The year-old CIBC Sustainable suite of funds has brought a distinctive twist to responsible investing by making annual charitable donations part of its values proposition to investors.
When Toronto-based CIBC Asset Management Inc. launched the mutual funds and their corresponding ETF series in July 2021, it pledged that 5% of its management fees would be donated annually to one or more organizations supporting alternatives to fossil fuels.
The 2021 donation, in the amount of $12,000, went to the Pembina Institute, a Calgary-based think tank that advocates for environmentally responsible change in energy policies.
“The aim is to seek out non-profits and charities that are focused on facilitating the energy transition,” said Aaron White, vice-president, sustainable investments, with CIBC AM. “We want to align with the values of the investors that are seeking out this type of strategy, that divests from fossil fuels and is focused on ESG, and we think that is an appropriate objective for the donations.”
A CIBC AM committee selects the donation recipients, with input provided by CIBC’s community relations team. The donations could go to different institutions every year.
The CIBC Sustainable funds, which are managed internally, consist of Canadian equity, global equity, Canadian bond and three balanced portfolios. Investment in any of them, said White, “would be for an investor who is environmentally conscious, focused on facilitating an energy transition globally, and who does not want to invest in legacy energy systems.”
Though ESG considerations are integrated with the firm’s overall management approach to identifying higher-quality investments, the CIBC Sustainable funds are subject to various explicit exclusions. They have a combined total of roughly $40 million in assets under management.
Assuming the assets grow over time, the donation amounts will increase and multiple recipients will be supported. “We also plan to produce an impact report,” White said, “where those institutions that received our donations will provide us with how the money was spent, what activities they’re focused on, and ultimately how that led to outcomes facilitating the climate transition.”
The selection of donations is consistent with the funds’ investment strategy, which takes a hard line against the mainstream energy sector. The funds avoid direct involvement in fossil-fuel exploration and production, leaving weightings in the energy sector at exactly zero in both the Canadian and global funds.
Additionally, CIBC AM imposes a 10% revenue cap on companies that provide services to the oil and gas industry, and a 25% cap for oil and gas transportation. The latter restriction rules out pipeline companies but permits railway holdings.
An exception to the fossil-fuel exclusion applies to companies such as utilities that obtain at least 70% of their revenue from renewable energy sources. “We think they’re contributing to the energy transition and/or renewable economy,” said White, a former client portfolio manager who is one of the firm’s four dedicated ESG investing professionals.
Other negative screens eliminate companies whose primary businesses include tobacco, recreational cannabis, alcohol, gambling, adult entertainment, weapons manufacturing and nuclear power.
What sets CIBC Sustainable apart from other ESG-themed funds is its donations pledge. This raises the question: Why not just lower the management fees and let investors decide which causes to support?
White said the management fees for the CIBC Sustainable funds have been set at or below CIBC AM’s corresponding strategies that do not have explicit ESG mandates. The 5% allocation to donations “isn’t at the expense of the investor. This is at the expense of CIBC Asset Management’s profit,” he said. “We’re choosing to donate in alignment with our investors as an added benefit, and as an added show of our commitment to also facilitating the energy transition.”
Other firms have made RI-themed contributions a part of their pitch for new products. Among them was Toronto-based Evolve Funds Group Inc., which in May 2021 launched the Evolve S&P/TSX 60 CleanBeta Fund and the Evolve S&P 500 CleanBeta Fund.
The ETFs were designed to provide exposure to the broad Canadian and U.S. stock markets, while aiming for carbon neutrality. This was achieved largely by purchasing and retiring carbon credits at Evolve’s expense. Unfortunately for Evolve, the ETFs failed to attract sufficient assets and the company terminated them in May.
An ongoing carbon-reduction initiative is that of Calgary-based Accelerate Financial Technologies Inc. Its ETFs include the Accelerate Carbon-Negative Bitcoin ETF, which invests in Bitcoin futures. As with other cryptocurrencies, Bitcoin transactions are highly energy-intensive.
Accelerate pledges to offset more than 100% of the estimated carbon dioxide emissions attributable to Bitcoin transactions to which the ETF is indirectly exposed. It does so by allocating up to 10% of its management fee to its global tree-planting program, which has included planting mangrove trees in Madagascar.
Through the first 11 months since the ETF’s launch in August 2021, as reported on Accelerate’s website, the ETF has paid for the planting of 10,614 trees, which will sequester an estimated 2,289 net tonnes of carbon dioxide per year. “We provided an eco-friendly exposure to Bitcoin,” said Julian Klymochko, Accelerate’s CEO and chief investment officer.
Elsewhere, Toronto-based start-up Evermore Capital Inc., which in late February launched Canada’s first and only target-date ETFs, donated the first three full months of its management fees to humanitarian efforts in war-ravaged Ukraine.
Evermore’s contribution of $9,332 went to the Canada-Ukraine Foundation, a registered charity. “I had to do my part to support the people of Ukraine,” said co-founder and CEO Myron Genyk, whose parents and grandparents are of Ukrainian ancestry.