Pension fund assets make up 75% of responsible investing in Canada: report

More than a third (38 per cent) of assets under management in Canada incorporate a responsible investment strategy, up from 31 per cent two years ago, according to new research by the Responsible Investment Association.

Pension fund assets account for the majority (75 per cent) of the Canadian responsible investment industry’s growth over the past two years, having grown by $374 billion, or 45%, over that time.

A growing number of Canadian pension funds are signatories to the United Nations-supported Principles for Responsible Investment, according to the report, which notes this signals a commitment to incorporate environmental, social and governance factors into the pension funds’ investment decision-making and ownership practices.

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The signatories include the Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec, OPSEU Pension Trust, British Columbia Investment Management Corp., Alberta Investment Management Corp., Ontario Pension Board, Bâtirente and the Ontario Teachers’ Pension Plan.

The research looked at the assets of 14 Canadian pension funds that practice responsible investing, which account for the majority (79.4 per cent) of Canadian responsible investing assets. The two strategies favoured by these pension funds are ESG integration, which was applied to $1.19 trillion assets under management, and corporate engagement and shareholder action, which was applied to $1.04 trillion assets under management. Pension funds also reported applying a norms-based screening strategy to $778 million and negative screening to $356 million in assets.

The primary reasons institutional investors consider ESG factors are to manage risk and to fulfill their fiduciary duty, according to the report, noting this focus comes alongside Ontario’s new regulations requiring a pension plan’s statement of investment policies and procedures to include information as to whether ESG factors are incorporated into the plan’s investment policies and procedures and, if so, how these factors are incorporated.

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“In Canada and around the world there is a growing consensus among investors that information related to ESG issues such as climate change, human rights, diversity and corporate corruption is material for investment decisions,” said Deb Abbey, chief executive officer of the Responsible Investment Association, in a news release. “Systematically considering ESG factors is a component of accurate valuation and comprehensive risk management.”

The research also found that asset allocation in the responsible investment industry is similar to the association’s findings two years ago. Equities remain the predominant asset class, accounting for 40 per cent of the total. Fixed income is second again, with 27 per cent, while real estate is third with 11 per cent. Venture capital/private equity showed the most growth since the last report, with seven per cent of the total versus four per cent in 2014.

Survey respondents also said they’re very optimistic about the responsible investment industry’s outlook for 2017 and 2018, with 80 per cent saying they expect either moderate or high levels of growth over the next two years. This is a significant increase from the association’s previous survey, in which just 59 per cent of respondents expected moderate or high growth.

Read: Pension plans still grappling with ESG definition despite new rules