Patricia Fletcher, CEO of the Responsible Investment Association since February, believes the momentum around sustainable investment and ESG standards is the biggest development in the industry right now.
“It is the foundational next step,” Fletcher said. “Without these types of measures — without having the level of transparency and comparability — we can’t take the next steps around confidence in [sustainable investment] products.”
Sustainable investment funds have been on a meteoric rise. Last year, assets under management for sustainable mutual funds and ETFs in Canada doubled to $34.5 billion, according to Chicago-based Morningstar Inc.
However, this advancement has come with growing pains as investors express concerns about greenwashing and lack of relevant disclosures from issuers.
In an essay published last year, Tariq Fancy, BlackRock Inc.’s former chief investment officer for sustainable investing, was broadly critical of ESG and of divestment strategies in particular, stating they have no real-world impact.
Fletcher said investors can influence companies via proxy voting, shareholder proposals and active engagement, and that divestment is just one part of a spectrum of responsible investment approaches.
“There’s been a lot of evolution from that article,” she said, pointing to the U.S. Securities and Exchange Commission’s guidance on climate-related disclosures and proposed amendments to ESG fund naming and disclosure rules. (See table, below.)
“[Fancy’s] point is that there is a lot of room for obfuscation,” Fletcher said, but regulation will go a long way toward eliminating that room.
The RIA had been working on its own ESG fund certification framework, but Fletcher said the initiative is “not an immediate priority” due to the wave of guidance released globally. She added that the RIA will submit comments to standard-setting bodies and regulators about their proposals.
“We have a very active role to be able to feed into the process of the creation [of global standards] and then play a role in supporting our members in the adoption as they start to implement the various requirements,” Fletcher said.
Fletcher acknowledged the risk of sustainability standards becoming watered down as the consultation process progresses, and said organizations like the RIA must advocate for the highest standards.
For example, a regulatory mandate to report Scope 3 carbon emissions will be more difficult for smaller companies with less internal capacity, Fletcher said, “but it doesn’t mean that they shouldn’t be getting there or that they can’t get there. That’s not the excuse [to water down standards].”
Fletcher hopes the recent wave of disclosure standards will make financial advisors feel more comfortable helping clients choose ESG products, or at least discussing the concept with them.
Advisors struggling to understand sustainable investments should talk to product providers about their ESG approaches and how those approaches are detailed in their fund disclosures, Fletcher said: “In the absence of common terminology and the standard regulations being widely adopted, the onus is going to be on the advisor to understand: ‘What’s the recipe? What are the ingredients? What are the approaches?’” Asking clients about their priorities — not just generating returns, but also their expectations for their investments’ environmental and social impacts — can improve client service, Fletcher noted.
Fletcher succeeds Dustyn Lanz, who is now a senior advisor with Toronto-based ESG Global Advisors Inc.
She said she’s looking to build on the organization’s “capacity and strength.
“We’re at an inflection point where we have the opportunity to open up a new chapter of our impact and reach as the marketplace in the industry has expanded,” she said.
Fletcher wants to publish the RIA’s trend report annually rather than biennially, as is currently done, to more accurately capture that growth and to report on trends.
Fletcher joined the RIA from the Institute of Corporate Directors (ICD), a not-for-profit organization where she most recently served as vice-president of education.
She began her career in 1993 as a conference producer for the Institute for International Research, a former seminar and business training organization. Fletcher went on to hold senior-level positions at Hay Group, a global management consulting firm, and the Canadian Institute, a conference production company.
At the ICD, Fletcher recently worked on climate-related governance education for boards of directors, which allowed her to see what resonates in the boardroom.
“Now, I’m sitting on the investor side of the equation,” she said.
Recent ESG developments
October 2021: CSA climate disclosure consultation for issuers
November 2021: CFA global ESG disclosure standards released
December 2021: IIROC guidance on addressing ESG in KYC
January 2022: CSA staff notice on ESG fund disclosure released
March 2022: SEC proposal on emissions disclosure released; ISSB proposed standards for general sustainability and climate-related disclosure requirements released
April 2022: CIFSC ESG fund identification framework released
May 2022: SEC proposal on enhancing disclosure to ESG fund investors released