The topic of ESG among Canadian institutional investors is still prevalent. Yet, priorities have shifted and some firms have updated their communications strategy due to the rise of ESG pushback in the U.S, according to a sentiment study released Monday by Montreal-based Millani.
The study involved interviews in June 2024 with 37 assets owners and asset managers representing $5.4 trillion in assets under management.
“It seems that we are in the midst of the inevitable growing pains associated with the formalization of new systems and structures,” Millani said. “However, it is clear that the materiality of E, S and G issues is now well understood by investors and is not going away.”
E, S and G
Between the environmental, social and governance themes under the ESG umbrella, the environmental theme, or “E,” remained the top priority for investors, with 54% of respondents mentioning environmental sub-topics as a focus for their portfolios, voting or engagements, the study found.
The social theme, or “S,” followed, with its sub-topics mentioned 29% of the time. Institutional investors recognized it as a growing market risk, the report noted, with a particular focus being understanding Indigenous rights, reconciliation and development within the Canadian business context.
Governance, or “G,” trailed behind, with its sub-topics mentioned 17% of the time.
Shifting priorities
The study also looked at four ESG focus areas including climate; biodiversity; equity, diversity and inclusion (EDI); and human capital, human rights, Indigenous reconciliation and community relationship.
Among those areas, attention on EDI decreased the most over a two-year period. It was mentioned by 51% of respondents in June 2022, but only 16% of them in June 2024.
On the other hand, attention on biodiversity increased the most during this period, with respondents mentioning it 35% of the time in June 2024, compared to 16% of the time two years prior.
ESG pushback
In light of ESG pushback in the U.S., 94% of Canadian asset managers said they have not changed their investment process, the study found. However, 46% of respondents suggested “the term is losing weight in how it is used.”
Meanwhile, 21% said politicization of the topic has led to “a thorough review” of their communications around ESG.
Asset managers said the pushback south of the border has made their jobs more difficult and has brought more scrutiny.
The study further found that asset managers used terms like “sustainable investing” or “responsible growth” to give the perception that an investment strategy has a wider scope than just “ESG.” However, 71% of respondents said they used “ESG” when referring to certain products internally because it is easier, Millani said.