Figuring out how you should invest your money is no simple feat.
Now, there’s an extra wrinkle to take into consideration, with growing concern over “greenwashing” in the financial world.
The term is used to describe misleading information about a company’s environmental performance, and it has come into focus as people and governments pay more mind to the impact businesses have on the environment and society.
Corporations and investors are also increasingly considering risks associated with a company’s operations through an environmental, social and corporate governance (ESG) framework.
ESG-related risks range from the carbon footprint of a company, to its labour practices, to the diversity of its workforce.
“Interest in ESG factors, as part of investment decision-making, has clearly been increasing significantly over time,” said Alexander Dyck, a professor of finance at the University of Toronto.
But as authorities, too, turn more attention to ESG ratings and disclosures, debate is bubbling around whether these investments are exactly what they claim to be.
On May 31, German police raided Deutsche Bank as part of a probe into suspected greenwashing by its asset management firm. And more recently, the U.S. Securities and Exchange Commission began investigating similar accusations linked to Goldman Sachs.
In both cases, there are suspicions they overstated the extent to which their investments were driven by ESG principles.
ESG goes mainstream
The increasing interest in ESG is evidenced by the rapidly growing number of organizations who have become signatories of the Principles of Responsible Investing (UNPRI), a United Nations’ supported organization.
More than 4,000 investors have signed on to the UNPRI, with more than $120 trillion US in assets under their management. The UNPRI advocates for six principles of responsible investing, with the first being a commitment to “incorporate ESG issues into investment analysis and decision-making processes.”
There’s also a growing interest in sustainable investing among the public, and young people specifically.
According to the Royal Bank of Canada, their InvestEase business has seen a 56 per cent year-over-year growth in the number of “responsible investing” accounts. More than 50 per cent of the account holders are under the age of 35.
Different types of ‘sustainable’ investing
Sustainable investing is an umbrella term used to describe the different ways of taking into account non-financial factors in investment decision-making.
The most common approach is an integration approach, where ESG factors are taken into consideration in the decision-making of a company or the composition of an investment. This approach may tilt a portfolio in favour of investments that score higher on ESG.
Socially responsible investing (SRI) takes things one step further by excluding certain types of investments altogether, such as alcohol, tobacco or fossil fuel companies.
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Then there’s impact investing, where the goal of an investor is to maximize social good through their investment.
Taking an ESG-integration approach is the most common of the three, said Dyck, noting there’s usually a financial cost to excluding sectors or industries from a portfolio.
“[The] exclusion criteria is, I think, a little bit of a tricky path for most investors to fall on, because there’s almost inevitably a cost that you don’t fully understand,” he said.
How sustainable is sustainable?
One of the main controversies around ESG investments is how they are assessed.
Typically, investment managers decide which components of ESG to emphasize and those preferences will drive decision-making, said Diane-Laure Arjaliès, an associate professor at Western University’s Ivey School of Business.
“There’s a range of green and so … something that is ecological for you, may not be ecological for someone else,” she said.
Investment managers will often use ESG data that are developed in-house or by ratings agencies to make their decisions. But the ratings from one agency to another can differ, depending on the weighting of different ESG criteria, which is sometimes another point of controversy.
People often mistakenly assume that the purpose of using ESG criteria is to maximize social good, when, in reality, it’s a framework of assessing risk to a company, says Alexandria Fisher, a sustainable finance expert who has worked for institutional investors and government on ESG.
“There is a fundamental misunderstanding of what ESG ratings are — and I think that’s causing the tension,” she said. “They don’t provide an indication of really how the company is impacting the broader world.”
Last month, for example, Elon Musk called ESG a “scam” after Tesla ranked lower than ExxonMobil on ESG by S&P Global.
Exxon is rated top ten best in world for environment, social & governance (ESG) by S&P 500, while Tesla didn’t make the list!<br><br>ESG is a scam. It has been weaponized by phony social justice warriors.
But Fisher said Tesla’s low rating was no surprise for those from the ESG ratings field, because of concerns related to its overall social and governance performance.
“There’s a lot more discussion around climate risk right now and the environmental side, when governance and social are equally important to a company with such an extensive supply chain,” said Fisher.
A movement to standardize ESG
When it comes to individual investors, greenwashing is a big concern, Fisher said, because it’s difficult to do your own research and financial advisors aren’t always well-trained on sustainable investing.
“The biggest change we need is more transparency around the [ESG] information, as well as standardized information,” she said.
Standardized information might be on the way.
On Wednesday, the formation of the Canadian Sustainability Standards Board (CSSB) was announced, with plans to be operational by April 2023. The CSSB will work with the International Sustainability Standards Board to develop international sustainability disclosure standards.
These international standards will be voluntary, said Lisa French, vice-president of sustainability standards at the Auditing and Assurance Standards Oversight Council, one of the two groups that approved the CSSB. Whether they become mandatory would be up to securities regulators and legislators.
“What it does is it ensures that all companies are applying the same set of standards,” said French. “So they’re all asked to — or required to, if they become mandatory — report on the same elements and to use the same methods, metrics and methodologies.”
The development of disclosure standards would be beneficial for companies, ESG ratings agencies and investors, said French, as they would develop a level playing field.
“Having a structured way to approach sustainability considerations, particularly climate change — this is all good news for us as regular citizens.”
Tense diplomatic relations may not impact trade, investment ties between India, Canada: Experts
NEW DELHI: The tense diplomatic relations between India and Canada are unlikely to impact trade and investments between the two countries as economic ties are driven by commercial considerations, according to experts. Both India and Canada trade in complementary products and do not compete on similar products.
“Hence, the trade relationship will continue to grow and not be affected by day-to-day events,” Global Trade Research Initiative (GTRI) Co-Founder Ajay Srivastava said.
Certain political developments have led to a pause in negotiations for a free trade agreement between the two countries.
On September 10, Prime Minister Narendra Modi conveyed to his Canadian counterpart Justin Trudeau India’s strong concerns about the continuing anti-India activities of extremist elements in Canada that were promoting secessionism, inciting violence against its diplomats and threatening the Indian community there.
India on Tuesday announced the expulsion of a Canadian diplomat hours after Canada asked an Indian official to leave that country, citing a “potential” Indian link to the killing of a Khalistani separatist leader in June.
Srivastava said these recent events are unlikely to affect the deep-rooted people-to-people connections, trade, and economic ties between the two nations.
Bilateral trade between India and Canada has grown significantly in recent years, reaching USD 8.16 billion in 2022-23.
India’s exports (USD 4.1 billion) to Canada include pharmaceuticals, gems and jewellery, textiles, and machinery, while Canada’s exports to India (USD 4.06 billion) include pulses, timber, pulp and paper, and mining products.
On investments, he said that Canadian pension funds will continue investing in India on grounds of India’s large market and good return on money invested.
Canadian pension funds, by the end of 2022, had invested over USD 45 billion in India, making it the fourth-largest recipient of Canadian FDI in the world.
The top sectors for Canadian pension fund investment in India include infrastructure, renewable energy, technology, and financial services.
Mumbai-based exporter and Chairman of Technocraft Industries Sharad Kumar Saraf said the present frosty relations between India and Canada are certainly a cause for concern.
“However, the bilateral trade is entirely driven by commercial considerations. Political turmoil is of a temporary nature and should not be a reason to affect trade relations,” Saraf said.
He added that even with China, India has acrimonious relations but bilateral trade continues to remain healthy.
“In fact, bilateral trade is an effective tool to improve political relations. India must make special efforts to increase our bilateral trade with Canada,” Saraf said.
India and Canada have a strong education partnership. There are over 200 educational partnerships between Indian and Canadian institutions.
In addition, over 3,19,000 Indian students are enrolled in Canadian institutions, making them the largest international student cohort in Canada, according to GTRI.
According to the Canadian Bureau for International Education (CBIE), Indian students contributed USD 4.9 billion to the Canadian economy in 2021.
Indian students are the largest international student group in Canada, accounting for 20 per cent of all international students in 2021.
Benefits of educational partnerships are mutual and hence the current situation may have no impact on the relationship, Srivastava said.
Apple supplier Foxconn aims to double India jobs and investment
Apple supplier Foxconn aims to double its workforce and investment in India by next year, a company executive said on Sunday.
Taiwan-based Foxconn, the world’s largest contract manufacturer of electronics, has rapidly expanded its presence in India by investing in manufacturing facilities in the south of the country as the company seeks to move away from China.
V Lee, Foxconn’s representative in India, in a LinkedIn post to mark Indian Prime Minister Narendra Modi’s 73rd birthday, said the company was “aiming for another doubling of employment, FDI (foreign direct investment), and business size in India” by this time next year.
He did not give more details.
Foxconn already has an iPhone factory employing 40,000 people in the state of Tamil Nadu.
In August, the state of Karnataka said the firm will invest US$600 million for two projects to make casing components for iPhones and chip-making equipment.
The company’s Chairman Liu Young-way said in an earnings briefing last month that he sees a lot of potential in India, adding: “several billion dollars in investment is only a beginning”.
Taiwan election: Foxconn’s Terry Gou taps star-powered running mate
Last month, Foxconn’s billionaire founder Terry Gou said he would run for the Taiwanese presidency in next year’s election, as an independent candidate.
He said the ruling and independence-leaning Democratic Progressive Party (DPP) was unable to offer a bright future for the island and left Foxconn’s board following his decision to run.
The firm operates the world’s largest iPhone plant, in the city of Zhengzhou in Henan province.
Foxconn to double workforce, investment in India by ‘this time next year’
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