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Investment firms are shifting their businesses as interest in ESG rises – The Globe and Mail



The value of sustainable funds in Canada hit $18-billion at the end of the first quarter, a 160-per-cent increase over a year earlier, according to data from Morningstar Canada.

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This article is the fourth in a series on the challenges and opportunities in environmental, social, and governance investing, and the great divisions in the investment industry on the attitudes to, and acceptance of, this rising trend.

Investment fund companies are increasing their efforts and focus on sustainable investing to meet surging demand from investors who are increasingly concerned about climate change and social justice as well as to stay ahead of evolving regulations.

Specifically, these firms are making sustainability a pillar of their future growth by adding products and expertise around environmental, social, and governance (ESG) and revamping investment policies and procedures.

The numbers prove it. The value of sustainable funds in Canada hit $18-billion at the end of the first quarter, a 160-per-cent increase over a year earlier, according to data from Morningstar Canada. There were 156 sustainable funds at the end of March, up from 105 at the same time last year.

“It’s a huge boost in assets and it will continue to grow,” says Ian Tam, director of investment research at Morningstar Canada in Toronto.

NEI Investments Inc. and RBC Global Asset Management (GAM) continue to dominate this space, but Mr. Tam says firms like BMO Global Asset Management and Mackenzie Investments have moved up quickly in terms of assets under management.

As firms increase their market share in this area, they’re investing in ESG tools to help advisors analyze and devote more time and energy to these funds.

“The topic seems to be hitting the agenda of boardrooms and executive committees in most firms,” says Katie Walmsley, president of the Portfolio Management Association of Canada in Toronto, which represents 290 asset management firms in the country.

She says the focus has also evolved from mostly environmental to include the social and governance areas of ESG.

Specifically, Ms. Walmsley notes that firms are largely focused on three areas: developing ESG policies, using data to make ESG decisions, and finding the expertise to support broader sustainable investing initiatives.

“In the early days of ESG, it tended to be more on the public relations and marketing side of the business,” Ms. Walmsley says. “There’s still a role for that there in terms of effectively communicating the company’s policy, but it’s moved much more into the investment team and how do they incorporate that ESG thinking into their processes.”

Compliance and legal teams are also paying closer attention to ESG funds being launched and new strategies to ensure they meet the sustainability promise, she says.

Jennie Baek, partner and corporate securities lawyer at McMillan LLP in Toronto, who specializes in the investment fund and asset management space, says firms delving deeper into ESG need to be strategic and authentic as well as avoid any perception of “greenwashing,” especially in light of increased regulatory scrutiny in this area.

“A lot of firms are feeling this pressure to incorporate ESG or have an ESG response,” Ms. Baek says. “It’s not just about changing the name of your fund or marketing your ESG strategies – it’s about figuring out what you want to do in the space and then ensuring that you are actually doing it.”

How firms are devoting more resources to ESG

An example of how firms are boosting their ESG proposition can be found at Mackenzie Investments, which hired Andrew Simpson in April as senior vice-president portfolio manager from Vancity Investment Management. He will lead the firm’s newest sustainability-focused investment boutique.

The announcement came about four months after Mackenzie Investments acquired Greenchip Financial Corp., which specializes in environmental thematic investing.

Fate Saghir, head of sustainable, responsible and impact investing at Mackenzie Investments, says the firm is hiring more ESG analysts and other experts and plans to add to its current roster of seven ESG funds later this year – moves driven by increased interest from investors.

The firm is also boosting communication and education for the 30,000-plus advisors who sell its funds on how to talk to clients about ESG in a way that aligns with their goals and values.

“We’re still early in our journey,” she says. “We are 14 months in and we have a lot more work to do.”

Meanwhile, Vancity, considered a pioneer in the ESG space after having launched Canada’s first socially responsible investment mutual fund in 1986, is using its history and smaller size to make the transition to a responsible investment (RI)-only shop by early 2022.

Joe Reid, the credit union’s vice-president of wealth management and impact investing, says the organization is mostly there with its mutual funds and individual securities and is working on finalizing the move for its separately managed accounts.

As there are no national standards for ESG investments at this time, Mr. Reid says Vancity is basing its decisions on the framework from Canada’s Responsible Investment Association (RIA).

He adds that Vancity, which has about 121 advisors, doesn’t expect pushback from its members on the move to RI-only products given that many come to the credit union for its long history of sustainability measures.

“We don’t see it as limiting, we see it as … good business for our members,” Mr. Reid says, citing the growing research showing that sustainable investments often perform better than the benchmarks.

Dixon Mitchell Investment Counsel, a small Vancouver-based firm with 10 advisors, has opted to conduct all its own investment research as it has for all of its portfolio mandates over the past 20 years.

“We were not early adopters of ESG, mostly because we do all of our own work in-house. The idea of just taking ESG ratings for our companies, and relying on a third party to say they’re good or bad was not natural for us,” says Don Stuart, executive vice-president at Dixon Mitchell.

“Our firm realized how much of the industry was seeing [ESG investing] as a profit centre,” he says. “Current and prospective clients were also asking us more questions about how their investments could make a positive difference in the world.”

Mr. Stuart says the capital and desire for ESG are moving faster than the tools that are available and found that rating firms were giving different scores to the same companies.

“It occurred to us that if we wanted to, we could shop around and find a positive rating for virtually any of the names in our portfolios,” he says.

“We’ve always seen ourselves as a buyer of businesses, so we want to know the people running the ones we have a stake in. Right now, we feel like we know all of our companies and management teams better than we did before – some for better, some for worse.”

Meanwhile, BMO GAM has been adding to its ESG fund lineup aggressively; it has 11 exchange-traded funds and nine mutual funds in the space, says Ross Kappele, the firm’s head of distribution and client management.

The firm is also continuously educating its approximately 1,000 BMO Private Wealth investment advisors and investment counsellors on ESG issues and how to discuss them with clients, he says. (BMO GAM also sells ESG products to approximately 33,000 third-party advisors.)

Mr. Kappele says BMO advisors have been open to ESG education and many are requesting more tools and information to better educate themselves and their clients.

BMO also created its own MyESG self-assessment tool, which recently won an RIA award for market education. Through a series of questions, MyESG helps advisors determine a client’s ESG objectives and produces a unique investor persona that serves as a base for the decisions made for their portfolios.

“It can gauge how important ESG is to their clients,” he says. “It also challenges misperceptions and helps both advisors and clients understand their journey in terms of ESG education and knowledge.”

Adapting to evolving ESG trends

To be successful with ESG, Ms. Baek of McMillan says investment firms need to have the proper people, policies, and procedures in place to support their products and strategies – and stay on top of the constant changes in the sector.

She notes there’s a growing number of ESG-related frameworks, standards, regulations, and other initiatives being developed in Canada and internationally. They range from voluntary disclosure and rating systems to mandatory regulatory requirements that focus on topics such as disclosure, measurement, reporting, best practices, and guiding principles.

As this landscape develops, Ms. Baek says advisors need to consider how their ESG mandates will adapt.

“Firms need to look internally, but also look externally to ensure that they’re remaining competitive,” she says.

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A classic investing read for summer (psst … it’s free) – The Globe and Mail



Is there a good book you recommend for retail investors? I have read several that explain how markets and trading work, but I have found very few that discuss the strategies one should use to invest profitably. One of the hardest decisions I have is when to sell, since if I don’t have extra cash the only way to buy another stock is to sell something first.

As I discussed in a recent column, I’m not a fan of trying to create wealth by trading. Instead, I believe in building a diversified portfolio of solid companies, or exchange-traded funds, and holding them for the long run. Focusing on stocks that raise their dividends regularly has worked well for me, as a growing payout is usually a sign of a healthy company and provides a powerful incentive to stay invested instead of constantly trading in and out.

When I was starting out, one of the most influential books I read was Lowell Miller’s The Single Best Investment: Creating Wealth with Dividend Growth. It is an engaging and accessible read that will not only give you the tools to identify great dividend stocks, but will help you deal with the 24/7 onslaught of market noise that often leads small investors astray.

I’m not exaggerating when I say the book might very well change how you think about investing.

As Mr. Miller, the founder and now-retired chief investment officer of Miller/Howard Investments, writes in the book’s introduction:

“Investing isnʼt some athletic event where agility and flashes of virtuosity are the secrets of success. Rather, investing really is investing – the methodical accumulation of capital through a sensible and disciplined plan which recognizes that ‘shares’ are not little numbers that jump around in the paper every day.

“They represent a partnership interest in a real and going business. Your plan, very simply, must recognize that you will manage your investments by actually being an investor – a passive partner in a real and going business.”

Even though it’s a U.S. book and the latest edition was published in 2006, the principles are still relevant to Canadian investors. Here’s the best part: The book is now available as a free PDF download from Miller/Howard’s website at:

Prefer a hard copy? Check online or at your local library.

In The Single Best Investment, Lowell Miller writes that a company’s bonds should have a Standard & Poor’s credit rating of BBB+ or better – considered “investment grade” – to qualify as a suitable stock. Is the bond rating something you consider when buying a stock for your model portfolio? Is there an easy way to check this for individual companies in Canada? I have tried scrolling through lists of bonds in my brokerage account but I can’t seem to find bond ratings for individual companies.

Yes, I consider the credit rating when buying stocks personally and in my model Yield Hog Dividend Growth Portfolio ( A lousy credit rating indicates that a company could have trouble meeting its obligations, and in such cases the dividend is often the first casualty. For that reason, I usually stay away from companies whose bonds are rated as “speculative,” or below investment grade.

Mr. Miller’s minimum credit rating is slightly more stringent than the common definition of investment grade, which includes anything rated BBB- or higher by Standard & Poor’s. According to S&P, companies in the BBB family generally have “adequate capacity to meet financial commitments, but [are] more subject to adverse economic conditions” than those rated A, AA or AAA. (Fitch and DBRS use a similar letter rating system as S&P, while Moody’s defines investment grade as anything rated Baa3 or higher on its scale.)

(One exception to the investment grade rule in my model portfolio is Restaurant Brands International Inc., whose debt is rated BB by S&P. However, the agency recently upgraded the owner of Tim Hortons, Burger King and Popeyes to “stable” from “negative,” saying it expects a continued rebound in sales and profitability as the pandemic recedes and the company opens more franchised restaurants. So I’m comfortable giving Restaurant Brands some slack on its credit rating.)

There are several ways to find a company’s credit ratings. One is to check the investor relations section of its website. A Google search of “BCE credit rating,” for example, brought up a company web page with all of BCE Inc.’s bond, commercial paper and preferred share credit ratings from S&P, Moody’s and DBRS. BCE and other companies typically provide additional credit rating information and analysis in their annual reports.

Another option is to go directly to the credit rating agencies themselves. For example, the DBRS website – – lets you search for a company and read detailed reports about its recent credit rating changes or confirmations. This will give you an even deeper understanding of the company’s financial position and outlook. S&P and Moody’s also make credit reports available, but you’ll need to register to get access.

E-mail your questions to I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

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Condo Smarts: Existing condominium buildings can be good investment – Times Colonist



Dear Tony: We are retiring this year and considering downsizing to a condo. We have started looking at both new and existing properties around Vancouver and Victoria, but we encounter challenges with both options.

New developments are often available only through presales and the time periods for completion would require us to sell, rent until the property is ready, and with few assurances of completion dates would require us to move twice with no guarantees how the properties would be managed or how fees would be structured for long term operations.

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Existing buildings are more attractive; however, we find most properties are sold within days of listing, and there appears to be more of a concern by realtors to keep strata fees low rather than looking at the age of the buildings and the long-term maintenance to protect owner investments.

Are there any standards or consumer rules we might consider following? As new buyers into a condo lifestyle we would like to avoid a sinking investment.

Karyn and Jerry W.

There are many existing buildings and communities that are an excellent investment. They are easily identified by reviewing the financial reports, investments, a depreciation report completed by a qualified consultant or reserve planner, and by reviewing the minutes of the strata corporation to identify how they address maintenance, planning and funding for the future.

While every building has different amenities, staffing and servicing requirements, an annual budget that identifies all the service contracts for maintenance and operations is a significant asset. An active use of the depreciation report to plan for future renewals and major maintenance components is a healthy indication of a well managed property.

Low strata fees are problematic for strata corporations as they often indicate a community dependent on special levies. Special levies require a 3/4 vote of owners at general meetings and many owners vote against a special levies generally due to affordability issues. The result of failed special levies is deferred repairs that will only rise in cost and damages, and the potential for court actions or CRT orders.

There is also a direct link between low strata fees, deferred maintenance and renewals, and higher risks for insurers. This results in higher insurance rates and deductibles for strata corporations.

Buyers should always request copies of depreciation reports, any engineering and environmental reports, minutes of annual meetings, the bylaws and rules of the property, copy of the strata insurance policy, and a Form B Information Certificate, which will also identify any courts actions or decisions against the strata corporation. Read all documents and discuss any issues with your realtor and lawyer. This should help separate the well managed buildings vs the buildings at risk.

New construction in some ways is easier to manage as the strata corporation is enabled to make the right decisions that will impact funding and future operations. Owners can have a direct effect on their investments by joining and supporting the newly formed strata council and making decisions that ensure a well funded and planned operations plan.

Strata fees for new properties often start low in the first year as there are service contracts included with the new construction that are included in the warranty period and some developers will entice buyers with low costs. Plan on an increase of fees once all units are occupied and the strata corporation is fully serviced for operations and maintenance.

This may be impacted by insurance costs, staffing, and consulting for warranty inspections, legal services and the management of warranty claims, the commissioning of a deprecation report, and operational requirements.

Every building, which consists of endless components, will have failures. The effective management and planning of those issues when they arise is the true test of a well managed property. Product failures and installations are often beyond anyone’s control; however, a well funded property will also be able to respond without a significant crisis for owners.

Tony Gioventu is executive director of the Condominium Home Owners Association.

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Goldman and DWS prepare bids for NN Investment Partners – Financial Times



Goldman Sachs Asset Management and Germany’s DWS are preparing bids for NN Group’s investment management arm as consolidation in the industry gathers pace.

The Dutch insurer said in April it was considering a sale of NN Investment Partners, which has €300bn in assets under management.

The deadline for final binding offers is Monday. GSAM, which has more than $2tn in assets under supervision, and Frankfurt-based DWS are still in the sale process and preparing bids, said people familiar with the situation.

The deal price is in the region of €1.4bn, one of the people said. NN Group, GSAM and DWS declined to comment.

UBS Asset Management, Janus Henderson and US insurer Prudential Financial are among those to have previously registered their interest. All three declined to comment.

Investment managers globally are embarking on mergers and acquisitions designed to shield profits from rising costs and falling fees, while seeking to tap into fast-growing markets such as passive investing, private assets and ESG, and open up new distribution channels.

“The competitive environment for traditional active asset managers has intensified and a smaller group of larger players are now dominating the institutional segment,” said Vincent Bounie, senior managing director at Fenchurch Advisory, a specialist investment bank for financial services.

“It has become complicated to grow and very difficult to have a profitable business, in particular if you have undifferentiated plain vanilla products.”

Asoka Woehrmann, chief executive of DWS, which is majority owned by Deutsche Bank, told shareholders at the €820bn group’s annual meeting last month that it wanted to be “an active player” in industry consolidation. It is seeking further scale to challenge rival Amundi for supremacy in Europe.

Meanwhile for insurance companies, a prolonged period of low interest rates and higher capital requirements under Solvency II rules is prompting groups to weigh up where they allocate their capital, Bounie said. “For many of them, subscale asset management divisions are no longer core activities and there will probably be more divestments.”

NN Group, which is based in The Hague, came under pressure last year from activist hedge fund Elliott Management to improve returns and streamline its operations. It said in April it was considering options including a merger, joint venture or a partial divestment of the division.

NN Investment Partners has about 950 employees. Of its €300bn in assets under management, two-thirds is managed on behalf of its insurance parent company with the remaining third run for external investors.

The division’s range of funds covers fixed income, equity, multi-asset and alternative investment strategies. It has a strong position in ESG investing, notably in areas such as green bonds, impact equity and sustainable equity.

Additional reporting by Ian Smith in London

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