Money in hands with leaf growing

Responsible investment (RI) assets in Canada increased to $3.2 trillion by the end of 2019, up from $2.1 trillion at the end of 2017, according to a new report from the Responsible Investment Association (RIA).

The report found that RI assets accounted for 61.8% of the $5.1 trillion domestic assets under management (AUM) at the end of 2019 — up from 50.6% of total domestic AUM in 2017.

The RIA surveyed 104 asset managers and owners for its report, and used data from the Canadian Institutional Investment Network, the Investment Funds Institute of Canada and the OECD to calculate AUM figures.

Looking at retail RI assets, money invested in RI mutual funds increased to $15.1 billion in 2019 from $11.1 billion in 2017, a jump of 36% over two years. Assets in RI ETFs more than doubled over the same period, rising to $654.9 million from $240.6 million.

The report noted that “rising demand for RI among individual investors is being met with greater availability and diversity of retail RI products, as longer-standing RI firms expand their product offerings and newer entrants to the space launch RI products.”

Survey respondents managed $2.3 trillion on behalf of institutional clients, up from $1.7 trillion two years earlier, and $882 billion on behalf of individual investors, up from $435.7 billion two years earlier.

The top RI strategies used by respondents were environmental, social and governance (ESG) integration, accounting for $3 trillion in AUM, and shareholder engagement, accounting for $2.7 trillion in AUM. Since the two strategies are often used in tandem, the report said, there is a “significant overlap in assets.”

The top two reasons respondents gave for investing responsibly were minimizing risk over time and improving returns over time.

Other reasons included fulfilling a fiduciary duty and fulfilling investment missions, purposes and values. The report noted that the practice of “incorporating ESG is consistent with, not in conflict with, an investment manager’s fiduciary,” a concept that has now “become more widely accepted within the investment industry.”

When asked which ESG factors they consider the most, respondents pointed to climate change mitigation, labour practices and board diversity and executive pay.

Respondents were most likely to use the Task Force on Climate-related Financial Disclosures framework in their investment analysis, followed by the United Nations’ Sustainable Development Goals and Sustainability Accounting Standards Board frameworks.

“The growth of RI assets in Canada runs parallel to the growth in the number of Canadian asset owners and asset managers who are signatories to the UN-supported Principles for Responsible Investment (PRI), from 96 to 147 signatories over the two-year period covered by this report,” the RIA said.

Looking ahead, the RIA predicted growth in RI assets will continue.

“Canadian responsible investors were nearly unanimous in their positive outlook for RI, with 97% of respondents expecting moderate to high levels of growth over the next two years,” the report said. “This is an increase from the last survey, in which 87% of respondents expected moderate to high growth.”

The report also noted that a lack of reliable data “was overwhelmingly cited as the top deterrent [to RI growth], followed by mistrust/concerns about greenwashing and lack of legislative/regulatory requirements.”