While divestment has been a buzzword as some investors look to make a social statement, the new frontier will instead be impact investing as responsible investing becomes more mainstream, according to a panel of experts at the Responsible Investment Association’s conference in Toronto this week.

Investors are recognizing that pure divestment doesn’t fully solve the problem, said Trish Nixon, director of investments at CoPower Inc., a Toronto-based online marketplace that facilitates investments in clean energy infrastructure. Investors, she told a session at the conference at the Hyatt Regency Hotel on Monday, are starting to look at which companies will actually address the various environmental and social problems.

Impact investing, in which investors actively seek out companies that create a positive change or match their values, is expected to reach US$2 trillion globally by 2025, according to the Responsible Investment Association. In Canada, impact investments made up $4 billion of responsible investments in 2015, with that number expected to grow to $30 billion by 2023.

Read: Divestment isn’t enough to fight climate change

The trend is evident in “the amount of competition we’re seeing from transactions,” said Catherine Storey, vice-president of Renewal Funds, a social venture capital firm that invests in early-growth stage companies in Canada and the United States. Previously, the company faced little competition during early-stage funding for organic food and environmental innovation companies, said Storey. It now encounters “three to four venture firms, angel funds or private capital,” she added.

In addition to investing in companies that align with their values or buying green bonds for projects that carry environmental benefits, investors can also funnel capital towards certain communities, said panellist Catherine Banat, an institutional portfolio manager at RBC Global Asset Management. It offers that type of investment fund through a subsidiary, Access Capital, that provides investors with mutual funds with a socially responsible mandate. “You see the results of where your dollars are going,” she said.

Read: Canadian pension funds rank poorly on climate change: report

Many pension funds in Europe and the United States are engaging in impact investing, but Canada’s pension funds haven’t been as quick to follow suit, according to a 2014 RBC report on social finance. Another survey, published in 2012 by the Social Investment Organization, showed that while Canadian pension funds hold $532.7 billion in socially responsible investments, they’re not impact investments.

A reason for the hesitance may be that investment managers fear impact investments don’t meet pension plans’ fiduciary responsibilities, according to the RBC report. However, it noted that many large public pension funds have since adopted responsible investment policies.

For instance, during another session at the conference, Julie Cays, chief investment officer at the Colleges of Applied Arts and Technology Pension Plan, said that when she joined the fund’s management team in 2006, there was no responsible investment policy. That has changed in recent years, and while the pension plan doesn’t select companies based on their social practices, Cays said it does discuss environmental, social and governance risks and factors among its investment managers and trustees.

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

The conversation is just starting as responsible investing moves to the mainstream, noted Katharine Preston, senior manager of responsible investing at OPTrust, during the same session. The pension plan included environmental, social and governance factors when it established its investment beliefs in 2015.

For now, impact investing remains a trend in the private markets, according to the Responsible Investment Association’s 2015 investment trends report. It showed 95 per cent of impact investments are in private debt and equity, while only four per cent are in public debt and equity. “There’s still a big hole in the public equity space and a lot of room for innovation,” said Storey.

Read: Ontario plans tout ESG progress at responsible investment conference

Copyright © 2019 Transcontinental Media G.P. Originally published on benefitscanada.com

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John Horwood:

Impact investing has a lot more to it than just climate change.
And its not all about shareholder activism. I see tons of really interesting “Change the World” projects that can’t get funded.

Wednesday, June 08 at 11:41 am | Reply

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