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At Davos, Canadian investment leaders set timelines for climate-friendly economy – The Tri-City News

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TORONTO — Two Canadian investment leaders endorsed a transition to clean energy at a virtual Davos World Economic Forum on Wednesday as more investors worldwide push for concrete sustainability commitments.

Former Bank of Canada governor Mark Carney said that politicians can help markets finance the transition to zero-emission economies by setting credible forward commitments. 

Canada’s carbon pricing plan is an example of a forward commitment, Carney said, since it would hike the federal tax to $170 a tonne by 2030 from $30 currently.

“I think we’re reaching the tipping point. The question is execution. How is that political will channelled?” said Carney, who was speaking in his capacity as United Nations Special Envoy for Climate Action and Finance.

He pointed to recent COVID-19 vaccine purchase agreements as an example of the power of putting political will behind contracts.

Carney, who is also vice-chairman at Brookfield Asset Management, said that financial and economic markets will adjust to future goals, such as upcoming bans of internal combustion engines in Europe. Carney pointed to his research with U.S. Treasury Secretary and former Federal Reserve chairwoman Janet Yellen, which suggested that markets will “smooth” out the carbon price hikes. 

“That’s what markets do best. And by the time you get to the point where the price is high, the economy has adjusted,” said Carney.

In a separate session, Ontario Teachers’ Pension Plan chief executive Jo Taylor said the pension plan tries to push its portfolio companies toward sustainability, rather than immediately divesting in carbon-intensive companies. The pension plan said last week it would commit to reaching net-zero greenhouse gas emissions by 2050.

“Through that engagement, rather than divestment, I think we can particularly push these companies to do a better job and actually provide some additional help and services in and around the world where they may not be immediately available,” said Taylor.

Carney and Taylor’s comments at Davos came as 61 global business leaders said at the forum they would begin using a standardized set of environmental, social and governance metrics and disclosures. 

Global investment firm BlackRock Inc. also said this week it would start giving “heightened scrutiny” to investments that posed a climate-change risk, calling for more company disclosures not only on climate change but also social goals such as equity, diversity and inclusion. In his letter to CEOs, BlackRock chief executive Laurence Fink said that between January and November 2020 there was a 96 per cent year-over-year increase in sustainable asset investments in mutual funds and exchange traded funds.

Carney said that as more governments sign on to net-zero pledges, it is “cascading down” to large pension funds, insurance companies and sovereign wealth funds. 

“We don’t often invest on our own, so what we need to do is also persuade other investors,” said Taylor. “Some of the investors we work with have a much more short-term view of what they’re trying to achieve.”

At a separate event at the Canadian Club of Toronto on Wednesday, business leaders made a similar case for businesses to boost diversity within their companies and support clean energy. 

“The pain points today are revolving around climate change, and we see what’s happening. It’s real. Sheets of ice are melting, the ocean water levels are rising, investors are paying more attention this,” said CIBC chief executive Victor Dodig.

“If we want to make sure that capital comes to Canada, we need to make sure that companies, the private sector — publicly traded companies and private companies — are focused on that. Because capital won’t come here otherwise.”

Dodig said that Canadian companies have among the strongest technology offerings worldwide for renewable energy, pointing to companies working in uranium and agriculture. But Rola Dagher, global channel chief at Dell Technologies, said business leaders must also do more in general to ease the anxieties that technology will be used the wrong way and cause job losses.

Richard Manley, head of sustainable investing at CPP Investments, said that while the energy industry has been “in a permanent state of innovation for a century,” it has yet to reach its full potential in confronting carbon emissions.

“We clearly are investing in technologies that will shape the greening of energy,” said Manley. “But at the same time, I think we’re very keen to support companies that are identifying the challenges of the transition, and a commitment to decarbonize and transition their businesses, to provide them the capital they require.”

This report by The Canadian Press was first published Jan. 27, 2021.

Anita Balakrishnan, The Canadian Press

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ESG investing has its faults, but here's what we can do to improve it – Winnipeg Sun

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Standardizing ESG reporting, and making it mandatory, would be a start toward reliable ESG investing

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“Scam” or “dangerous placebo” are some of the terms used by critics to denounce Environmental, Social and Governance (ESG) investing. Yet others see it as one of our last chances to pivot our financial world to a more sustainable and environmentally-friendly model.

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ESG, a form of sustainable investing, is increasingly being used as a measure of how well a company is using its investment money. For investors looking to instigate change, ESG scores help them decide if a company is worth their money.

Not a perfect system

ESG scores aren’t standardized, nor do all companies disclose their ESG standing.

This is despite ESG dating back to 2006, when the U.N. launched the Principles for Responsible Investment at the New York Stock Exchange. The initiative was backed by leading institutions from 16 countries, representing more than $2 trillion in assets owned at the time.

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ESG critics and optimists have called on the government to use its power to fine tune ESG metrics and finally standardize it, in order to give it more credibility.

ESG not what it seems?

In 2021, ESG investment saw issuance exceeding US$1.6 trillion, bringing its total market to more than US$4 trillion. Not only that, but Bloomberg expects ESG assets to exceed US$53 trillion by 2025.

Fierce critics like Tariq Fancy — who worked as the chief investment officer for investment management firm BlackRock before leaving in late 2019 — made headlines with his disillusionment over ESG’s true impact.

“That $4 trillion isn’t really $4 trillion,” Fancy said, in reference to the widely-circulated figure.

For Fancy, the “vast majority” of what’s happening is that companies are “recategorizing existing funds and moving money and shares around from one basket to another…

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“They’ve figured out that socially conscious investors will gladly pay more in fees for something with a ‘green’ label,” he said, adding that ESG funds have 43 per cent higher fees on average.

“Also, they don’t fund carbon capture and new innovations, for the most part they publicly overweight tech companies (Microsoft) and underweight oil companies (Exxon),” he added.

Also, regular investors mainly have access to secondary shares that are sold and purchased on a daily basis, which have little impact, argued Fancy.

“The changes we need immediately to flatten the [greenhouse gas] curve are collective actions led by the government — experts have been telling us this for decades,” he said.

As ESG investing rises, so do emissions

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Like elsewhere, Canadian ESG investment is increasing, but, again like elsewhere, the nation hasn’t reduced its emissions in the past year.

A March, 2022 report from the International Energy Agency said that global energy-related carbon dioxide emissions rose by six per cent in 2021 to 36.3 billion tonnes — a new record — as the world bounced back from the pandemic.

ESG does make a difference

Art Lightstone, climate activist and host of the Green Neighbour Podcast, acknowledges ESG has its critics. But for him, this class of investing is still making a difference.

“The fact that ESG investing has not only helped to launch several green tech companies, but also encouraged less socially-minded companies to compete in ESG spaces is now pretty much undeniable,” Lightstone said. “Tesla is invariably the best case in point. The amount of investment directed toward Tesla and other EV startups has been mind boggling.”

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While money can be moved from one shareholder to another, “that’s not where the story ends.” He cited the example of Tesla when it was “able to raise large amounts of capital [at market prices] with rather little dilution to its stock.”

“Tesla did this three times in 2020, and with that money they were able to build more factories, scale up their production, lower their per-unit costs, increase their profit margins, and therefore increase the economic viability of their entire operation,” he explained.

This expansion created a domino effect for legacy automakers such as GM and Ford, who are investing more in their electric vehicle programs.

Investing intentionally and collectively

Tim Nash, founder of Good Investing, a company with a goal to help at least one million Canadians invest intentionally, argues that informed decision-making can make the impact needed.

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“People spend more time choosing an avocado in the grocery store than they spend when choosing a mutual fund for their RRSP,” Nash said.

Instead, he urged people to think more about their portfolios and ways to diversify, including carving out part of their portfolios for investment just “for doing more good.”

“This is where we can invest part of our money into things like community bonds and impact investments,” he explained.

Community bonds, a debt financing tool, are issued by non-profit, charity or co-operative organizations. They allow these groups to take loans from community backers. The backers will eventually get paid interest for investing in an impactful project, while the organization enjoys access to capital.

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During the interview, Nash noted that he was located at the Centre for Social Innovation, a non-profit that owns two buildings in downtown Toronto.

“How does a non-profit own two buildings in downtown Toronto?” he asked. “Community bonds. That’s how they were able to access capital.”

Then there is also shareholder activism, and this is where Nash highlighted how shares that are publicly traded on a secondary market can be used as a powerful tool if used collectively.

“If I sell my shares, someone else is going to buy them. However, if enough people sell their shares that will impact a company’s cost of capital,” he said. “This is a very important metric when it comes to how a company operates.”

One example Nash cited as proof of effective shareholder activism is the increased cost of capital for fossil fuel companies. At the same time, there has been an unprecedented shifting of investment capital into greener energy.

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Better knowledge needed

The financial industry needs to delve into the environmental sciences, sustainability, and systems thinking to have a more well-rounded view on how to make a full impact, Nash says.

“I do think that a lot of the criticisms come from the financial industry, people who don’t have a background (in these topics),” he said. “ESG is a very broad concept… We need everybody rowing together in the same direction.”

While the government is in a position to lead, it’s still caught up in a four-year election cycle, he added.

“It’s even shorter if it’s a minority government, which we’re in right now,” he noted.

Time to start mandating metrics on ESG

Nash put the onus on the Ontario Securities Commission, which regulates companies listed on the Toronto Stock Exchange, to start mandating disclosures of ESG issues, as other regulators have done.

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For example, the SEC in the U.S. is focused on the climate aspect of ESG. It mandates that all publicly traded corporations publish their environmental compliance costs, and proposed new rules in March to standardize climate-related disclosures to investors. The rules would require businesses to disclose information about their direct greenhouse gas emissions, as well as the indirect emissions from the energy the business consumes.

In Europe, the trend tends to lean more toward the corporate governance aspect of ESG. Under the 2018 Non-Financial Reporting Directive of the European Union, companies are expected to disclose information on environmental, social, and employee-related problems, such as anti-bribery, corruption, and human rights performance.

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In Nash’s view, Japan is ahead of the curve with its Financial Services Agency actually mandating climate risk disclosure.

“Investors, I think, to some degree are demanding more data and information and disclosure than what governments are requiring,” he said. “This is an area where investors are asking tough questions and pushing that forward. That said, investors can ask, and companies get to decide how they respond. Many of them are responding in different ways.”

ESG optimists and critics alike want to see those regular investors emboldened to make the difference the world is waiting for.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Real Madrid Gets $380 Million Investment From Sixth Street Partners – BNN

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(Bloomberg) — Real Madrid Football Club is set to receive about 360 million euros ($381 million) from Sixth Street Partners, providing much-needed funds as its stadium undergoes an 800 million-euro renovation. 

Sixth Street will get the right to profit from certain operations at Real Madrid’s Santiago Bernabeu stadium for twenty years, the investment firm said in a statement on Thursday. The U.S. investor will get a 30% stake in the stadium operations and will receive revenues from all its activities except for season-sale ticket sales, according to a New York Times report. 

Real Madrid, which won its 35th Spanish league title last month, can use the funds however it sees fit, including to sign players. Real is the most successful European team of all time, with 13 champions leagues, and it is set to play the final that may give it a record 14th later this month.

The deal announced Thursday includes the Legends, an American sports and live events management company that’s partly owned by Sixth Street, and which has overseen Real Madrid’s retail business since 2020.

Real Madrid has been raising money to help pay for the ongoing refurbishment of its stadium, including a removable pitch that will allow the club to shift the grass surface into storage to host other revenue-generating events such as concerts or tennis matches. 

©2022 Bloomberg L.P.

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Advisors 'should consider alternative' investments regardless of what happens in the stock markets – The Globe and Mail

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This is the new Globe Advisor weekly newsletter for professional financial advisors, published every Friday. If someone has forwarded this newsletter to you via e-mail, or you’re reading this on the web, you can register for Globe Advisor, then sign up for this newsletter and others on our newsletter sign-up page.

The recent stock market downturn has advisors revisiting strategies that could protect investors from losing a chunk of their portfolios’ value. For some, the answer is alternative investments such as private equity and debt, real estate and infrastructure.

Institutional investors have invested in alternatives for decades, but they have become more accessible to retail investors through various funds in recent years.

Mackenzie Investments recently launched Mackenzie Northleaf Global Private Equity Fund, its fourth private markets offering in partnership with Northleaf Capital Partners Ltd.

Globe Advisor spoke with Michael Schnitman, head of alternative investments at Mackenzie, about alternatives and why advisors should be considering them as part of their clients’ portfolios.

What exactly are alternative investments?

Alternatives, at a high level, fall into three buckets: alternative strategies, meaning those that use shorting or leverage as tools for their investment approaches; alternative assets, which are non-traditional asset classes such as real estate and commodities; and private markets, including private equity, private credit, private infrastructure and specialty finance.

Why should advisors be incorporating alternatives into their clients’ portfolios?

We feel that it’s essential for retail investors to have access to private markets.

Alternatives are important because they can help dampen the volatility in an overall portfolio and they can extend the opportunity set for investors. They provide strong expected returns and lower volatility, untapped diversification and institutional quality management. Consider that publicly traded companies represent only about 2 per cent of global companies, which means 98 per cent of them are private. That in itself demonstrates the opportunity of private markets for retail investors.

What are the risks?

With any investment, manager selection is a risk. You have to look for managers who are experienced with a longstanding repeatable investment process and who know how to invest over different market cycles. There is also liquidity risk with private assets. You can’t get in and out of these funds on a daily basis.

How should advisors use alternatives in clients’ portfolios?

How they’re used depends on what their advisor believes is most appropriate for a client given their age and overall financial plan. Whether they should have more credit or more infrastructure or more equity – or equal slices of all three – that’s up to the advisor.

How should advisors use alternatives amid the current stock market downturn?

Advisors should consider alternatives regardless of what they think will happen in the stock markets.

For example, if your view is that we’re in for high volatility and declining stock markets, longer term, then you want to be in private equity, which has always exhibited significantly less downside and lower volatility than publicly traded securities.

If your view is that this is just a blip, a short-term correction that will be followed by significant growth over the next nine to 18 months, then you also still want to be in private equity, but for very different reasons. If you believe stock markets are going to take off again, private equity has always exhibited hundreds of basis points of outperformance versus publicly traded indexes.

So, when you infuse private market strategies into an overall portfolio construction or asset allocation, you have a smoother risk profile.

This interview has been edited and condensed.

– Brenda Bouw, special to the Globe and Mail

Must-reads from Globe Advisor this week

Major asset managers want a bigger share of thematic ETF market

Thematic exchange-traded funds (ETFs), which have seen dramatic growth over the past decade in North America, are poised to explode in popularity in the coming years. These funds, which focus on market niches versus traditional industry sectors, have been the playground for smaller, startup firms. But giant asset managers now want a bigger slice of this pie. Shirley Won reports on the new trends that have resulted in products and what players like BlackRock Inc. plan for this space.

Top reasons why the CRA may review or audit tax returns

If the 2022 tax season is like most years, about three million Canadians will receive a notice from the Canada Revenue Agency (CRA) that their income tax returns are being reviewed. In most cases, the review will request supporting documentation for a specific claim, deduction, or income amount. But the CRA does conduct reviews according to an undisclosed scoring system that identifies returns with “the highest potential for inaccuracy.” Dale Jackson digs deeper into which scenarios would most likely grab the attention of the government.

How the automotive supply chain crisis is an opportunity

Collapses in the global automotive supply chain have spawned a crisis among carmakers, but experts say the same issue now represents a rare chance to get into the sector long-term. Gains in production efficiency, combined with pent-up consumer demand and the elimination of costly dealer incentives, have allowed automakers to expand profit margins and focus more production on higher-margin vehicles. Jameson Berkow reports on how investing in a phase of heavy contraction can reward investors when stocks outperform “wildly” in a recovery.

How to navigate the emotional minefield of transitioning the family cottage

For many Canadians, the family cottage is much more than a financial asset – it’s home to years of cherished memories and a much-needed respite from busy city living. Even asking the question – “What will we do with the family cottage?” – evokes powerful emotions from family members. Alexandra Horwood of Richardson Wealth breaks down why family dynamics, affordability, maintenance, scheduling and spouses all need to be considered when transferring the property to children.

Also see:

How runaway inflation is affecting the income needs of ‘FIRE’ adherents

How families can make the most of reduced child-care fees

Why the investment industry’s process of creating financial plans is backward

Reasons why the tech stock crash may be far from over

The crypto shake-out shows boring is back

What you and your clients need to know

Regulator rules PI Financial owner obtained loan fraudulently

Canada’s securities watchdog has found that Gary Ng, the former owner of PI Financial Corp. and a former co-owner of Bridging Finance Inc., committed fraudulent conduct with loans he used to finance the purchase of several investment advisory firms. The Investment Industry Regulatory Organization of Canada published a notice this week saying a penalty hearing for Mr. Ng is scheduled for May 27. Clare O’Hara and Greg McArthur report on the fallout from the case.

How to control your emotions as markets tumble

Perhaps the most important part of investing is being able to manage your emotions. When markets aren’t in the news, we rely on our brains. When markets are flashing red, our stomachs can take over. Preet Banerjee of Wealthscope shares mental scripts and examples to help manage emotion and stick to your investment plan.

Regulator to tighten mortgage-HELOC rules to curb rising debt

The trendiest type of home equity line of credit is in the crosshairs of Canada’s banking regulator, which is looking to curb risky borrowing as rising interest rates put added pressure on heavily indebted homeowners. The product under scrutiny is the readvanceable mortgage – a traditional mortgage combined with a line of credit that increases in size as a customer pays down the mortgage principal. James Bradshaw and Rachelle Younglai explain why the regulator is keeping a close eye on this combined loan program.

– Globe Advisor Staff

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