Totem pole with Mountains BC

Over four in 10 (43%) Canadian asset managers plan to launch impact products in 2024, according to a sentiment study released Monday by Montreal-based Millani.

However, the report found asset managers and investors are nonetheless concerned about the nuances between outcomes and impact, greenwashing on fund labels, the inclusion of biodiversity in environmental reporting and the slow development of a Canadian classification for green investments.

“We have witnessed some of the misleading marketing claims relating to ESG or sustainability
funds. The market must learn not to make the same mistakes as we evolve from ESG integration to sustainability outcomes and impact,” the report said.

While sustainability outcomes only include financial performance and measurability, sustainability impact also requires that the impact be made on purpose (known as intentionality) and that the investment cause a net positive impact (known as additionality).

Asset managers said the misperception of investors needing to give up financial returns for environmental good was holding back impact investing in Canada. The key to breaking this misconception is limiting greenwashing on fund labels and educating investors that integrating ESG doesn’t necessarily come at the cost of financial performance, Millani said.

Millani recommended that marketing materials for funds use clear and accurate language around impact-related claims to avoid “impact washing.” Regulators have updated their oversight of ESG products, and missteps could lead to reputational and financial implications, the report warned.

Meanwhile, biodiversity has gained traction as a key ESG focus, with 47% of respondents citing it as a top three issue, up from 18% in December 2021.

“There is a strong acknowledgment by participants that biodiversity is different than climate, yet highly
connected to the climate conversation, which explains the broadening of this conversation to ‘environmental issues,'” the report said.

Investors are demanding that issuers disclose the materiality of biodiversity to their business and begin discussing potential exposures, the study found. As a result, Millani anticipates growing disclosure expectations on biodiversity.

As for respondents’ views on the climate investment classification system as outlined in the 2023 fall economic statement, many felt the federal government was too slow in developing it, with 63% indicating they felt the announcement came too late and that Canada was losing its competitive position.

In general, respondents felt the announcement was more about delaying efforts than moving to meet market needs. The lack of an official green investment classification system means capital is waiting to be deployed to support Canadian decarbonization opportunities, the report said.

The study involved interviews in December 2023 with 32 asset owners and managers representing approximately $4.5 trillion of assets under management.