Responsible investment — integrating environmental, social and governance issues into investment selection and management — is becoming mainstream.
From 2012 to 2014, assets managed in Canada using one or more RI strategies increased from $600 billion to more than $1 trillion, says the Canadian Responsible Investment Trends Report recently released by the Responsible Investment Association. This robust growth represents a 68% increase in RI assets and accounts for 31% of all Canadian investment assets under management, the report shows.
Pension funds and RI strategies
The growth can be attributed to many factors, but Canadian pension funds adopting RI strategies is by far the biggest one.
Canadian pension fund mandates managed under RI guidelines grew by $288.57 billion from 2012 to 2014. And, at $821.27 billion, pension assets comprise about 80% of the $1 trillion being managed responsibly — an increase of 70% in two years.
The top RI strategy pension investors used was engaging with corporations they invest in on ESG issues. This strategy was used in managing more than 93% of Canadian RI pension assets surveyed. The top three engagement issues were executive compensation, human rights and greenhouse gas emissions.
Read: Responsible investing can lead to better returns
What’s driving pension investors? There’s no single factor, but it’s part of a global trend to manage material ESG risk.
The 2014 Global Sustainable Investment Review reports the global RI market increased from 21.5% to 30.2% between 2012 and 2014. The fastest growing region was the U.S., followed by Canada and Europe.
This growth can be attributed primarily to new entrants. While only 24 asset management firms were included in the 2012 RIA report, 41 are included in the 2014 report — a 71% increase.
In a similar trend, at the start of 2012, there were only 12 Canadian investment manager signatories to the UN-supported Principles for Responsible Investment. Now there are 30.
Policy lag
Whether in-house or through external asset managers, Canadian pension funds are increasingly adopting RI policies and practices. In total, 53 of Canada’s largest pension funds and asset managers are signatories, reporting annually on their RI activities. Those funds include the Canada Pension Plan Investment Board, the Caisse de dépôt et placement du Québec, the British Columbia Investment Management Corp., the Alberta Investment Management Corp., the Ontario Teachers’ Pension Plan and the Healthcare of Ontario Pension Plan.
In some countries, policy has been behind practice. But with a growing body of evidence that ESG considerations have an impact on financial performance, Britain, Australia, France and Germany now require investment decision-makers — both money management firms and pension funds’ in-house asset managers — to disclose the extent to which they take these factors into account.
Read: Impact investing is a nascent field for pension funds
The Ontario government recently introduced similar legislation in an amendment to the Ontario Pension Benefits Act, requiring pension plan administrators to establish a statement of investment policies and procedures with “information about whether environmental, social and governance factors are incorporated into the plan’s investment policies and procedures and, if so, how those factors are incorporated.”
Increasing pressure on asset owners to mitigate risks from climate change and other ESG factors, along with legislation, are certain to boost RI adoption in Canada — especially if other provinces follow Ontario’s example.
Deb Abbey is chief executive officer of the Responsible Investment Association.
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