The market share of responsible investment assets under management rose slightly in 2022, from 47 per cent to 49 per cent, even as AUM in general decreased, according to the Responsible Investment Association’s annual trends report.
The report tracks the national trends and outlook for responsible investing by surveying asset managers, including the Alberta Investment Management Corp., Bâtirente, the Canada Post Corp. pension plan, the Halifax Regional Municipality Pension Plan, the Investment Management Corp. of Ontario, the Ontario Municipal Employees’ Retirement System, the Ontario Pension Board, the OPSEU Pension Trust and the University Pension Plan.
Nearly three-quarters (74 per cent) of survey respondents ranked minimizing risk in their top three reasons for considering environmental, social and governance factors, followed by improving returns (61 per cent) and fiduciary duty (44 per cent). “Taking minimizing risk and improving returns together, responsible investors are emphasizing the opportunity to generate better risk-adjusted returns as a key motivation for considering ESG factors in their investment decisions,” noted the report.
This year’s survey also found a significant increase in the proportion of asset managers that ranked pursuing social or environmental impact in their top three motivations, from 20 per cent in 2022 to 31 per cent in 2022. In addition, respondents that use impact investing as a strategy are more likely (54 per cent) to rank fulfilling mission, purpose or values in the top three reasons they consider ESG in their investment decisions.
When asked which ESG factors are affecting organizations’ investment decisions, the vast majority (93 per cent) cited greenhouse gas emissions, up from 85 per cent in 2022. This was followed by board diversity and inclusion (87 per cent), climate change mitigation (84 per cent) and equity, diversity and inclusion (81 per cent).
Looking at corporate engagement and shareholder action, the survey asked respondents that practice corporate engagement to identify the top three most common ESG issues in their engagement program in 2022. The issues addressed remained relatively consistent compared to last year, with climate change/risk increasing its lead as the No. 1 engagement issue, cited by 79 per cent of respondents. This was followed by GHG emissions/net zero (75 per cent), diversity and inclusion (69 per cent) and ESG disclosures (64 per cent).
In addition, the percentage of respondents that report on their corporate engagement activities increased in 2022, from 73 per cent to 79 per cent in 2023. The percentage of respondents that report on the outcomes of their engagements also saw a significantly positive change over the last year, from 57 per cent to 73 per cent. Notably, among the subset of respondents that report on their corporate engagement activities, almost all (98 per cent) also said they’re reporting on the outcomes of those engagements.
The survey also found 57 per cent of respondents said they feel more confident about the overall quality of ESG reporting compared to last year. As well, 53 per cent of respondents felt more confident in the reporting of their own organization’s responsible investing AUM and specific responsible investing approaches. That percentage dropped to 42 per cent when respondents were asked about their confidence in the reporting of other organizations.
“As sustainability issues increasingly define investment risk and opportunity, the financial sector is codifying responsible investing practices, ramping up transparency and reporting and pushing for greater clarity and certainty,” said Patricia Fletcher, chief executive officer of the RIA, in a press release. “I am optimistic about the future of responsible investing in Canada and the opportunity to embrace the global momentum behind emerging tools — from disclosure standards to green and transition taxonomies — in ways that advance Canada’s priorities, including economic Indigenous reconciliation.”