Responsible investments (RI) made up more than half (50.6%) of Canadian assets under management (AUM) in 2017, according to report published Wednesday from the Toronto-based Responsible Investment Association (RIA).
This is a significant leap forward from 2015, when RI accounted for only about 37.8% of AUM.
“Surpassing the 50% threshold marks a major milestone in the history and development of responsible investing in Canada,” Dustyn Lanz, RIA CEO, says in a statement. “Investors in Canada and around the world increasingly recognize that a company is more than just the numbers, and incorporating ESG factors into investment decisions can help to identify resilient, well-managed companies that outperform over the long term.”
The consideration of environmental, social, and corporate governance (ESG) factors has gained considerable steam among institutional investors, who value ESG investing especially for its superior risk management, the report says. Even so, advisors have work to do on the retail side, where knowledge and information gaps persist: although 77% of individual investors said they’re “somewhat” or “very” interested in responsible investing, 73% say they know little or nothing about it.
“Responsible investing has now surpassed $2.1 trillion in Canada,” Lanz says. “A lot of that money is institutional, but some $435 billion of those assets are managed on behalf of individual investors.”
Between 2015 and 2017, RI mutual fund AUM increased from $8.26 billion to $11.07 billion, or 34%. The majority of survey respondents (87%) said they expect moderate to high levels of growth in RI over the next two years.
“The writing is on the wall for advisors: Those who develop expertise in RI are positioning themselves to reap the rewards,” Lanz says.
In the survey, respondents reported that their top four reasons for considering ESG in their investment approaches were: managing risk, improving returns over time, meeting client/beneficiary demand and fulfilling their fiduciary duty.
Ranked by assets under management, the most prominent RI strategies are: ESG integration ($1.89 trillion), shareholder engagement ($1.5 trillion), norms-based screening ($981.3 billion) and negative screening ($878.2 billion).
Advisors can read the full report here.