Canada punches above its weight when it comes to responsible investing – The Globe and Mail

As investing with an eye on environmental, social and governance (ESG) performance becomes more mainstream, Canadians are emerging as world leaders in responsible investing (RI).

A study by the Responsible Investment Association (RIA) found Canada is tops in growth of assets under management (AUM) in this area among developed economies. The report revealed that AUM increased by 48 per cent in Canada between 2018 and 2020, higher than the growth rates in the United States, Australia, Europe and Japan. More than $3-trillion is invested sustainably in Canada, up from about $1-trillion in 2014.

A keen interest from pension funds is one reason why Canada has become a hot spot for RI, says Tim Nash, a fee-for-service investment coach specializing in sustainability at Good Investing Financial Planners Ltd., in Toronto.

“Canada has always punched above its weight due to our pensions, some of the largest in the world. Just about every one has ESG or sustainable investment principles,” Mr. Nash says.

The RIA reports that RI now makes up more than 61 per cent of all AUM in Canada. While retail investors account for a significantly smaller share: “The growth in Canada over the last half-dozen years has been nothing short of phenomenal,” says Stephen Whipp, a responsible investment specialist with Leede Jones Gable Inc., in Victoria.

He says the reasons for the popularity of RI have evolved over time. The first wave was driven by church groups and other ethical investors seeking to infuse their values into their portfolios. That led to the exclusion of sectors such as tobacco and armaments.

Mr. Whipp says climate worries are a recent driving factor. In an RIA survey, 85 per cent of Canadian investors expressed concern about climate change and the environment, and 78 per cent wanted a portion of their portfolio to be invested in companies that are providing solutions to reduce carbon emissions.

Mr. Whipp says early adopters among his clients sought to exclude oil and gas from their portfolios. But RI encompasses much more, including labour practices, board and C-suite diversity, and economic equity.

An Ipsos study from 2021 found that most Canadians are prioritizing sustainable living in their investment strategies. Two-thirds said ESG factors play an important role in helping them to decide their investment strategies and purchase decisions. Canadians between the ages of 18 to 34 (71 per cent) are more likely to cite the importance of ESG than those aged 35 to 54 (65 per cent) or 55 and older (60 per cent).

While there are demographic differences, Canadians of every stripe are turning on to RI, says Patti Dolan, portfolio manager and certified responsible investment adviser with Wellington-Altus Private Wealth in Calgary. That’s true even in oil country, she adds. Contrary to stereotypes, “there is a huge sustainability community here.”

Ms. Dolan says the energy industry, despite its challenges with greenhouse gas emissions, has been a leader in sustainability and ESG reporting. “Suncor was one of the leaders in sustainable reporting in Canada, so there is a real misnomer that Alberta is not part of this movement.”

As investors seek to reward strong ESG performers, Canadian publicly traded companies are becoming diligent about improving and sharing details about their practices. A 2021 report from Montreal-based ESG consulting firm Millani, for example, found that 71 per cent of S&P/TSX Composite Index companies have dedicated ESG reporting, an increase from 36 per cent in 2016.

These companies aren’t just doing it because investors demand it, Ms. Dolan says. Sustainability also makes sense for their long-term bottom line. “What I find is companies with really good ESG practices are more resilient.”

Studies have found links between ESG results and superior corporate performance and higher share prices. Mr. Nash says “smart money” in the form of institutional investors are employing sustainable strategies because they mitigate risks associated with climate change. “When you look at it through that lens, then obviously it adds value,” he says.

A broad swath of Canadian investors are seeing RI that way too.

“When I started in this business – and I didn’t have long hair in those days – it wasn’t uncommon for people to call me the ‘investing hippie,’” Mr. Whipp says.

Now, he adds, most Canadians call themselves “environmentalists,” and rising numbers want to move the needle on ESG with their investment choices. “Perceptions have shifted, and more and more people are asking me, ‘What can I do?’”

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