More than 250 representatives from pension funds, asset managers, banks, academics, NGOs and even a senator came together last week in Toronto for Responsible Investor’s inaugural in-person Canadian conference to dig into the current and future state of sustainable finance.
Although slightly late to the party, in recent years Canadian investors and regulators have been ramping up their efforts to position the nation as a leader in the space. From the development of a green taxonomy and the creation of a national equivalent of CA100+ to hosting the COP15 conference on biodiversity, a swathe of initiatives and policies are being rolled out.
The ESG conundrum
Kicking off the conference with a bang, the first panel debated whether ESG investing in its current guise can change the world.
In her role as moderator, Mona Naqvi, global head of capital markets strategy as S&P Global Sustainable1, noted that it is a bruising time in ESG. She pointed to the range of criticisms being levelled against it, including The Economist‘s claim that ESG stands for “nothing more than exaggerated superficial guff”.
One of the most vocal critics of ESG, Tariq Fancy, was on the panel. BlackRock’s former chief investment officer for sustainable investing acknowledged that there is much within ESG that is material, as well as important for society – but quickly reverted to detailing the concept’s shortcomings.
He said: “At its worst, ESG not only doesn’t change any of the incentives in the system… it seems to paper over the fact that we haven’t done that yet.”
In particular, he flagged the risk of greenwashing by asset managers. “If there’s no regulation, there’s going to be an incentive in the market to take the most commoditised products that have the thinnest fees and paint it green,” he said. “And that’s exactly what is happening in the passive markets.”
At the same time, Fancy took a tough line on the current anti-ESG pushback in the US, which he alleged is also driven by “the narrative and opportunity to sell products”.
As he noted: “Somehow Larry Fink represents the leftist view. How does that make any sense?”
Responding to Fancy, Bruce Simpson – a senior adviser to McKinsey on ESG/Purpose – conceded that there is “a lot of bullshit out there”. “With a lot of passive ESG funds which are labelled ESG, when you dig under the bonnet or the hood you find a bunch of companies which aren’t really ESG companies,” he said. “That’s true.”
Nevertheless, he stressed that the issue is “not the concept, but the execution”.
Climate finance legislation
The need for action by policymakers – including, but not limited to, regulation – was a key theme of the conference.
There was praise for the Sustainable Finance Action Council (SFAC), which was set up in May last year to bring together the public and private sectors, but more action by the Canadian government was called for.
During the keynote interview, Senator Rosa Galvez provided an update on an act she introduced earlier this year.
The Climate-Aligned Finance Act would – among other things – give exposure to new fossil fuel infrastructure and extraction the highest possible risk weighting for capital requirements, all other exposure to the sector would be given an increased weighting.
She said support for the proposal had been “overwhelming”.
“We had a first round of endorsements from organisations. We have – I would say – a dozen senators who have verbally expressed their support. But of course, in everything there are obstacles and challenges. We have to take the bill and take it to the committee. And unfortunately, in some of the committees, there is a lack of diversity.”
She called on financial institutions to push and engage their representatives.
Standards development and social focus
RI Canada overlapped with the October meeting of the International Sustainability Standards Board (ISSB), providing another topic of discussion for delegates.
In particular, the potential for the Canadian Sustainability Standards Board (CSSB) to bring a local perspective to the development of international standards was of keen interest. The CSSB is expected to be fully operational by April 2023.
On the social side, many discussions on and off stage flagged the importance of ensuring a Just Transition and the engagement of indigenous communities – unsurprisingly, given the make-up of Canada’s economy and population.
An example of action already being taken on this is Climate Engagement Canada (CEC).
Launched in October 2021, CEC is coordinated by Canada’s Responsible Investment Association, the Shareholder Association for Research and Education (SHARE) and Ceres.
The aim of the initiative is to drive dialogue between the financial community and corporate issuers to promote a Just Transition to a net-zero economy. Its 27 founding members include RBC Global Asset Management, Alberta Investment Management Corporation, Addenda Capital, Manulife Investment Management, BMO Global Asset Management, Scotiabank and University Pension Plan Ontario.
The 40 firms selected for engagement operate across the Canadian economy in the oil and gas, utilities, mining, agriculture and food, transportation, materials, industrials and consumer discretionary sectors.
Kevin Thomas, CEO of SHARE, noted that the CEC is attracting attention from outside Canada. “We’ve been approached by organisations in other jurisdictions and other areas of the world that want to look at it,” he said.
Finally, there were several nods during the two-day conference to the need to focus on biodiversity. Panellists and delegates said they are following developments around the Taskforce for Nature-Related Financial Disclosures (TNFD), as well as the upcoming COP15 on biodiversity, which will be held in Montreal in December.
RI has two more conferences scheduled this year. On 22-23 November, we will be in Singapore for RI Asia. Then on 6-7 December, RI USA will be back in New York.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: