Responsible investments grew last year as a percentage of professionally managed assets in Canada while the dollar value of the assets themselves levelled off, according to a report from the Responsible Investment Association (RIA).
The 2023 Canadian Responsible Investment Trends Report said responsible investments comprised 49% of assets under management (AUM) in Canada in 2022, up from 47% in 2021.
Measured by value, responsible investments dropped to $2.9 trillion in 2022 from $3.0 trillion in 2021 during a year that saw professionally managed AUM drop 7% due to strongly negative returns from both stocks and bonds.
“I am optimistic about the future of RI in Canada and the opportunity to embrace the global momentum behind emerging tools — from disclosure standards to green and transition taxonomies — in ways that advance Canada’s priorities, including economic Indigenous reconciliation,” said Patricia Fletcher, CEO of the RIA, in a release.
The report attributed the rise in the proportion of RI AUM to a global movement to enhance sustainability reporting.
The report said asset managers’ confidence related to the quality of ESG reporting has increased in the past year, with 57% of respondents reporting “somewhat more” or “much more” confidence than they had in 2021.
However, the growing sophistication in RI continues to be accompanied by high expectations and scrutiny. The top three deterrents to growth in RI remained greenwashing, lack of standardized ESG disclosures and a lack of reliable data, the same as last year.
“As sustainability issues increasingly define investment risk and opportunity, the financial sector is codifying RI practices, ramping up transparency and reporting, and pushing for greater clarity and certainty,” Fletcher said.
The top two reasons asset managers gave for selecting responsible investments were minimizing risk and improving returns over time. Other reasons included fulfilling a fiduciary duty and fulfilling mission, purpose or values.
When asked their top ESG factors, respondents pointed to the reduction of greenhouse gas emissions, improved board diversity and inclusion, and the mitigation of climate change.
“Among the top 10 ESG factors, there is a relatively balanced spread of E, S and G,” the report said.
The top RI strategy — used by 94% of asset managers surveyed — was ESG integration, followed by corporate engagement, which was embraced by 82% of respondents.
Preferred frameworks for identifying and disclosing ESG-related risks and opportunities were the Taskforce on Climate-related Financial Disclosures (used by 66% of respondents), Sustainability Accounting Standards Board (56%), and the UN Sustainable Development Goals (51%).
As the RI industry matures, expectations for future industry growth are moderating but remain strong overall, the report said, with 90% of respondents anticipating moderate to high levels of growth over the next two years.
The Canadian Responsible Investment Trends Report was based on responses from Canadian institutional asset managers and asset owners surveyed between May 9 and July 6.