Responsible investments (RI) earned a record-breaking 71% market share in 2023, according to a report from the Responsible Investment Association (RIA) released Tuesday. That’s a 10-percentage-point climb relative to the previous year.
The figure encompasses five RI strategies: environmental, social and governance (ESG) integration, screening, stewardship, thematic investing and impact investing. RIA put the value of these assets at close to $4.5 trillion in 2023, up from $3.7 trillion in 2022.
“As responsible investing continues to evolve, we cannot become complacent,” said Patricia Fletcher, chief executive officer of the RIA, in a release Tuesday. “Collective action and advocacy are necessary to further advance the adoption of RI and mobilize capital to strengthen Canada’s economic resilience.”
The report attributed the increased RI buy-in to rising confidence in the quality of ESG reporting. More than half of asset managers — 58% — reported “somewhat more” confidence in RI than they had the previous year.
Consistent with the previous two years, the top three drivers of RI growth in 2023 were investor demand for ESG/impact, followed by risks associated with a changing climate and regulatory guidance/requirements, the report noted.
Younger investors were identified by 34% of respondents as a key driver of RI growth last year, compared to just 8% in 2022.
However, the report revealed that there is still skepticism of RI. Concerns about greenwashing, lack of standardized ESG disclosure frameworks and performance concerns were identified as the top deterrents to growth in RI.
“As the profile of the industry grows, further alignment on definitions and practices will be crucial to maintain investor trust and build on current momentum,” the report said.
Respondents were asked if there should be an RI standard for advisors. About 64% said there should be either a mandatory or voluntary standard, while another 13% said RI knowledge should be a requirement in existing advisor designations.
Moreover, the report found that minimizing risk over time remained the No. 1 reason why organizations consider ESG factors when making investment decisions. Improving returns over time and fulfilling fiduciary duty were cited as the second and third reasons, respectively, in line with the previous year.
The ESG factors asset managers consider remained unchanged relative to the previous year. The top five factors were greenhouse gas emissions, board diversity and inclusion, climate change mitigation, equity, diversity and inclusion and human rights.
Expectations for the future growth of the RI industry were slightly down year-over-year, the report said, with 62% of respondents saying they anticipated moderate to high levels of growth over the next two years. That’s down from 90% who said the same in 2022.
The report was based on responses from Canadian institutional asset managers and asset owners surveyed between May 22 and July 19, 2024.