ESG in Canada: Report shows investor shift from sustainability to impact

More than two fifths (43 percent) of Canadian institutional investors plan to launch impact products this year, according to research.

This was the big surprise to come out of interviews with 32 Canadian institutional investors, representing around C$4.5 tn ($3.3 tn) in assets. Researchers point to an increasingly ‘nuanced’ understanding of themes within the ESG umbrella, with biodiversity emerging as a key area of interest alongside climate.

‘The conversation is expanding from a focus on climate change and broadening to ‘environment’ as a topic area,’ note researchers in the semi-annual ESG sentiment study from Millani.

Each time the firm’s researchers conduct this survey, they ask investors to name the three ESG terms that are top of mind. While climate remains top, cited by 91 percent of respondents, it has dipped slightly from almost all investors (98 percent) in the previous survey. Looking at mentions of different ESG terms since December 2021 shows that although climate remains largely consistent, notable increases are seen in investor interest in biodiversity and human-capital issues.

Diversity, equity and inclusion (DE&I), meanwhile, has dropped notably: 71 percent of Canadian institutional investors put DE&I in their top three in December 2021. By December last year, that was down to just 25 percent.

Report authors note that this doesn’t necessarily represent a lack of interest in these issues, however, and is likely down to shifting nuances and convergence within ESG themes – particularly when it comes to themes under the human capital umbrella.

‘The upward momentum observed over the last two years for human capital, human rights, indigenous reconciliation and community relationship continues at the expense of DE&I, which has decreased in popularity,’ they write, with DE&I mentioned half as often as the broader human capital category in the most recent survey.

Double-materiality

In order to access the capital behind these shifting themes, Millani advises issuers that a double-materiality assessment will be required.

‘The growing interest in investing for sustainability outcomes and impact, added to the backdrop of evolving European legislation, means issuers wanting access to this shifting capital will need to conduct double-materiality assessments to identify both the sustainability-related risks and opportunities in their business (financial materiality) and the impacts of their business operations on people and the environment (impact materiality),’ warn the report authors.

Noemi Distefano, IR Magazine reporter, spoke to British American Tobacco (BAT) about its double-materiality journey for the latest episode of The Ticker podcast, which also features Alex Annaev, the brains behind Chat CSRD, a new AI-powered chatbot designed to help companies understand their responsibilities under the EU’s Corporate Sustainability Reporting Directive (CSRD).

‘CSRD really changes everything,’ Giulia Scanferla, BAT senior ESG reporting manager, tells Distefano. ‘It makes sustainability real, not just for the sustainability team, but also for other teams across the organization. I think sustainability and business leaders will have a bigger opportunity to catalyze this change and make individuals responsible for progress across the organization.’

No Canadian taxonomy

CSRD – which at least 10,000 non-EU companies will also have to comply with – involves reporting against the EU taxonomy, which in turn defines the economic activities that are considered environmentally sustainable.

Millani’s researchers note ‘disappointment’ among Canadian investors at what they see as a lack of progress on a Canadian taxonomy. More than six in 10 survey respondents (63 percent) say  ‘the federal government has not moved fast enough in the development of a Canadian taxonomy,’ note the study authors, ‘leading to disappointment and a sense that Canada is losing its competitive position.’