CEO of the Responsible Investment Association shares thoughts on ESG in Canada, greenwashing, and what's ahead for the industry
For years, responsible investing in the Canadian retail space was stuck in a holding pattern.
While Canadian investors have long expressed ESG interest in at least one firm, they have not always gotten support from advisors. Advisors, for their part, have shied away as they felt ESG mandates were too green and unproven in terms of AUM or performance.
“I think it’s fair to say that’s starting to change,” Dustyn Lanz, CEO of the Responsible Investment Association of Canada (RIA), told Wealth Professional in a recent interview. “Right now, my thesis would be that many advisors really turned a corner in 2020 as clients’ assets flowed into ESG funds at a record pace.”
2020 has proven to be an inflection point for ESG investment. In its latest annual fund industry report, the Investment Funds Institute of Canada (IFIC) said assets held in responsible investment funds grew by 55% in 2020, outstripping the 11% growth observed for the fund industry overall. Globally, ESG ETF assets nearly tripled, surging 223% to reach a new AUM record of US$189 billion, according to TrackInsight.
A new survey from Mackenzie Investments found that most Canadian investors are more likely to consider the positive impact of their investing decisions on society, with seven tenths agreeing that investing in a sustainable manner is increasingly important; one third of the survey respondents who currently don’t have sustainable investments said they plan to start in the next few years. In a separate study of Canadians conducted by Desjardins, 75% said that they would like to hear more about responsible investing.
“It’s all about what themes are resonating with clients,” Lanz said. “We’re hearing from our advisor members that clients are interested in big systemic issues.”
Climate change is one issue that’s proven close to Canadians’ hearts, as evident in cash flows going into cleantech funds and other funds focused on climate solutions. And because of social inequities that were exposed last year, diversity and inequality have emerged as another area for investors looking to make an impact.
“Many of our advisor members are keen to understand the difference between all of the products available on the market. It can be hard to keep up with all the product launches,” Lanz said. “That's why we hosted our first ESG retail product knowledge series in March, which had about 600 attendees hearing presentations from nine different asset management firms.”
As Lanz explained, many advisors’ conversations with clients on responsible investing are sparked by major news events. A story about a mass shooting, for example, often prompts investors to ask advisors whether they have exposure to gun companies in their portfolios. Similarly, climate-focused clients may also want to confirm whether they have exposure to fossil-fuel companies after seeing coverage of environmental devastation, rising sea levels, or other calamities that are attributed to androgenic changes in the earth’s temperature.
“Clients may raise concerns about greenwashing in the market,” Lanz said. “I think some of those concerns are legitimate, but it’s not as ubiquitous or malicious as some recent sensationalist headlines would suggest.”
The challenge right now, he noted, stems from a lack of common definitions. While there are different scoring and ranking systems already offered on the market, there’s no universally-agreed standard for responsible investment. In an effort to address that, the CFA Institute is working on a set of ESG disclosure standards for investment products, with an initial draft expected to be issued in May and a final version anticipated in November.
“I think that the standards that are going to come out from the CFA Institute are just going to be very crucial for promoting market integrity,” Lanz said. “Once those standards are finalized, we will include information about these standards in our education programs. We've actually partnered with Desjardins as well as Aviso to educate Canadian advisors on ESG, and we’re just in the process of partnering with one more institution. To date, we’ve engaged over 2,000 Canadian advisors in these efforts.”
Those efforts at engagement have only gotten more crucial over time. Data from the annual RIA Investors’ Opinion Survey, which the association has conducted for the past several years in partnership with Ipsos, has shown steadily growing interest in RI among investors. To help meet that growing demand, the association has developed resources to support advisors’ conversations around responsible investing – a client questionnaire to help them conduct structured conversations around ESG, for example – and it has plans to do even more.
“We’re planning to conduct a survey of 500 advisors to understand their perspectives on responsible investing, as well as some of the barriers to adoption,” Lanz said. “Based on that, we plan to develop a step-by-step practical guide for advisors to transition their business to responsible investing … I think it’s a very exciting time for ESG in the industry.”
