and mitigating human rights risks. This includes within the company’s investments, operations, and/or activities in countries with historical or current evidence of labour and human rights abuses.

For Canadian investors, improving transparency and disclosure on policies, practices, and actions related to modern slavery and supply chain risks are welcomed. As companies continue to expand reporting on these issues, it will be important to assess the depth and quality of such reporting in order to identify best practices and to engage with companies where gaps are identified. Ultimately, addressing modern slavery in supply chains will require concerted and coordinated efforts by governments and private sectors, which must go beyond disclosures.

---

[1] References to RBC Global Asset Management (RBC GAM) include the following affiliates: RBC Global Asset Management Inc. (including PH&N Institutional), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited (RBC GAM UK), RBC Global Asset Management (Asia) Limited, and RBC Indigo Asset Management Inc., which are separate, but affiliated subsidiaries of the Royal Bank of Canada (RBC).

[2] References to RBC Global Asset Management (RBC GAM) include the following affiliates: RBC Global Asset Management Inc. (including PH&N Institutional), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited (RBC GAM UK), RBC Global Asset Management (Asia) Limited, and RBC Indigo Asset Management Inc., which are separate, but affiliated subsidiaries of the Royal Bank of Canada (RBC).

[3] Material ESG factors refer to ESG factors that in our judgment are most likely to have an impact on the financial performance of an issuer/security and may depend on different factors such as the sector and industry of the issuer

[4] Certain fund products do not integrate ESG factors, including but not limited to money market funds, index funds and certain third-party sub-advised funds.

[5] In some instances involving certain fixed income investments, quantitative investment, buy- and maintain, passive and certain third-party sub-advised strategies, there is no engagement with issuers by RBC GAM.

---

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.

Picture a typical Canadian winter. The scenes are likely long, cold, and grey. And most importantly, there is snow – lots of it. Winter 2024 was anything but that, it seemed to be over before it even started and without many of the wintery elements we have come to both love and loathe. Across the country warmer temperatures flourished, while dreams of skiing flashed by in an instant. The unusually dry and mild winter – a result of the El Nino phenomenon, a warming of certain parts of the Pacific Ocean surface – is bringing the potential for drought across certain regions of the country. Alberta is a province that Canadian investors should pay close attention to as we head into summer as the dry winter has intensified pre-existing drought conditions.

The province began warning of serious drought conditions in late 2023. At the time of writing in early spring 2024, Alberta is in a level 4 (of 5) drought, meaning that adverse impacts to socio-economic conditions are likely. The next level means those impacts are almost certain. Drought conditions this year are being brought on by less snow and precipitation than usual, leaving less run-off into the rivers that feed Alberta’s water needs. The unusually warm winter also led the province to declare an early start to wildfire season, which historically begins on March 1 every year. A particularly intensive wildfire season would lead to further strains on the water system over the summer.

Under Alberta’s surface water withdrawal system, users such as municipalities, farmers and private companies are given licenses to withdraw specific amounts of water from designated water systems. Alberta’s water licensing program is a first in time, first in right (FITFIR) system. This means that the holders of the oldest water licenses get the right to extract the water first, and the newest license holders are last to get rights. Licenses in Alberta can go as far back as the 1800’s. Unlike other regional FITFIR systems, Alberta does not have any provisions for drought scenarios in place, meaning the government cannot overrule and proactively manage water rights in exceptional circumstances, such as severe drought. Instead, Alberta will need to rely on negotiations for voluntary reductions from senior license holders to ensure there is enough water to satisfy the balance of human, ecological and commercial needs.

Sector analysis

No sector or company is immune from the effects of drought and potential water restrictions, but some will be impacted more than others. Geography, the needs of your neighbours, ability to recycle water and contingency planning will be important factors as commercial water-users navigate the summer. Within the province, irrigation used primarily for agriculture requires the biggest amount of water, representing about 47% of all water licensed for diversion in the province. Oil and gas accounts for about 12% of water licensed for diversion, the same amount as water licensed for municipal purposes.

In late December 2023, the Alberta Energy Regulator (AER) issued a memorandum to its principal constituents – Alberta’s energy companies – advising them to prepare for drought conditions in 2024. The AER said that some companies may not be able to direct water toward their operations throughout 2024, particularly in the southern portion of the province. In January, Alberta’s Environment Minster added in a town hall that “we don’t expect that Alberta will receive enough precipitation to prevent a serious drought. We have to prepare for the worst.” The province’s Minister of Environment and Protected Areas, Rebecca Schulz, said the oil and gas sector will not be singled out when it comes to reducing water use.

It should be noted that the worst conditions are expected in the southern portion of Alberta – below Edmonton. The biggest oil and gas operations, notably the oil sands, are well north of this critical area, but there are several large refineries that operate within the severely impacted area. Also, the northern portion of the province is not in the clear yet. As of February measurements, the mountain snowpack that feeds the Athabasca Basin was below average at the two sites surveyed , and as of measurements on February 13, the Athabasca River flow was measured to be 151 m³/s, the ninth lowest winter measurement in the last 25 years.

At least one regional water agency has already suspended its water from being used for fracking – a particularly water-intensive form of oil production, where large volumes of water get injected below the surface of the earth to help fracture rocks and unleash the oil trapped within them. Importantly, water used for fracking cannot be recycled, unlike much of the water used in oil sands operations. Once water is used for fracking, it is out of the water system forever. For oil sands production, while there is variance, it generally requires about three or four barrels of water to produce a barrel of oil. For most of the oil production in the province, the industry has a great ability to process, treat and eventually return the water back to the system. While progress on water treatment efficiency is important, risks will still emerge during serious drought conditions, when the possibility to take the time required to treat and return the water has disappeared, and companies may have to reduce the amount of water they extract from the system in the first place. Ultimately this may result in impacts to operations through curtailing production or to rising expenses through sourcing alternative sources of water, such as trucking it in.

Engagement strategies

As investors in companies with operations in the province, how can we work with those companies to better understand the water risks they face? Ensuring companies have prudent water management strategies and the ability to continue operating without disruption will be essential as we head into this summer. Engaging with companies in advance of the summer on the five items below will help investors evaluate the water risks their investee companies are exposed to.

Management and contingency planning: First, investors must establish a baseline understanding of how effectively the company is managing water when it isn’t exposed to risk of drought. Does the company disclose water management policies? How does its water withdrawal and consumption compare to industry and geographical peers? Investors should find out if the company has ever dealt with water restrictions in the past and what type of contingency plan it has if water withdrawals are limited.

Monitoring conditions: In a dynamic ecosystem, does the company have systems to monitor the conditions of the water systems it relies on and does it have procedures to adapt quickly to changing conditions?

Understanding the license: Companies need to understand where they are in the FITFIR line and how their position in line may impact their ability to withdraw surface water this summer. Companies further back in line may be at a greater risk of not having enough water this summer, but proactive water license negotiation should mitigate some of this risk.

Participating in the system: As active members in a water management ecosystem, as well as having a long history of innovating and finding new ways to efficiently manage water, oil and gas companies should be at the table with the government and other members of the water-use community to develop strategies for managing the drought, whereby all players in the system can benefit.

Disclosing risks: Beyond the immediate water needs of the summer ahead, long-term engagement strategies should focus on water disclosures and management strategies. For companies with minimal disclosure related to water, encouraging participation in the CDP Water Disclosure program can be a useful starting point.

Conclusion

As we head towards a potentially challenging summer for water management in Alberta, we should remember that while Canada has an abundance of water resources, there are still limits to what the natural world can produce. Drought risks to water- intensive companies can disrupt operations or necessitate costly alternatives to water procurement. As temperatures rise, populations increase and commercial needs increase, drought-laden summers may become a more common occurrence, and with that water stress will become a more important investment risk. Companies that are significant players in the water management system should be encouraged by their investors to proactively implement water management strategies, plan for a time where water withdrawal may be limited, and produce disclosures that allow investors to effectively evaluate operations that are exposed to water-stressed areas.

---

Contributor Disclaimer

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

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

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

® The TD logo and other TD trademarks are the property of The Toronto-Dominion Bank or its subsidiaries.

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.

With the increasing prominence of responsible investment (RI) in the news, it’s more important than ever to know what investors really think about key issues. To cut through the fog and get a comprehensive understanding of the RI landscape in Canada, the 2023 RIA Investor Opinion Survey polled 1,001 individual investors for their opinions on AI, greenwashing, how they perceive RI and insights into their relationships with their financial advisors.

Investors view AI as more of a risk than opportunity

Nearly half of respondents (46%) view AI as much or somewhat more of a risk than an opportunity in terms of making responsible investment decisions. 8 in 10 said it is important for companies in their portfolio to identify and mitigate potential risks associated with AI, while half say it is as important for them to invest in the development of AI and make use of it in their products or services.

The majority of respondents (60%) say they are either not very or not at all likely to rely exclusively on AI-based research tools to make investment decisions in the future, with older respondents far more wary than younger ones.

Greenwashing concerns shrink, but remain prominent

When asked about their level of concern with greenwashing in the investment industry, 68% of respondents say they are concerned. While this represents a strong majority, it shows a slight drop since 2022 (75%) and 2021 (78%).

Investment fund managers were initially provided with guidance from the Canadian Securities Administrators (CSA) on disclosures related to ESG considerations in January 2022, with a significant update in March 2024. There has been a notable increase in confidence among the majority of institutional investors and financial intermediaries in the overall quality of ESG reporting compared to a year ago. The greater focus on clarifying disclosure requirements and provision of reliable data in recent years and increased confidence in reporting may be helping to lessen concern about greenwashing among investors.

Despite this, greenwashing remains a prominent deterrent to the growth of RI. Nearly half of investors (46%) said greenwashing deters them from investing in RI funds with younger investors expressing the highest levels of concern. Similarly, the vast majority of financial advisors are highly concerned about greenwashing as it relates to RI, and concerns about lack of standards.

In Canada, there are ongoing efforts by regulators and industry to reduce the potential for greenwashing, particularly as it relates to investment fund disclosures for retail investors. In July 2022, the Canadian Investment Funds Standard Committee (CIFSC) published a Responsible Investment (RI) Identification Framework with the aim to provide clarity for investors who wish to invest in retail investment products (mutual funds and ETFs) with responsible investment strategies. And in February 2024, the CIFSC proposed changes to the Identification Framework to modify the existing definitions to align more closely with the terminology used in the global publication of Definitions for Responsible Investment Approaches (jointly written by the CFA Institute, Global Sustainable Investment Alliance, and the United Nations Principles for Responsible Investment).

Closing the “RI service gap” remains an opportunity for RI Advisors

A strong majority of respondents (68%) either strongly or somewhat agree that RI can have a real impact on the economy and contribute to positive change for society, and 67% of Canadian retail investors want their financial services provider to inform them about RI. However, only one-third of their advisors have ever brought it up, meaning that one-third of investors are interested in RI, but not receiving the services they want.

This “RI service gap” presents a notable business opportunity for financial advisors who can engage clients on ESG topics and RI strategies.

When we take the time to truly look at our world, it is hard not to be in awe of the expansive landscapes, majestic creatures, and delicate plant life. 

Biodiversity describes the wide variety of life on our planet, spanning genetics, species, and ecosystems; more simply, plants, animals, and their surrounding habitats. Everything from the smallest flower to the largest blue whale reflects a piece of an intricate puzzle, which moves in an elaborate cycle to provide the fresh air, clean water, and natural resources that we collectively rely on to survive.

Beyond its beauty, biodiversity drives an underappreciated degree of our global economy in the form of natural capital. But it is increasingly at risk from climate change, chronic natural disasters, and human activity. This article highlights how the bond market has embraced biodiversity and how your portfolio can help protect our planet.

The economics of biodiversity

The World Economic Forum estimates that over half of the world’s GDP depends on biodiversity and the resulting natural capital which supports economic activity.

When the global ecosystem is thrown out of balance, it can have a dramatic ripple effect across economic productivity. For example, highly nature-     dependent industries, such as agriculture and forestry, are threatened by land degradation, declining crop yields, and a rise in diseases and fungi that threaten plant life and core food sources.

Despite the economic and environmental importance of biodiversity, ecosystem loss is critical and growing. Land degradation threatens old growth forests, and an estimated one million species face extinction. Both acute climate disasters and chronic climate change continue to ravage some of the world’s most vulnerable and ecologically significant regions.

Further, as extreme weather events become increasingly frequent and severe, flooding, wildfires and power shortages threaten our way of life around the world. Destruction of the natural world poses a risk to global supply chains. The consequences include continuously elevated inflation and a climate refugee crisis.

Blended finance

The world of finance has long been defined by two measures to assess performance: risk and return. While each of these metrics may benefit from ESG integration, the most unique shift comes from addressing a third, potentially uncorrelated pillar: impact.

Blended finance is a concept that aims to have a positive impact by using development funding to leverage additional investment towards developing nations. Biodiversity and ecological stewardship can be a key to improving local economies by creating jobs and realizing the value of natural capital.

For governments and development banks, these opportunities have inspired some of the world’s most innovative transactions to source and mobilize investment in the most pristine and naturally significant ecosystems. Here are a few examples:

Wildlife Conservation Bond (Rhino Bond): 

Threats to global biodiversity are perhaps most clearly seen through the increasing number of species that are now endangered. Deforestation, poaching, and habitat encroachment leave countless species at risk of extinction, from tiny bumblebee bats to the tallest giraffes.

In early 2022, the bond market saw the introduction of the first ever Wildlife Conservation Bond, a unique structure which links investor returns to positive outcomes. The aptly named “Rhino Bond” funds sustainable initiatives while investors forego their coupon payments, which are instead used to fund wildlife sanctuaries in South Africa.

At maturity, the World Bank and partner agencies will reward investors for their investment with a unique conservation success payment, linked to the growth rate of the black rhino population. By aligning the interests of investors, issuers, agencies — and rhinos — the bond market entered the biodiversity space like never before.

With 7.3% population growth in the first year, the Rhino Bond looks to double its ecological impact targets while delivering up to 50 basis points in premium yield over the life of the bond.

Debt-for-nature swaps: 

While revolutionary, the Wildlife Conservation Bond structure is limited by its costly requirement for incremental financing from project sponsors including the Global Environment Facility. As central banks raised the cost of capital, the sustainable finance market experienced contraction alongside other debt issuers.

In May 2023, Ecuador completed the landmark “Galapagos Bond”, launching the world’s largest debt-for-nature swap in one of the world’s most biodiverse regions. In this transaction, Ecuador exchanged old bonds trading at distressed levels for new bonds in support of environmental protection.

This deal was made possible by Ecuador’s partnership with the Inter-American Development Bank and US International Development Finance Corp. The bond is expected to double the annual conservation funding efforts within the region, while committing to improved sustainable fishing regulations and reporting on the nationally protected Hermandad Marine Reserve. This region represents a key habitat for critically endangered species, as well as oceanic migration, and the bond’s innovative structure provides protection in line with the Global Ocean Alliance’s “30 by 30” pledge to protect 30% of marine territory by 2030.

In a unique transaction, Ecuador’s debt-for-nature swap provided support for investors, issuers, and the environment. Centred around the Galapagos Islands, this transaction is expected to generate $450 million in incremental financing towards marine conservation.

Investing in a better future

As investors, we often find ourselves looking past the short-term swings to focus on the future. Just as we hope our decisions will successfully help investors fund education, home ownership and retirement, we also aim to align our investments with a more sustainable world we hope to create.

We believe that our sustainable fixed income opportunities are also sound financial choices. When faced with opportunities to do good, while doing well, investing in sustainable fixed income solutions balances the needs of the present with the opportunities of the future.

---

Contributor Disclaimer

The content of this article (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This document may contain forward-looking information which reflect our or third party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of January 16, 2024. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise. The content of this [type of marketing communication] (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

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.

There has never been anything like it before. 2024 is the year the first companies within scope will be legally accountable under the European Union’s (EU’s) Corporate Sustainability Reporting Directive (CSRD). First reports are due in 2025 (based on fiscal year 2024 information). It is estimated that it will eventually also affect 1,300 Canadian companies directly, based on their business in the EU or listings on EU exchanges.

The CSRD is a European directive that marks a significant shift in the regulatory reporting environment as it sets out the rules for legally mandated accountability across a business’ entire value chain under the new and more robust European Sustainability Reporting Standards (ESRS). It is a reporting directive against the ESRS that embeds accountability for public and private companies to disclose actions taken to manage impacts on people and planet from business activities, and how the company is managing financially material ESG issues. The CSRD marks the beginning of a broader, sustainability regime designed to spur more proactive efforts and accountability to respect human rights and reduce carbon emissions and other environmental impacts linked to business activities. The Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) is anticipated to follow once approved by European Parliament in April 2024. While the CSRD requires mandatory reporting against the ESRS, the CSDDD is a behavioural directive requiring companies to take action to prevent, mitigate, and remediate the most severe and likely adverse impacts from their business activities on people and planet. To ensure its passage following last minute erosion of support by multiple EU member states, changes to the CSDDD were negotiated in February and March 2024 to reduce its scope and scale so as to lessen direct impacts on small and medium-sized businesses. However it will still provide a legal liability mechanism for the largest companies operating in the EU to take responsibility for adverse impacts from business activities on society and the environment. In sum, this new sustainability regime is a gamechanger and has implications for entities even outside the EU. Below are high level answers to the following questions:

– What makes the ESRS unique?
– How will they affect Canadian companies?
– Why and how should Canadian investors encourage portfolio company alignment?

Key ESRS Features

ESRS key features

A double materiality approach is the defining feature of the ESRS and provides the criteria to determine whether a sustainability topic or information has to be disclosed in reporting. Impact materiality refers to an entity’s material actual or potential, positive, or negative impacts on people and the environment while financial materiality refers to whether a sustainability topic generates risks or opportunities that impact an entity’s financial performance or position. Under ESRS, double materiality is the union of both these concepts. Adverse impacts on people and planet may not immediately pose a risk to a company’s bottom line but can become financially material over time.

The ESRS require companies to disclose methods and results of a materiality assessment of the entire value chain to ensure detection of the most significant (positive or negative) impacts from business activities for prioritization in management regardless of near-term financial materiality. This mirrors the fundamental first step in a do no harm, human rights due diligence process aligned with the OECD Guidelines for Multinationals and the United Nations Guiding Principles on Business and Human Rights (UNGPs). Created in 1976 and 2011, respectively, these frameworks were developed and updated over the years to promote respect by businesses for international human rights laws, like the International Bill of Human Rights, which to varying degrees have been adopted into country laws around the world to hold states accountable to respect human rights. The CSRD, CSDDD and the ESRS now represent a new layer of accountability in that they legally enforce expectations for businesses to be accountable for respecting international human rights norms. This is by design. There are a considerable number of companies around the world already voluntarily committed to implementing the UNGPs and OECD Guidelines. Once transposed into the respective EU Members’ respective national laws, the CSRD and CSDDD will reinforce, and mainstream through hard law, already established, but voluntary, international human rights standards and frameworks to promote responsible business conduct.

How does this compare with other large sustainability reporting frameworks? The ESRS seek additional comparability and consistency for topical disclosures through alignment to the greatest extent possible with other international topical standards developed by the Taskforce on Climate-related Financial Disclosures (TCFD), the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI). It should be noted, however, that the ESRS go extensively further than these frameworks because of the double materiality requirement.

The ESRS 12 topical standards are captured under four pillars as displayed in Figure 1. Note that social topical standards are broken down by stakeholder categories centring the need for careful consideration and prioritization of material impacts on these respective groups. Topical standards assessed by the company determined not to be material can be omitted. For each material topic, disclosure is required on:

– Business model and strategy. This includes reporting of baselines and time-bound targets, progress made toward targets, related company policies, actions taken to identify, monitor, prevent, mitigate, and remediate any actual or potential adverse impacts related to the matters in question, the result of these actions, and any relevant metrics.
– Governance. This includes disclosure of diversity and skills to manage material sustainability matters at senior levels, how oversight is operationalized, whether there are dedicated controls and procedures applied to the management of impacts, risks and opportunities, how these are integrated with other internal functions, and how all of the above are factored into executive compensation.

General standards	Environmental standards	Social standards	Governance standards
1 – General requirements 2 – General disclosures	E1 – Climate change E2 – Pollution E3 – Water and marine resources E4 – Biodiversity and ecosystems E5 – Resource use and circular economy	S1 – Own workforce S2 – Workers in the value chain S3 – Affected communities S4 – Consumers and end users	G1 – Business conduct

How will they affect Canadian companies?

While the CSDDD will take longer to implement, the CSRD has already been enacted.  Unlike the CSDDD,  its scope provisions are wide, however, reporting obligations will be gradually implemented over the next five years (see Figure 2 below). It is anticipated it will eventually affect approximately 50,000 EU based companies, and around 10,400 foreign based companies directly, of which roughly 3,000 are American, 1,100 are British and 1,300 are Canadian. Indirectly, it will affect many more. Even if businesses do not have direct obligations under the CSRD they may still be asked for related disclosure by EU-based corporate customers, suppliers, lenders, and investors because the ESRS require companies within scope to report on human rights due diligence practices for their entire value chain.

Figure 2 provides a snapshot of the gradual implementation of CSRD obligations for non-EU based companies. Large Canadian entities who already report under the Non-Financial Reporting Directive (NFRD) and are listed on an EU regulated market will be required to disclose in 2025. Resources to help you understand which and when non-EU companies will be accountable under the CSRD can be found here.

Companies that have already implemented voluntary practices that align with the UNGPs and or OECD Guidelines will have an advantage with respect to ESRS. They will have processes in place to detect and understand their most significant, and therefore material, impacts as well as their obligation to prevent, mitigate, and remediate adverse impacts from business activities in addition to status quo financially material issues.

Already, some Canadian companies that are not directly within scope of the CSRD have begun implementing such practices to varying degrees. For example, certain Canadian miners with a large global footprint and as suppliers of the raw materials used in the manufacturing of a wide array of essential goods around the world, including by customers in Europe, are getting ahead of regulation by developing public policy and implementing practices aligned with the UNGPs. This sector in Canada appears to be leading in its understanding of the long-term implications of Europe’s new and robust sustainability regulation on future growth prospects and subsequently, for business practices. But there is still a lot of work to be done to ensure accountability. Investors can play a role.

Figure 2:  CSRD reporting for non-EU companies:  What you need to know.
Note:  Net turnover threshold was increased from €40 to €50 million.  Non-EU parent companies of EU listed or based subsidiaries must provide consolidated ESRS aligned disclosures.

---

CSRD non-EU scope requirements will evolve over 4 years

Disclosure due in 2025 for FY 2024:
Large non-EU companies (more than 500 employees) with securities listed on an EU-regulated market (with the exception of micro-enterprises).

Disclosures due in 2026 for FY 2025:
Large* non-EU companies listed on an EU-regulated market.

Disclosures due 2027 for FY 2026:
Certain non-EU small and medium sized enterprises (“SMEs”) listed on a regulated market in the EU.

Disclosure due in 2029 for FY 2028:
Non-EU companies that have net turnover in the EU > € 150M for prior 2 consecutive years

Non-EU company that has a subsidiary in the EU that is either listed or considered a ‘large’ undertaking.

*Large as per CSRD is exceeding two of the following three metrics on two consecutive annual balance sheet dates:

– Total assets of €25M
– Net revenue of €50M
– Average 250 employees or greater

NOTE: Non-EU parent companies of EU listed or based subsidiaries must provide consolidated ESRS aligned sustainability reports. There are also a number of reporting exemptions for non-EU companies reporting under different regimes, however, these haven’t yet been finalized.

---

Why and how investors should encourage portfolio company alignment now

By May 31, 2024 a broad swathe of Canadian companies and institutions are required to report on      their efforts to prevent and reduce their risk of using forced or child labour directly or in their supply chains, as per Canada’s newly enacted Fighting Against Forced Labour and Child Labour in Supply Chains Act. While this act is a mere drop in the bucket compared to the depth of Europe’s mandatory human rights and environmental due diligence accountability regime, companies can use it as a prime window of opportunity to ready and test their human rights-related policies, processes, and oversight mechanisms in case they need to report under CSRD or as part of a supplier or service provider of a company reporting to CSRD.  Where to start? Voluntary commitment to and adoption of the UNGPs.

In early 2023 BMO Global Asset Management published a deep dive research report that found that Canadian companies are in early stages of readiness for alignment with the UNGPs. Canadian companies make decent voluntary policy commitments but can improve on implementing human rights due diligence. Given that the ESRS, which makes the UNGPs and human rights due diligence mandatory, is an indication of the future direction of travel of what will be considered the highest bar in a global marketplace, investors can help Canadian companies maintain their competitiveness.

Investors can encourage best practices through:

1) Education (if not already aware) on international human rights standards (such as the International Bill of Human Rights, UNDRIP, and others) and frameworks for human rights due diligence (UNGPs and OECD Guidelines).
2) Development of investor human rights policies that set clear expectations for alignment with international human rights standards and frameworks in investment decision making and investee company practices.
3) Development of systematic investor human rights due diligence procedures to implement policy commitments on human rights and ensure investors do not contribute to adverse impacts.
4) Engagement with investee companies on human rights policies and practices e.g., asking companies what their most significant positive and negative impacts on people and planet are throughout the value chain and what they are doing to prevent and mitigate negative impacts.
5) Communicate investor expectations to investee companies and use investor leverage to encourage adoption and implementation of practices that align with international human rights standards and frameworks that will simultaneously help future-proof companies against the EU’s new robust sustainability regime and any other similar regulations in other regions that may evolve over time.

---

Contributor Disclaimer

This communication is intended for informational purposes only and is not, and should not be construed as, investment, legal or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individual’s circumstances. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Past performance does not guarantee future results.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

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.

Companies offering multi-class shares with unequal voting rights have recently garnered renewed debate and interest from investors and market participants. In April 2023, the S&P Dow Jones Indices reopened certain indices to companies with multiple share classes under certain circumstances, a reversion from its 2017 decision to bar such companies from inclusion. Among Russell 3000 companies excluding the S&P 1500, there has also been an increased number of companies with unequal voting rights in recent years. “Between 2019 and 2022, the percentage of Russell 3000 companies excluding the S&P 1500 with unequal voting rights increased from 11.2% to 15.7%,” according to a report from Institutional Shareholder Services, a leading proxy advisory firm better known as ISS.

As of 2023, ISS and Glass Lewis, another leading proxy advisory firm, both have policies within their proxy voting guidelines which hold company directors accountable if a company employs a common stock structure with unequal voting rights in certain markets. While the market has swayed back and forth on the case for unequal voting rights, investors generally prefer following the one-share, one-vote principle.

Engagement as Independent Minority Shareholders in Controlled Companies with Unequal Voting Rights

There is an abundance of academic debate on ownership structures and shareholder returns, including arguments for and against the merits of founder- or family-controlled companies with unequal voting rights. However, there are certain challenges from an investor stewardship perspective for independent minority shareholders.

Issues of corporate governance, including minority shareholder rights, are often intertwined with environmental and social controversies, as many of these issues require the oversight afforded by good governance structures, which includes boards being able to respond effectively to shareholder concerns as represented by shareholder votes. Where votes are controlled disproportionately, most likely by founding executive officers who also wield significant and sometimes majority board influence through direct representation, companies might be less likely to respond to investor concerns on certain environmental or social issues. This is because the shareholder vote results, which invariably will be majority-supported and a reason used by some to legitimize the status quo, will not be reflective of independent shareholder voices when including control blocks. Even if such a company’s board is significantly independent (beyond majority), the prospect of the controlling shareholders’ votes being used to vote against and threaten an otherwise independent director’s election may discourage directors from expressing dissenting views.

This is one reason why unequal voting rights through multi-class shares are uniquely problematic: this setup could foster governance structures and boardrooms where the mandate of oversight gets lost to the certainty of success when it comes to voting outcomes. Investors who take issue with unequal voting rights among multi-class share structures have long advocated for their collapse or sunset, and some have begun to vote against the directors of such companies. However, if investee companies have not been responsive, and shareholder vote results are not very impactful given the controlled status of the vote, then it is equally important for investors to advocate for measures which ensure that independent shareholder voices are heard. This can occur by ensuring that boards have formal avenues for responding to independent shareholder concerns, irrespective of the capital structure of the company.

What Can Independent Minority Shareholders Do?

There are certain requests that minority shareholders can present to investee companies controlled via unequal voting rights in order to address the issue of inaction when it comes to problematic multi-class share structures. These actions are not meant to replace what other market participants have rightly been asking for. Rather, they serve to complement an investor’s existing actions on voting, engagement and advocacy.

An investor can ask investee companies how independent shareholder votes are considered at the board level, excluding the impact of controlling shares. Investors should know if the board is formally considering the impact of the independent shareholder votes in a timely manner. Investors should also understand if deliberations at the board level include discussions on how the company intends to respond to shareholder views expressed through their votes. A shareholder proposal receiving majority independent shareholder support or a director not receiving the requisite independent shareholder vote, despite receiving a majority of votes in support when including controlling voting blocks, should warrant and trigger the right discussions at the board level.

An investor can also ask investee companies to consider implementing and publicly disclosing formal policies, procedures or frameworks which outline how exactly the board intends to take independent shareholder votes into consideration. This should include how the board calculates and reviews vote results after an annual meeting and there should be clear directives outlining what happens as a result. Let’s say a company has a director elected via majority shareholder support inclusive of controlling shares but does not meet the requisite support levels when considering only independent shareholder votes. In that case, a hypothetical framework may be to assess the independent shareholder vote results at the board level, consider responsive actions within 90 days, if any, and/or disclose those details in the next year’s proxy statement.

These formal policies or procedures, which can be adopted and disclosed by company boards, will hold companies accountable to, at minimum, reviewing the independent shareholder votes. It will also allow investors to initiate conversations about the types of actions that have resulted from what companies said they would do versus what they have done. For shareholder proposals that made it to the vote, unless a substantially similar proposal is filed in the following year where companies choose to include such additional information about how their boards have been responsive in their company response statement, companies are not even obliged to disclose the outcome of any board deliberations, considerations or responsiveness actions. Therefore, the adoption of a formal policy or procedure and its disclosure could help companies standardize the ways in which they respond to shareholder concerns, relay information internally to the board and disclose relevant information to investors.

---

Contributor Disclaimer

The information contained herein is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance.

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

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 shift from Indigenous participation to Indigenous leadership through active influence and Indigenous equity investment in major projects in Canada has accelerated in recent times. This shift has been at the behest of unrelenting Indigenous work and leadership, and more recently supported by capacity maturity, collaborative government supports, and increased capital market interest. However, the full benefit of Indigenous ownership and participation is being realized creating greater value not only for the Indigenous nations that are involved, but also for the projects and surrounding economy as a whole.

A New Era of Indigenous Participation

Indigenous nations are recognizing that the value of equity participation in project development isn’t only in the revenues generated, but in the opportunity to gain valuable experience in the development process, in operations, and in policy and decision-making roles. Through this greater depth of engagement, Indigenous asset owners are seeing a maturity of capacity and building strong commercial and industrial experience that positions Nations for increasing leadership in subsequent developments. Active equity participation operationalizes governance for Indigenous decision-making at board tables to materialize into on-the-ground activities that directly impact the Nation membership they represent. Leaving behind the bare-minimum standard of a few short-term jobs for the Indigenous nation today has emerged as Indigenous equity ownership as leaders and decision makers in prime contractor selection and contract administration, including Indigenous procurement at every level of the supply and value chains.

Government interest and support in Indigenous economic reconciliation has played a role in the advancement of Indigenous equity participation. In Canada, governments have increasingly upheld Indigenous rights and established standards for Indigenous leadership in environmental and cultural impact assessment. Concurrently, they have created pathways to accessing affordable capital through mechanisms such as loan guarantee programs. By doing so, they have set a predictable and effective landscape for Indigenous nations active investment in project development. Innovations such as the loan guarantee program, first deployed by Alberta Indigenous Opportunities Corporation, are being emulated in other provinces, with also commitments from the Federal Government. These programs are what facilitate access to affordable, non-recourse financing solutions, which ultimately support Indigenous nations equity participation.

Unlocking True Value Through Indigenous Equity Projects

Capital markets, buoyed in confidence by the supports assured by governments in the form of Indigenous loan guarantee programs and other credit enhancements, have sat up and taken notice this shift in Canada. As industry’s literacy around Indigenous partnership grows, the competitive landscape is becoming one where the market’s keen interest is illustrated in the reducing costs of capital. Indigenous equity ownership in major projects are increasingly seen as not just ‘one way’ or ‘a good way,’ but as the ‘best-‘ or ‘only way’ to develop energy, net zero, infrastructural, or critical mineral projects in Canada. The confidence of capital markets translates through more competitive rates to higher profitability for Indigenous equity holders in those projects.

The full benefits that project equity can bring to Indigenous nations can only materialize when those Indigenous partners exercise their influence through active participation in project development. By not only being at the table, but having influence at all levels of decision-making, Indigenous equity holders can fortify developments with Indigenous values and fully realize the ripple effects of economic growth on the health and wealth of their Nation membership and beyond.

---

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.

Last year was full of accomplishments for the RIA, from the success of our first in-person Conference since 2019, to our global and local industry research, and convening with members in major cities across Canada. None of this would have been possible without the commitment and engagement of our members, which is why we conducted a comprehensive Member Survey to inform our strategic direction and set us up for an extraordinary 2024.

We’ve started the year with a focus on the RIA’s evolved strategy and plans to enhance our member experience. We will also be offering redesigned approaches to optimize online learning and look forward to increasing our voice in policy and advocacy work.

On February 26th, we will be in Montreal hosting an afternoon of French language discussions on economic reconciliation and responsible investment, followed by an evening cocktail reception. Later that week we will launch the 2023 RIA Investor Opinion Survey, examining Canadian investors’ attitudes toward responsible investing. This will be the RIA’s eighth annual survey of individual investors and it is based on data from over 1000 respondents across Canada. A presentation of the results will be available in both French and English.

In May, we will convene for the first RIA Conference in Vancouver since 2017 and are excited to meet members from across the country. The conference serves both institutional and retail markets, offering opportunities to network with industry leaders, hear from ESG specialists, and learn about the latest issues, trends and developments in the field. Previous RIA event speakers include industry change-makers, visionaries, policy makers, sustainability leaders, and practitioners, and we are excited to share this year’s lineup in the coming weeks.

Moving into the fall, we will welcome the global sustainable investment community for PRI In Person in Toronto, and look forward to hosting our Global Sustainable Investment Alliance (GSIA) colleagues in person. We will also deliver the third consecutive annual RI Trends Report, an important milestone in tracking the evolution and maturity of our industry.

We look forward to engaging with you and sharing exciting developments as the year progresses.