Only 10% of Canadian asset managers have impact investment offering

Only 10% of Canadian asset managers have an impact investment offering, according to a recent ESG investing survey by EY Canada.

Of the 20 major Canadian asset management firms surveyed, 10% said they are still in the early phases of integration for environmental, social, and governance (ESG)-driven products.

"Recent once-in-a-century social, political, and economic issues have accentuated an already increasing investor focus on sustainable investments, making ESG a clear key strategic consideration for asset managers across Canada," says Jean-François Gagnon, EY Canada Sustainable Finance Leader. "However, despite unanimous agreement on its importance, the extent to which firms have integrated ESG into their investment decision-making and product offerings varies greatly."

Most asset managers have been reactive to the market, according to EY, and are responding to changes in demand.

More money has been flowing into ESG-branded mutual funds in the last several years, with 2020 seeing double the amount of fund inflows of 2019. Previously, 2019 saw four times the fund inflows of 2018.

Governments and institutional clients have been the primary demand driver for ESG investing, as they hammer out carbon-cutting plans. Governments globally have been investing massively into sustainable and innovative infrastructure, including clean airplanes and affordable housing.

However, more than half of asset managers identified a lack of standardized data as the biggest challenge to ESG investment, followed by a lack of standardized taxonomies. To this end, the WEF’s International Business Council – a group of 120 global CEOs – has proposed a set of common ESG metrics to help drive global standards convergence.

Even as demand continues to grow and cleaner data and definitions become available, three-quarters of respondents expect it will take two to five years before ESG becomes fully integrated into the investment process. Only 15% indicate ESG is fully integrated into the investment process currently.

“While we’re still witnessing the early stages of its impact on capital markets, ESG represents a fundamental change to the traditional investment approach — both from a risk management and an alpha generation perspective,” Gagnon said. “As more clients start to demand the same level of transparency on their portfolio’s ESG impact as on its financial performance, asset managers who are able to deliver on both dimensions will gain a considerable competitive advantage.”