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

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More Canadians are thinking about a sustainable future, which includes their investment choices.

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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Investment industry faces widening skills gap around big data and ESG – The Globe and Mail

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This is the weekly Careers newsletter. If you’re reading this on the web or someone forwarded this e-mail newsletter to you, you can sign up for Globe Careers and all Globe newsletters here.

Radhika Panjwani is a former journalist from Toronto and a blogger.

The investment industry in Canada has a somewhat vexing problem.

It will need to retrain and reskill – with some sense of urgency – a sizable cohort of midcareer, and middle-aged workers, and nudge them into the age of technology.

“There has been a disruption in the industry, especially with respect to a demand and supply gap in skills,” says Viveck Panjabi, 32, a research associate at National Bank Financial. “The recent trends I have noticed across the investment management industry have been around Fintech, blockchain, machine learning and environmental, social, and governance (ESG). In the next five years, I believe fund managers and investment management firms will pivot more toward ESG-centric companies and look to integrate more of clean energy stocks as a percentage of their portfolios.”

When there’s sufficient data around ESG, these are integrated into the investment process.

Mr. Panjabi works in sell-side equity research covering 16 publicly listed companies on the Toronto Stock Exchange focused on the sustainability and cleantech sector, and he admits big data technologies will soon become an important driver.

Mr. Panjabi’s observances are in line with the findings of a CFA Institute report, which says the largest gaps between interest in learning and supply of expertise is in the area of emerging technologies in Canada. The sector needs tech-savvy professionals comfortable around artificial intelligence (AI), machine learning (ML) and decentralized finance. Also, Canada needs investment professionals who are adept at analyzing data related to future pathways for getting Canada to net zero by 2050, but their numbers are small.

No greenwashing, just facts

“ESG has introduced a level of complexity into investing that I haven’t seen before in my career,” noted a CFA Institute expert who was surveyed. “That complexity comes principally from two sources: the values introduced and the materiality differences by sub-sector. It is the latter source that introduces the opportunity for a skill-based investment approach.”

Sustainable investing is built on the idea that ESG/climate considerations are significant to both investors and society and that we need to develop sustainability accounting for both purposes.

But to incorporate ESG/climate into the investment industry, the sector will need to develop and refine the skills and abilities of its work force. It will not only need new talent, but may have to create new learning pathways for its current workers.

AllianceBernstein, a New York based global asset management firm, in partnership with Columbia University established a Climate Change and Investment Academy. The academy delivers climate-aware investing learning for its clients and partners so they are aware of the science of climate change and its impact on investment decisions.

T-shaped skills

More than a third of CFA Institute members surveyed acknowledged their roles would be significantly altered over the next five to 10 years. And the biggest disruptive factors will be new analytical methods, including AI and ML.

“The good news is that most investment roles are going to be changed in an interesting way because you will have data feeds that are much more reliable,” noted Rebecca Fender, head of strategy and governance for Research, Advocacy and Standards at CFA Institute and lead author of the report. “As a result, professionals will have more time to do in-depth analysis.”

Soft skills such as the ability to influence, persuade, manage time effectively and communicate remain critical. Hiring managers said finding candidates with T-shaped skills remains an ongoing challenge. ‘T-shaped skills’ refers to qualities that make an employee valuable. The vertical bar in the ‘T’ represents deep subject matter expertise, while the horizontal bar is the ability of that individual to connect to cross-disciplines and bring it all together.

Road ahead – training, reskilling

Fewer than half of survey respondents in the CFA Institute report said they receive support from employers to develop the new skills they need. And that may be the stumbling block to introducing reskilling initiatives. Reskilling appears to be the antidote for the skills gap.

In 2018, Guardian Life, a U.S. insurance company, partnered with General Assembly to create a data science curriculum and gave the actuaries on its payroll time away from work to learn.

Similarly, Verizon’s upskilling program offers free technical and soft skills training to its employees. The program was developed in partnership with Generation USA, a non-profit. The 10-to-15 week online programs are for roles including cybersecurity analyst, IT support specialist and junior cloud practitioner.

Investment bank JP Morgan has earmarked more than $350-million for its upskill plan, New Skills at Work. As part of this plan, the company will spend $200-million to train people for new, in-demand tech jobs; invest some $125-million to improve existing training courses through community colleges; and it will direct $25-million toward research initiatives to understand current and future labour market trends.

“One of the things that’s interesting when you compare our 2017 report to the current one is that there were a lot of skills that people were thinking of acquiring, but in the last few years we have seen more people take action,” said Ms. Fender. “The action to aspiration ratio has changed and that’s good.”

What I’m reading around the web

  • A recent Microsoft Work Trends Index 2022 report found the average Microsoft Teams user now sends 42 per cent more chats per person after hours. And weekly meeting time has increased 148 per cent since February, 2020. Some key findings are employees have now found a new “worth it” equation; managers are caught between leadership and employee expectations.
  • In this article Sam Dogen, 45, an investment professional, shares how he negotiated a severance package with his employer in 2012 and decided to retire, thanks to income from his rental properties, stock dividends and e-book sales. But one year into it, he realized a life of leisure wasn’t for him. Today, Mr. Dogen considers himself a “fake retiree” because he now takes on side-hustles to fill his time.
  • A study by the Oxford Internet Institute of 39,000 video gamers found “little to no evidence” that time spent playing affects their well-being. The results contradict a 2020 study by the same department, but with a smaller test group, which suggested those who played for longer were happier. “Common sense says if you have more free time to play video games, you’re probably a happier person,” said Professor Andrew Przybylski, in a BBC News article. He worked on both studies. ”But contrary to what we might think about games being good or bad for us, we found [in this latest study] pretty conclusive evidence that how much you play doesn’t really have any bearing whatsoever on changes in well-being.”

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UK's government investment fund largely backed 'zombie businesses' – Financial Times

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The UK government’s Covid-19 venture capital fund has been mostly invested in what one director overseeing the portfolio called “zombie businesses”, leaving it with “a significant tail of dormant companies”, according to documents seen by the Financial Times.

The Future Fund, a £1.1bn portfolio set up by then-chancellor Rishi Sunak and managed by the state-owned British Business Bank, invested in 1,190 mainly early-stage companies at the height of the coronavirus pandemic.

Minutes of a BBB audit committee meeting in June 2021, seen by the FT, reveal that Dharmash Mistry, a non-executive director, said that “most of the companies in the [Future Fund] portfolio had . . . limited chance of growth to a sufficient scale for success” and would therefore become “zombie businesses”.

Minutes from a BBB audit committee meeting in February 2022 included a warning from Mistry, an experienced early-stage investor with several non-executive positions, that the portfolio was “likely” to have “a significant tail of dormant companies and it would be helpful if this could be signalled in advance to manage expectations”.

The minutes also reveal that the BBB initially assumed in March 2021 that the probability of default by the companies that received Future Fund convertible debt from the government was 54 per cent.

The scheme, which was open to applications from May 2020 to January 2021, matched funding of up to £5mn raised by companies from third-party investors if they met certain conditions. The government did no commercial due diligence, but relied on the judgment of co-investors.

The Future Fund was aimed at not-yet-profitable businesses which were not served by other government Covid support programmes. Sunak said in May 2020 the fund would help “to power the growth and innovation we will need as we recover from this crisis”.

But the BBB audit committee minutes from June 2021 record Mistry as saying the open process for Future Fund applications created “natural adverse selection”.

The scheme attracted companies who wanted “either to accumulate as much funding as possible because prospects were excellent, or because funding could not be obtained through other investment channels”, the minutes quote Mistry as saying. Mistry did not respond to a request for comment.

A spokesperson for the BBB said: “Due to the early-stage nature of venture capital investments, write-offs are relatively high, with financial returns driven by a number of high-performing outlier companies.”

The BBB highlighted data published by Horsley Bridge, a private equity investor, showing that typically more than half of early-stage investments made a loss. More than 60 per cent of returns came from just 6 per cent of investments.

While the government has sought to highlight technology investments by the Future Fund, it has also attracted attention for backing some unusual businesses, including a jazz-streaming service, a cannabis products company and a hedonistic party planner.

Funding took the form of a three-year convertible loan — debt that the government may convert into equity when companies next raise private investment. So far, BBB loans to 400 companies have been converted into shares.

The BBB spokesperson said: “Given the convertible loans are designed to convert into equity over three years, it is encouraging that a third of Future Fund companies have now gone on to raise further private-sector capital.”

In cases where businesses are unable to raise new investment, they can be required to repay their Future Fund loans at a premium, an issue that will become more acute as companies hit the end of the three-year term.

In February 2022, the minutes of the BBB audit committee record one official warning that “the probability of default [for companies yet to convert] would increase . . . as we came closer to the first maturity in June 2023”.

These concerns were expressed prior to a BBB warning in June that tech valuations were falling, at a time when the UK economy appeared more robust than now.

Demanding full repayment of BBB loans could mean insolvencies among businesses the Future Fund was intended to support.

The BBB audit committee minutes were released under a Freedom of Information Act request. Officials had marked certain passages for redaction on the grounds that they could harm the commercial interests of the bank or its partners. However, officials neglected to remove the redacted text from the document prior to release.

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Despite Bold Investment, Only Gavi Has The Messi Qualities Barcelona Craves – Forbes

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If you minus the squad investment controversy, and the need for Barcelona to reestablish itself as king in Spain and Europe again, there is another dimension to its sizeable summer transfer spending. It’s still trying to plug an 18-year-old gap: Lionel Messi’s time in the Blaugrana first team.

18 years. That’s the age of perhaps its most valuable young player: Gavi. For all the talk of striker Robert Lewandowski, defender Jules Koundé and the other major Camp Nou signings, it’s the young Spanish midfielder set for arguably the defining spell at the club. It should determine whether he and Barcelona come of age.

Going by some indicators, Gavi already has. So far, Barcelona has fended off any interest in him, with Liverpool among the European heavyweights supposed to have eyed the teenager, whose liveliness and trickery have captured many people’s imagination.

Where he wishes to play is still anyone’s guess, with some rumors that a highly anticipated contract renewal depends on whether another player, Manchester City playmaker Bernardo Silva, becomes yet another blockbuster addition. That is despite it not yet registering signings with La Liga. In any case, the idea that Barcelona could make him second fiddle to the Portuguese could be a dealbreaker for the academy graduate. As good as Bernardo is, his employer would do worse than listen to its talent, as his stock at 18 indicates just how precious a player he is, even now.

Barcelona, though, is under pressure. Failure to turn big dollars—also spent on Vegas clásico match-winner Raphinha—into success quickly could see the board flailing around even more next year. While everyone has to pull their weight, if Gavi makes the telling difference from midfield, that will tell us a lot about him and Barcelona moving forward.

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Holding onto him and similarly revered Pedri is more vital than ever. If this spending operation doesn’t work out, it will need to—at least—have its young stars committed to the longer-term project. Sportively and commercially, they could prove trump cards in the future, with their marketability and commercial value likely to boom in the coming years, as Messi’s did.

Keeping these players happy and, crucially, ensuring it can afford to keep them—which finally snapped with Messi—will mean it has two valuable assets down the line. As the Financial Times cited, 19-year-old Pedri is the CIES Football Observatory’s fourth-most valuable player worldwide.

Gavi is not Messi and never will be. Nor will anyone, for that matter. But on previous evidence, Barcelona benefits from players in the Gavi mold—agile, precise passers and tricky to dispossess when on the ball. Barcelona must keep a successful Gavi at all costs, assuming its curious financial operations and La Liga’s vigilance permit it.

That’s especially pertinent when you consider the man nurturing him pitch-side. Xavi perfected the same central midfield role during Barcelona’s golden days, understanding the position inside-out. Despite his lack of experience coaching in Europe, one key benefit to recruiting Xavi was his tactical nous and appreciation of the game—clear to see during his playing days at the team he now manages.

At a juncture when Barcelona is selling more of itself for short-term gain, the diminutive teenager epitomizes what many soccer romantics associate with the Blaugrana at its best—a side with a clear identity thanks to players in the Gavi-Pedri mold. Losing that would be a blow.

By no means has Barcelona deserted its youth during this mammoth spending spree. Ansu Fati, another promising Spaniard, is a cog in Barcelona’s plans and hopes for an injury-free run when the action resumes. Nico González, who accrued more experience last campaign, is another.

But if Barcelona’s business hasn’t finished, it risks impulsivity over sustainability. Barcelona’s seasonal acquisitions are all 25 or over and may be used as quick fixes, replacing a more considered plan. Get the balance right, and everything can click. Albeit a season-opening game, Lewandowski’s seller Bayern Munich is fresh off dismantling Eintracht Frankfurt thanks to a blend of top recruit Sadio Mané and—more so—its nurtured young midfielder Jamal Musiala. That’s the mix Barcelona needs.

For all the hype surrounding the fresh faces, there is no player like Gavi. And there is no closer imitation of Messi than the youngster either. And it’s timely, with a growing clamor for his return in some capacity. In the meantime, Barcelona should focus on recreating the Argentine’s spirit with the crop it already has. That’s not easy to buy.

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