Responsible Investment Industry in the Midst of Remarkable Evolution
The responsible investment industry is in the midst of a remarkable evolution, according to new data from the 2022 Canadian Responsible Investment (RI) Trends Report. Released by Canada’s Responsible Investment Association (RIA), the report tracks the national trends and outlook for RI, which refers to investments that incorporate environmental, social, and corporate governance (ESG) issues into the selection and management process.
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“Several trends are helping to strengthen practices: investors’ growing appetite for data on environmental, social and governance (ESG) issues, pressure on companies to improve transparency, and industry efforts to define and meet standards in sustainable investing.”
This year’s report confirms that RI’s recent momentum is giving way to demand for sophistication and more vigilant reporting, signaling a maturing industry. Over the past two years, the rush into RI claims has been met by forces both external and internal to the financial industry, including the reputational and legal risks associated with greenwashing and lack of clarity around ESG industry terminology and disclosure requirements.
With its updated methodology, the report affirms that RI is entrenched in Canada, with reported assets under management at $3 trillion, and 94% of respondents using ESG integration as an RI strategy. This marks the emergence of a reliable baseline for RI market share and demonstrates that ESG Integration is a fundamental tool in Canadian investors’ decision-making.
“Greater vigilance is redefining the ‘floor’ of RI assets under management. Increased clarity and alignment are necessary to shape the slope and raise the ceiling,” said Patricia Fletcher, CEO of the RIA. “RI is here to stay, but we have work to do with everyone in the investment ecosystem to get the next steps right in order to propel further growth.”
Growth expectations overall remain strong with 90% of respondents anticipating moderate to high levels of growth over the next two years. The demand for sophistication and vigilance is further reflected in investors’ future outlook, with respondents citing the top three potential deterrents to RI growth as: (1) mistrust or concerns about greenwashing, (2) a lack of standardized ESG disclosure frameworks/standards, and (3) lack of reliable data.
The report found an increase in the prevalence of all other RI strategies in addition to ESG integration, including corporate engagement, positive and negative screening, and thematic and impact investing, further pointing to the growing RI sophistication of Canadian investors. Respondents cited risk management as their top motivation for considering ESG factors.
- Survey respondents reported the top three reasons for considering ESG factors are: (1) to minimize risk over time, (2) to improve returns over time, and (3) to fulfill fiduciary duty.
- The three most prominent RI strategies by AUM are: (1) ESG Integration, (2) Corporate engagement & shareholder action, and (3) Negative/exclusionary screening.
- Climate change is an overwhelming concern for responsible investors–-who also believe it is the greatest driver for growth over the next two years.
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